Cap and Caulk: How Smart Climate Policy Can Cut Our Energy Costs

True confessions: I love weatherstripping. And programmable thermostats. And insulation—all kinds. Oh, and efficient shower heads with “Navy shower” shut-off valves. And high-efficiency appliances. And waste-water heat recovery systems. You get the idea: I actually enjoy the process of making buildings more energy wise—enjoy as in, “Yippee, it’s Saturday! Where’s my caulk gun?” So today’s topic is especially near to my heart: the role in climate policy of low-income weatherization programs and related efficiency upgrades for working families.

A quick review: climate change is economically unfair by nature; it punishes those least to blame. Auctioned Cap and Trade can counteract this injustice. I’ve already written about two ways to seize this opportunity: distribute the money from the auction of carbon allowances as equal dividend checks to every citizen (“Cap and Share“) or make sure dividends get to low-income families who are hardest hit by rising energy prices (“Cap and Buffer“).

A third option is to invest auction proceeds in energy efficiency in ways that specially benefit working families, by weatherizing homes, for example, or improving the efficiency of household appliances. (Let’s call it “Cap and Caulk.”)

Now, as much as I love this idea, I will admit at the outset that the role in climate policy of energy upgrades for working families is, if large, also limited. It can start but can’t complete the job of compensating for the unfairness of climate change.

That’s important, because many people seem to believe that low-income weatherization is all that’s needed to make Cap and Trade a win not only for climate but also for fairness. Sad to say, they exaggerate.

Still, don’t take me for a naysayer. Cap and Caulk is a gigantic opportunity: it reduces the regressive effects of high energy prices even while it tempers emissions. Along the way, it yields healthier and more comfortable dwellings and generates a modest stream of green-collar jobs. Heck, it may even keep a few families from homelessness.

The Weatherizers

Most low-income energy improvements in Cascadia—aside from what landlords and families do themselves—are carried out by community action agencies. These quasi-governmental nonprofit organizations run programs that create opportunity for low-income workers. Since 1976, the bulwark of financial support for low-income weatherization, at least in the Northwest states, has been the U.S. Department of Energy weatherization assistance program. In 2007, this program supplied more than $8 million in Idaho, Oregon, and Washington, according to data found here. Other funders also contribute, including electric and gas utilities, some state/provincial governments, and—for electrically heated homes—the Bonneville Power Administration. In Oregon, for example, the federal weatherization program provides about half of all funding.

Eight million greenbacks—or even double that—sounds ample until you think about it for, well, a few seconds. There are almost 5 million houses, apartments, and mobile homes in the Northwest states, and struggling families occupy at least a million of them. It’s astonishing, in fact, that with such a paltry sum, weatherization programs managed to pay for basic efficiency measures in about 6,000 homes a year. It’s also a paltry sum considering that we invest ten times as many public dollars in bill-payer assistance for low-income families! It’s upside down: spending more on the former would allow us to spend less on the latter.

How effective are these programs at saving energy? A decade ago, the Oak Ridge National Laboratory (ORNL), which has studied low-income efficiency programs more extensively than anyone, evaluated the state of Washington’s program. On average, homes with electric heat reduced their electricity use by 12 percent; gas-heated homes reduced their energy use by 25 percent. Pretty impressive!

Unmet Need

After three decades of public support for low-income weatherization, approximately 4 percent of homes have been treated. That’s not much! What share of homes still need treatment? Nationwide in the United States, perhaps one low-income home in three has been weatherized. In Cascadia, no one knows the equivalent figure. Dan Elliott, who supervises low-income weatherization for Oregon’s Department of Housing and Community Services, believes the state is actually losing ground. It has 210,000 families that qualify for his service and the number grows by about 5,000 a year. But last year, his program was able to boost efficiency in only 3,000 homes.

Chuck Ebert, who runs energy programs at the community action agency in Bellingham, Washington, guesses that, at current rates of investment, it might take until 2040 to finish all low-income housing units in Washington. But he also notes, “The simple weatherization jobs have mostly been done.” The remainders are harder, more expensive retrofits. They often require structural repairs along with energy upgrades.

Energy Savings

Charlie Grist, conservation analyst for the Northwest Power and Conservation Council, agrees, “the low-hanging fruit has mostly been picked in that orchard.” Consequently, residential space conditioning—insulation, window and door upgrades, better furnaces and air conditioning—account for only about 2 percent of the electricity conservation potential in the Council’s Fifth Power Plan, the region’s road map to a sustainable electricity future. And that’s not just low-income space conditioning but all residential space conditioning. From the perspective of regional electricity demand, low-income weatherization is a relative drop in the bucket.

