Post on 25-Feb-2016
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Policies to Encourage Home Energy Retrofits: Comparing Loans and Subsidies
Margaret WallsResources for the Future
30th USAEE/IAEE North American Conference, October 11, 2011
Potential Retrofit Market
130 million houses in U.S.
97.7 million built before 1990
Source: American Housing Survey
Energy Use in Older HomesEnergy use today for average single-family home built in• 1960s/70s: 46.1 mbtu/sq ft• 2000s: 34.5 mbtu/sq ftNatural gas furnace from 1990s
average efficiency = 65%New Energy Star gas furnace > 90%---------------------------------------------Older central AC systems SEER = 6New Energy Star AC SEER > 13
Residential Energy Efficiency Financing
223 government and utility financing programs in operation in U.S.▫Types of programs:
Revolving loan funds Interest rate buydowns Loan loss reserve funds On-bill financing (utilities) Property Assessed Clean Energy (PACE)
programs
Why Financing?• Overcome first-cost hurdle for homeowner• Less costly than subsidies• Leverage private capital• Kick start private market with govt money/programs• Market failures in credit markets-------------------------------------------------------But many issues and questions• What is the cost-effectiveness of the financing
approach vis-à-vis other policy options?• Virtually no evaluation of current programs
NEMS
Residential Module of NEMS• Starts with housing stock forecast• Forecasts energy demand for 21 end uses• Equipment classes for each end use (e.g., natural gas
furnace, electric heat pump, etc, for space heating)
• Equipment type within class – efficiency and cost• Benchmarked to actual market shares• Future choices based on capital and operating
(energy) costs • Assumptions built in about equipment lifetime,
costs associated w/switching equipment classes
Policies Modeled
Subsidies and loans for high efficiency HVAC equipment and water heaters
•50% reduction in purchase cost of high efficiency furnaces, electric heat pumps, central ACs, geothermal heat pumps, natural gas and solar water heaters▫Direct subsidy▫Loan: 7-year loan, 0% interest
HVAC & water heating account for 56% of residential energy use
Results: Market Penetration
Residential Energy Consumption
Residential Energy Consumption (cont.)
Trends in Delivered Energy UsePercentage Difference Between 2035 & 2011
Per Household Total
Baseline -16.77% 5.21%
Subsidy -21.02% -0.16%
Loan -17.39% 4.42%
Residential Energy Consumption (cont.)
Reduction in Cumulative (2011-2035) Delivered Energy Use from
BaselineSubsidy 3.61%
Loan 0.52%
CO2 Emissions
Reduction in Cumulative CO2 Emissions from Baseline
Residential Sector* Total
Subsidy 1.92% 0.44%
Loan 0.34% 0.06%*Accounts for electricity-related losses
Comparison with Other PoliciesFrom 2010 RFF Study Toward a New
National Energy Policy: Assessing the Options Residential
CO2 Reductions
Total CO2 Reductions
Building codes (Waxman-Markey) 0.69% 0.14%
Full Waxman-Markey EE provisions 0.97% 0.19%
Renewable Portfolio Std -- 2.7%
Clean Energy Portfolio Std -- 2.2%
Cap & Trade -- 10%
Building policies have relatively small impact
Welfare CostsHarberger DWL triangle in equipment market
(due to subsidy/loan) in each period▫Calculate PDV (2011-2035)
Energy cost savings in each period▫Calculate PDV (2011-2035)
Net cost is the welfare cost of the policyFor loan, add cost of expected defaults
What discount rate should be used for energy savings? Depends on the extent of the “energy efficiency gap.”
Welfare Costs (cont.)
Assuming 0% default rate
Welfare Costs (cont.)
$89/ton
$50/ton
Assuming 0% default rate
Comparison with Other PoliciesFrom 2010 RFF Study Toward a New National Energy Policy: Assessing the Options
Cost Per Ton of CO2 Reduced *
Building codes (Waxman-Markey) $25
Full Waxman-Markey EE provisions $34
Renewable Portfolio Std $14
Clean Energy Portfolio Std $14
Cap & Trade $12
*With energy savings calculated at 10% discount rate.
Considering Loan Default Risks
Default rateWelfare cost of loan policy per ton of CO2 reduced
0% $891% $1022% $1255% $155
Evidence on default rates from existing programs…
Pennsylvania program:• 0.6% but FICOs very high (84%
>700)• 1.5% for FICOs 650-699
Conclusions
•Subsidies more cost-effective than loans▫Arguments in favor of loans may be
flawed Lower costs but far lower reductions in
energy and CO2 Default risks could be important
▫Caveat: need evaluations of broader loan/subsidy policies and/or more targeted policies
Conclusions (cont.)•Any policy aimed at HVAC and water heaters (and appliances, etc) will have small impact▫All new equipment is more efficient than
old so marginal energy/CO2 payoff from policy is small
•Any retrofit policy may be less cost-effective than other carbon policy options▫Stock turnover takes time