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Retrofit This

Should we be aiming the money hose at retrofits?

Let me just come out and say it. Phew! Sanity in environmental policy is on its way to being restored. The Biden administration has not only managed to vaccinate 67 million Americans in under 100 days (I will be back at those Costco sampling stations in no time!), but across the board there are efforts underway to fix the consequences of broken markets from sea to shining sea. Our own master blogger and all star economist Catherine Wolfram is hard at work as Deputy Assistant Secretary for Climate and Energy Economics at the Treasury. Basically our entire graduating class of Ph.D. students has accepted jobs in DC. The efforts underway range from significant headway in global climate policy, to renewable energy policy, regulation of public lands, protecting our waters and coastlines to name but a few. What is great about the current push is that the administration is using good old Keynesian stimulus thinking during a time when interest rates are essentially zero, leaving little room for monetary policy. They are pointing that hose of government money straight at the energy sector – in the hopes that it will both make the economy greener and cleaner and generate lots of jobs – as we need folks to get back to work after this horror show of a year. 

While reading through the policy proposals – and again, I liked most of them – I nearly choked on my popcorn when I saw that we are going to try to retrofit 4 million buildings. I understand that fixing up homes of course requires lots of labor from contractors, and quickly injects capital into many local economies. The rationale is that it will also save a lot of energy. But….we tried to do this last time around. We have solid evidence from a gold standard randomized controlled trial (which is the way we learned that the COVID-19 vaccines work), showing that most folks don’t necessarily jump on the opportunity to get their homes retrofitted – even when it’s free to them. Further, the costly retrofits don’t save nearly as much energy in practice as engineering calculations suggested and are a very expensive way to reduce the emissions of greenhouse gases. 

Further, I just don’t understand why this should be a priority currently. If you take the long view, we are going to take a swing at making renewables + storage so cheap that fossils will only come online when it’s really hot or really really really cold. This switch to a close to carbon neutral grid is going to be plenty expensive and will generate a significant number of jobs in the short and medium run. Building retrofits are a bet on a complementary long view – namely driving down the energy demand from those buildings over a similar horizon. Whether one believes that most electricity will come to us at or close to zero marginal cost generated by gadgets that have no carbon footprint and no emissions of local air pollutants or not – these retrofits need to “beat” the very low long run cost of renewables. So if electricity will be cheap and clean, why spend so much money on something that we know does not achieve its stated goal and in the long run may not really be needed? The answer I got from my even further to the left set of friends and energy nerds is: comfort. A properly sealed house is so much more comfortable. So I wanted to try this out. 

My house was built in 1946. It’s a typical California Rancher. 1500 square feet of wooden sticks, crappy dry wall, all lacking insulation. As we are not spending money on vacations, I called my contractor and he said my best bet would be to put a foot of cellulose (blown in) insulation into the attic and insulate my floors from underneath with the pink fluffy stuff that makes you itchy, plus put a vapor barrier under the house (which really is just a big sheet of plastic to prevent humidity from leaking into the house). So we did this. The cool thing about my house is that I have installed three outdoor high frequency weather stations, and an indoor high frequency temperature and relative humidity sensor (which I had used for a very cool paper). I also like numbers.

So I recorded my natural gas consumption (I have a natural gas furnace) for the two weeks before the installation and the two weeks after the installation along with temperature indoors and outdoors to see what happened. I then fired up my old trusty computer and chased this through my statistical software. What I found surprised even me! My natural gas consumption went down by 0.58 therms per day. That is a 25% decrease! What was even more surprising is that my electricity consumption went down by 4.55 kWh per day, which is an 18% decrease! So that is pretty good. And I felt amazing about myself. If I kept up these savings for the heating season, I would save 58 cents per day on gas. The electricity consumption savings are tougher to calculate. The savings here come from the natural gas heat not turning on so frequently requiring a fan to blow the hot air around the house. The real savings probably do come from the fact that I stopped running the electric space heater in my office. But let’s call it a dollar a day, bringing me to somewhere around 400-500 dollars a year in savings. That is a payback period of 12 years. Not great, yet not terrible. But if you understand science, you should ignore my calculation and read about what Catherine and Meredith did with their weatherization RCT, which gives you credible causally valid numbers. 