On the other hand, the savings potential might be larger in oil- and gas-heated homes, because most conservation funding has gone toward electrically heated ones. And, even if the percentages are small, Cascadia is a big place with a tremendous amount of inefficiency in low-end housing. A lot of windows need replacing. A lot of furnaces are wasteful antiques. A lot of walls lack insulation.

Still, as Fred Gordon of the Energy Trust of Oregon points out, low-income households don’t use that much energy to begin with. Their dwellings tend to be small, for one thing. They don’t have hot tubs and landscape lighting. They keep their heaters turned pretty low. And community action agencies have been helping them insulate for three decades. Much of the energy savings potential is now in their appliances, water heaters, and the like, notes Charlie Grist of the power council, and you can’t do much to improve appliance efficiency after installation.

It’s Different Under a Cap

The truth is, low-income energy upgrades matter more to working families’ budgets than they do to the global climate. If energy savings were all that mattered, we’d do better to focus on high-income weatherization, because high-income families use so much more energy to start with. But emissions aren’t all that matters in climate policy. Fairness matters, too.

Wait! Let me say that more precisely. It’s an important point, one that some people miss: A comprehensive, economy-wide Cap and Trade system will guarantee declining emissions. That’s right, guarantee declining emissions. Conversely (and this may seem counterintuitive), a cap also all but guarantees that the economy will generate exactly as much greenhouse-gas pollution as permitted by the cap and no less. Any carbon permits freed up by efficiency programs will be the scarce and valuable commodities. If Pacific Power’s customers use less electricity, then Pacific Power will sell its excess permits to ExxonMobil or Northwest Natural or some one.

Under a cap, one thing that efficiency programs most assuredly do is lower the price of carbon pollution permits. When Pacific Power drops out of the market for certain permits, there is less demand for the permits, so ExxonMobil or Northwest Natural gets the permits for a slightly lower price. Ultimately, consumers pay lower prices than they otherwise would have. After all, consumer prices are dictated by the market value of permits.

Energy price reductions are a good thing (in a capped carbon economy), because higher energy prices are economically regressive. They’re also a good thing because high prices are politically perilous: they might prompt legislators to raise—or poke holes in—the cap.

Another thing that publically supported efficiency gains can do, if they benefit working families, is counteract the rank unfairness of climate disruption and higher prices.

Weatherization and Climate Fairness

Oak Ridge National Lab’s Joel Eisenberg has looked at efficiency upgrades for working families as a way to offset higher energy prices. He concludes that they cannot do the job alone. For one thing, Cap and Caulk is unlikely to provide working families with enough money in savings to defray the higher prices they will be paying. Even if efficiency gains keep home energy expenses level, they won’t compensate for increased expenses for transportation and consumer goods. As this chart from the Center on Budget and Policy Priorities shows, home energy price increases are likely to account for less than half of the “hit” that higher energy prices exact.

Besides, no public program of energy retrofits is ever likely to reach as large a share of working families as do cash benefits. Cap and Share and Cap and Buffer make most working families financially whole through existing mechanisms like income taxes and food stamps.

For another, it takes time to retrofit buildings and replace appliances. ORNL’s Eisenberg and Chuck Ebert of Bellingham both worry that the money for low-income energy investments will come too late. Even with a well-funded crash program, it could take Cascadia a decade to train enough weatherization crews, retrofit enough old houses, and let turnover in the appliance and mobile home stock do its job.

But auctioned Cap and Trade will generate a revenue stream that starts small. As the cap descends and energy prices rise, it could generate billions of dollars, but by then—when the funds are finally available to upgrade their homes—many working families will already be hurting financially from high prices.

Conversely, Eisenberg argues, climate dividends that cover the average cost of energy price increases for low-income families won’t suffice either. A small share of low-income families, living in older single family homes and mobile homes, have energy consumption far above the norm. For these households, home energy upgrades are essential.

For all these reasons, Cap and Caulk is a better complement to climate dividends than a substitute for them.

Let me put a finer point on that: Efficiency upgrades for low-income families are a useful tool in the climate policy toolkit. They’re not the single best tool for any one job: they’re not very efficient at trimming emissions overall, and they’re not as good as climate dividends at compensating for the unfairness of climate change and high energy prices. On the other hand, they do enough of each at the same time to warrant robust funding.

Other Benefits

Jerrold Oppenheimer, an East Coast consultant on low-income energy programs, has documented many of their side-benefits. For power and gas utilities, efficiency upgrades improve bill collection rates from low-income customers, eliminate service calls to terminate and restart utility service, and trim utility dollars spent on collections.

