Policy Options for Improving Existing Housing Efficiency

America's more than 90 million existing homes represent an enormous opportunity for cost-effective energy efficiency improvements. Energy experts, policy makers, and program managers in cities, states, and utilities throughout the country, however, have focused more effort on policy instruments that affect new construction than on those that could serve to improve efficiency in the existing housing stock. This is largely due to: (1) building efficiency into the design and construction of a new home is easier and often cheaper than implementing efficiency measures later; and (2) improving new construction requires the involvement of only the consumers and builders, unlike programs that focus on the existing housing stock, which require support from multiple players to succeed.

One of the key players in home efficiency improvement decisions are homeowners themselves. Without significant incentives, however, homeowners are often reluctant to invest in energy efficiency improvements because of lack of capital and uncertainty regarding many factors, including the savings that will result from specific measures, how long they will own the home, and the resale market value of the efficiency improvements. Furthermore, homeowners are often reluctant to try new technologies and generally do not trust contractors.

Landlords and renters typically have little incentive to make capital improvements. For the most part, this is the result of split incentives, where the landlord pays for energy retrofits but the tenant incurs the costs (i.e., by paying the utility bill) or, in rare cases, reaps the benefits.

The best policy or the right mix of policies to apply in a given community or state, however, will depend on a number of factors ranging from political and financial considerations to the culture of the particular community. This report explores each of these options and considers how jurisdictions might use these policy instruments to their best advantage.

Overview of Report

Following this introduction, three sections survey each of the policy options discussed above: state and utility retrofit loan programs; RECOs; and HERS programs. Each section first outlines the specific retrofit policy instrument (including the steps that a city, state, or utility can take to develop and implement the policy or program option) and then presents case studies that illustrate specific city, state, and utility approaches to designing, implementing, and marketing (or enforcing in the case of RECOs) their programs. Each section also contains a table (or tables) that summarizes the types and key characteristics of the programs presented. Furthermore, in some cases, specific tools are provided to assist policy makers and program managers in designing programs (e.g., Attachment A contains a sample energy conservation ordinance). The final section of the report compares the three programs along a number of dimensions and offers recommendations on combining these approaches.

The case studies highlighted in this report were selected based on literature review, recommendations of experts in the field, and discussions with program managers. However, some noteworthy case studies may not be included here, either because we were unaware of the program at the time of this writing or program data was limited or inconsistent. Our approach to selecting case studies included first developing a list of potential candidates. To do so, we reviewed the literature from energy efficiency studies and conference proceedings, such as the ACEEE Summer Study on Building Energy Efficiency and the International Energy Program Evaluation Conference, and consulted experts in each of the three areas surveyed. We then conducted initial research to identify those programs that either save or have the potential to save considerable energy, are broad in scope (e.g., in the energy-saving measures or participants that they target), or are innovative in their approach to program administration or delivery.

The results of this research enabled us to select a manageable number of case studies for the report. In-depth research was conducted on this set of case studies. For financing programs and RECOs, there were generally few available written sources, so we relied principally on discussions with program managers and members of the community or state in which the programs are implemented. In contrast, there is a considerable literature on home energy rating systems and energy mortgages. We drew heavily on this research, in particular the work of Farhar, Collins, and Walsh (1996), in reporting on these case studies.

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