But am I more comfortable? I am not so sure. When I look at the temperature measurements indoors and measures of relative humidity, things are exactly the same as before. Statistically. With data. No matter how I slice and dice the data. I also surveyed the members of my household to see whether they detected any differences in comfort. The answer was a solid “maybe – but I’m not sure”. But it definitely was not a resounding yes. And in order for this increase in comfort to be welfare improving, one should feel it. 

So what’s the takeaway? Max is going to make his money back in a decade or so and the climate is better off as Max is burning less natural gas and using less electricity. At a high cost. You’re welcome. But Max is well paid and lives in a very nice neighborhood. What about folks that are not as well off and live in much lower quality housing stock? I question whether energy efficient building retrofits are the best use of scarce public dollars. I would argue that meaningful rate reform would probably be a much more effective way of addressing inequalities while affecting a much larger population than the proposed retrofits. But what about all of those construction jobs, Max? Why don’t we point the Keynesian hose at building new, energy efficient, possibly low income housing near public transportation infrastructure instead? Seems like a much smarter bet than trying to push retrofits on folks, who are not very excited about them.

Keep up with Energy Institute blogs, research, and events on Twitter @energyathaas.

Suggested citation: Auffhammer, Maximilian“Retrofit This” Energy Institute Blog, UC Berkeley, April 19, 2021,




Maximilian Auffhammer View All

Maximilian Auffhammer is the George Pardee Professor of International Sustainable Development at the University of California Berkeley. His fields of expertise are environmental and energy economics, with a specific focus on the impacts and regulation of climate change and air pollution.

19 thoughts on “Retrofit This Leave a comment

  1. It is difficult to focus on only a small part of the puzzle at a time. The prime directive should be to end the use of earthly consumables to generate energy. The damage to air, water and soil is quickly becoming overwhelming whether the “fuel” is carbon based or nuclear. The sun is all we need to provide solar photo-voltaic energy and wind energy – as well as water-wheel power if we want to use it! We should be able to store vast amounts of energy as hydrogen in underground spaces and surface fuel tanks linked to a hydrogen fuel cell device. Hydrogen fuel cells can be used to power vehicles when lithium, for batteries, becomes too rare (expensive or mining it is too damaging to the environment) or charging is too inconvenient.
    Of course improving homes, other buildings, vehicles and industrial processes in terms of energy use should also be pursued.
    There is a key role for governments in all these processes. To protect the environment governments should raise taxes, inexorably, on damaging mining and waste materials. Tax proceeds can be used to train displaced workers for other work, promote R&D on renewable energy production, storage, use and conservation and even for tax credits to subsidize investment in energy systems with minimal environmental impact and energy conservation.
    Agencies like the CPUC should drive utilities to move away from fueled generation, develop strategies for minimizing the use of land for mining (coal, oil, gas, uranium, cow farts) and generation. All building owners should have incentives to use their roof-tops for solar PV generation. The utility should buy and sell this energy. Energy buyers should pay transmission costs. Electricity transmission should be under-grounded – safely. Hydrogen could also be transferred by pipeline if that is safer than electricity transmission over distance.

  2. “Let me just come out and say it. Phew! Sanity in environmental policy is on its way to being restored.”

    “…the costly retrofits…are a very expensive way to reduce the emissions of greenhouse gases.”

    Maximilian, given the wealth of justifiable criticisms you level at the Biden administration’s massive spending plan, I’m not ready to take a breath of relief just yet. Let’s say “Insanity in environmental policy has been identified; the patient is in a padded cell and treatment options are being discussed.”

    I feel it necessary to point out, once again, the insanity of using batteries to power an electrical grid on a sustained basis. Dreamt up by sales reps for wind turbines, solar panels, and big batteries, the technique has never been successfully implemented anywhere in the world. Desperate as advocates are for a miracle drug to cure the intermittency of solar and wind power: before spending $trillions on batteries – and yes, by any reasoned calculation that’s what it would cost to get us to Net-Zero, or Not-Zero, or whatever you want to call it – there are some preliminaries to address.

    First, it should be incumbent upon plan architects to find an experienced grid engineer, electrical engineer, or physicist to wholeheartedly endorse such a plan. Make sure they understand the purpose of batteries is not to shave the tippy-tops from demand, or to correct minor fluctuations in the AC phase or voltage, but to deliver the whole shebang – baseload to peak-load.

    Next, proponents should deliver a prototype or proof-of-concept before committing to the eye-watering sum it will add to our national debt.

