Upgrading Energy Technology - A Free-Market Solution

January 01, 2006
January/February 2006
A version of this article appears in the January/February 2006 issue of Home Energy Magazine.
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        While politicians were debating how many billions in tax breaks should go to the energy industry and how much should go to renewable resources, home inspectors have been uncovering an untapped energy resource available in millions of American homes—replacing outdated energy technology. If all homes in the United States acquired today’s energy technology, we would use 25% less energy in our homes, saving about $30 billion per year.These technologies are mass-produced, widely available, and competitively priced. They need no tax incentives, though they may cost somewhat more initially. The energy savings resulting from these technologies more than compensate for the additional cost. I can say this after many years of experience directing an energy audit company that I founded, CMC Energy Services.
        Significant improvements have been made in residential energy technology during the past two decades.Today’s air conditioners, refrigerators, and heat pumps use half as much electricity as those made 20 years ago. Compact fluorescent lights use one-third the electricity required for incandescent lights. Today’s thermal low-e windows lose much less heat in the winter and keep out more heat from the sun in the summer than yesteryear’s windows. Building codes now require more insulation than ever before. And thanks to today’s detergents, savvy consumers launder with cold water, using only 20% of the energy they previously used for washing clothes.
        Some recent events have made energy efficiency retrofits even more attractive for homeowners. There is a 10% tax credit for residential energyefficient technologies in the 2005 Energy Bill, to be available in 2006 and 2007. The new Federal Housing Authority (FHA) Streamlined 203(K) Limited Repair program, which allows the addition of $5,000–$15,000 for repairs to an FHA mortgage, includes energy efficiency improvements.
        The major hurdle to overcome is selling energy upgrades to homeowners. There are so many homes, all somewhat different, and compared to the savings for commercial buildings, the energy savings for these homes are relatively small— $450 per year on average, based on today’s energy prices. However, a window of opportunity opens up when someone buys a house—and there were 7 million such opportunities last year! This window of opportunity, the point of sale, is when the best financing terms are available to the buyer, and when most home improvement plans are made. It is also the time when inspectors perform a general home inspection and could provide an energy inspection. (For an example of a successful home energy inspection program supported by my company, see “Home Energy Tune-uP.”)
        Two key attributes give energy efficiency upgrades an edge over other home improvements. First, they create a stream of savings over time—the savings on the monthly energy bill. Second, they add to a home’s value. We estimate that a $7,000 investment in energy upgrades will increase the value of a home by approximately $10,000.These two factors make energy efficiency improvements an excellent investment, not only for the home buyer, but also for the mortgage lender. Smart mortgage lenders will finance cost-effective energy improvements more readily than other improvements, since they don’t have to re-qualify the borrower or the home. Also, by replacing costly equipment, such as a heating system, water heater, or air-conditioner before it fails, lenders and home buyers minimize future large unexpected costs that threaten timely mortgage payments.
        For homeowners, the welcome benefits of the energy inspection program are a more comfortable home, a more valuable home, and savings in energy costs. Even a homebuyer with limited means can invest in energy improvements, since financing is available for those improvements that cost less than they save.
        For other sectors of the economy, energy efficiency upgrades also create significant benefits. Home inspectors who add energy efficiency analyses to their offerings increase their income and add work during slow periods. And just as the inspection industry boomed when Realtors realized that an extra pair of trained eyes would protect them from future liability, so clients will prefer to do business with a Realtor whose inspectors can help them do an energy fix-up on their newly purchased home at no out-ofpocket cost to them.The largest overall economic payoff would be for contractors, including suppliers and installers of insulation, window replacement, heating and cooling equipment, and appliances and weatherization.
        Finally, while the Energy Policy Act of 2005 emphasizes the supply side of the energy equation, consumers still have the final say when it comes to demand. An energy inspection offers the public a clear choice. Acquire today’s energy technology for yesteryear’s homes financed by tomorrow’s energy savings, or do nothing and keep using outdated energy technology, with the inevitable result of a less comfortable home, increased air pollution, higher energy bills, more dependence on foreign fuel, and a lower resale value of the house.

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