Communities benefit, too: utility shut offs are a relatively common reason for low-income families to move, sometimes to homeless shelters, sometimes disrupting their children’s schooling. But efficiency upgrades prevent shut offs, by making bills smaller and more predictable. So transience and homelessness abate slightly. Furthermore, low-income families spend more of their energy savings—and more locally—than do higher income energy savers. This provides more of a stimulus to local jobs than do other efficiency investments, and local jobs in working class neighborhoods are especially valuable.

Even public schools, public hospitals, and public safety benefit some. When properly implemented, energy upgrades make homes safer, more-healthful places for families. They are quieter; warmer in winter and cooler in summer; better ventilated; more fire-proof; and less prone to mold, mildew, and indoor air pollutants such as carbon-monoxide. As a result, children have better places to study, families don’t have as many illnesses, and fire departments get fewer calls.

Some of these benefits are small, but they add up. The ORNL evaluation of Washington’s weatherization efforts concluded that the diverse and dispersed benefits of the program far exceeded the costs for all but the most expensive house treatments—those where the programs spent more than $4,000 per house. And it
reached that conclusion even though it assumed the low and slow-rising energy prices of the late 1990s.

Five Strategies

Low-income energy efficiency programs bring some special but surmountable challenges. Here are five strategies for rising to them.

1. Bridge split incentives. Working families are usually renters, not home owners, so the incentives for energy efficiency are split. If tenants pay the energy bills, landlords have no incentive to invest in building upgrades. If landlords pay the energy bills, tenants have no incentive to conserve. This “split incentives” problem is a market failure so fundamental to our energy waste that it deserves a post all to itself, which I promise to write soon. Here’s a two-word preview: “green leases“.
2. Prevent upgrade sell-offs. Spending public dollars to upgrade private property can have some unwelcome effects, if we’re not careful. People who don’t need the help may appropriate the benefits. For example, the private owner of a rental unit may decide to sell the newly retrofitted—and more-valuable—building or simply raise the rent. Typically, community action agencies require owners to promise not to do these things, but we could do a better job of enforcing such contracts.
3. Anticipate the comfort “take-back.” When low-income families get upgraded insulation and heaters, they save less energy than you might expect. Understandably, they “take back” some of the savings by turning up the heat. The best study of the subject, done in the United Kingdom, found that in cold homes, about one-third of the potential savings from low-income energy upgrades never materializes, because residents raise the thermostat. This comfort take-back is not a problem if program planners anticipate it.
4. Target older mobile homes. Many working families, particularly outside of metropolitan areas, live in mobile homes. (Trailers account for nearly 10 percent of housing units in the Northwest states.) Most new mobile homes are energy smart, thanks to efforts initiated by the Northwest Power and Conservation Council 15 years ago. Older ones, however, are not. Working families who are renting their trailers often lack the funds to make a down payment on a new, efficient one, even if they could afford the monthly payments. Low-income families who own their trailers often lack the home equity to trade up to a new one. We’ll need programs specially targeted at owners and renters of old mobile-homes.
5. Break the cycle of dying appliances. As much as the region needs in-home energy retrofits for low-income families, it also needs a new generation of programs to ensure that the refrigerators and other appliances in low-income homes are upgraded to efficient new units every time they are replaced. At present, low-income families typically get a sequence of very cheap but wasteful, hand-me-down appliances that break relatively quickly. This dying-appliance cycle limits up-front expenses for cash-strapped households, though it raises their energy budgets and emissions. The Energy Trust of Oregon, working with a community action agency near Bend, developed a model for breaking the cycle. The Energy Trust and its local partner provided coupons for the purchase of new, high-efficiency fridges to low- and moderate-income households that agreed to retire their aging juice hogs. Similar programs might work for a variety of appliances and possibly even for mobile homes. (They might work for old, gas-guzzling vehicles, too. I imagine placing “bounties” on low-mileage vehicles, payable in car-sharing credits, transit passes, bicycle coupons, of down-payments on hybrids.)

Cap and Caulk deserves a place of honor in Cascadia’s state and provincial climate policies. It’s a huge opportunity to lower bills while increasing comfort and safety for working families. To seize it, we can substantially increase public funding for energy upgrades. I suggest quadrupled funding. Something like that might finish the job in a decade, generating hundreds of green-collar jobs along the way. (One reason we probably cannot go even faster, according to Chuck Ebert of Bellingham, is that we are suffering from a dire shortage of skilled and knowledgeable crew leaders.) Ideally, we’d start the funding boost immediately, even before auction proceeds become available.

And I’m not just saying that because I’m so fond of caulk guns.