    Because here is what’s happening now: solar and wind entrpreneurs are already installing batteries next to solar and wind farms to give the impression the batteries are being used to store renewable energy when there’s too much, and dispense it to the grid when there’s not enough. But in terms of ROI, it would be more profitable to store from a grid mix whenever electricity is cheap, and dispense it when electricity is expensive.

    Given charge/discharge data from CAISO, that’s exactly how it’s being used. On August 15 of last year, the day when The Lights Went Out in California, all storage in the state dispensed a maximum of 30 MW just before noon (consumption at the time was three orders of magnitude higher). When it “should” have been charging extra sunlight, batteries were correcting flucutations in solar and wind output – profiting from the deficiencies of renewable energy to avoid destruction of the CAISO grid. And because storing grid a grid mix increases CO2 emissions anywhere from 100-400 kg/MWh from efficiency losses, it represents anything but a clean energy plan.

    So let me just come out and say it. “Spending money on ‘renewables plus batteries’ makes investing in efficiency improvements the equivalent of savings bonds – the returns are not great, but it’s not flushing money down the toilet. It’s not insanity.”

  3. Max,
    Agree with you that insulating the attic lowers your heating bills. I did the same in our house in Oakland. This was a significant bang for the buck. I also got bids for insulating walls – that seemed ridiculously expensive with high payback period, not to mention would have caused immense inconvenience.

    Having said that I was surprised at your reaction!

    When I hear retrofit of buildings – what comes to mind is some weatherization and upgradation of appliances. Weatherization can mean insulating roof to conditioning the basement to just fixing leaky windows and doors as required, can help save energy cost. I agree we don’t have to go all the way out to hermetically seal buildings – it is not worth the cost, but fixing leaks is well worth it!

    Now if you have to switch from NG to an all-electric home (which hope all of us are considering) – this will entail some amount of retrofit. Adoption of higher efficiency appliances like heat pumps might need panel upgrade. Further, some homes esp. homes in disadvantaged communities might need upgrading electrical wiring.

    Even with cheap electricity rates some of the lower income homes in California’s Central Valley (for example) are faced with extremely high energy bills – with homes in various states of disrepair. and with extremely old and inefficient appliances. So if Biden’s plan of retrofitting 4 million buildings is targeted right, I think it can make a big difference!
    Shuba Raghavan

  4. I don’t think the comfort level would be expected to change for people who can afford to keep their heat and AC at comfortable levels. But if you can’t afford to and a retrofit enables you to pay the same for a more comfortable level, the comfort becomes the responsive margin.

  5. Most people are only going to switch from gas to electric appliances when the furnace, water heater, etc is at end-of-life. Do you think that measures should be taken to prepare households to do this? Buying a new gas furnace means another 15-30 years before another chance presents itself. People I know are working on this angle for building the infrastructure to be ready for this. AT the household level that means regulations or enticements at certain points in the life of a building, e.g. sale, remodel, or end of the appliance.

  6. Very diligent work to compare before and after energy consumption after retrofitting your house. However, the real question is “what cost per tonne of CO2 reduction?” This is difficult to calculate but must be attempted to determine if any CO2 reduction policies make sense.
    As far as construction jobs create, at the moment in the Bay Area there is a shortage of skilled construction workers, so adding more demand is likely to just push up construction costs.
    As far as your question “Why don’t we point the Keynesian hose at building new, energy efficient, possibly low-income housing near public transportation infrastructure instead?” Because I am aware of no data to support this as a cost-effective way of reducing CO2 production. Building higher density housing is more expensive than lower density and any new rail transit is too expensive to cost effectively reduce CO2 production. Indeed, new rail transit is so expensive it requires most people to drive in order to subsidize it. It is possible that building low-income housing next to existing rail stations and bus lines might be a cost-effective way of reducing CO2 production, but this assumes the people living there will take transit. Since most jobs are spread out around the region and not next to transit, this is doubtful. The low-income housing at the Pleasant Hill BART station was built with relatively little parking. This has been a major problem for residents as they have to try and park their cars in the adjacent BART station parking lot, or on neighboring streets. Therefore, many of them must not be taking transit but depend on driving. Research has shown that one of the best ways of expanding the jobs available to low-income people is getting them a car. Any policy of building low-income housing next to transit should be compared to getting low-income people a used electric car, and building more square feet of low-income lower density housing away from transit. This might result in more low-income housing with more job availability, with a low cost of CO2 reduction.

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