When a member of Congress asked the Energize America team to transform its concepts into material ready for Congressional action, this diary opened discussion at DailyKos on the household economics of fossil fuel efficiency.

Act XVII, "The Home Efficiency Act", originally mixed education and financial incentives to promote energy savings:

1. Tax credits to offset the costs of energy efficient home improvements;
2. A national campaign to demonstrate CFL benefits; and
3. government insured energy efficiency loans for property owners within EA Community-Based Energy Investment bond localities.

Energy saving is one of two fundamental strategies to reduce GHG emissions and fossil fuel dependencies. The other is fuel type replacement such as solar energy. These strategies are complementary. But their perceived value to households lacks definition in the marketplace. Uncertainty about cost-effective attributes of energy saving and the affordability of energy efficiency investments undermine household commitment to reducing energy consumption.

To encourge the rate at which households adopt energy savings and efficiency the newly minted "Efficient American Homes of 2007 Act" seeks the right policy to help households make the "easy" choice.

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So far The Re-Energized Energize America effort has moved policy discussion forward by building on lessons learned from demonstrations of renewable energy production and distribution around the country. The Neighborhood Act introduced bond measures to finance dual efficiency/production. The Net Metering discussion began by raising the concept of linking Smart Meters and Net Metering.

The Home Efficiency Act as written in 2006 indirectly supports those objectives by promoting foundational "energy cents". The Act consists of three provisions.

C The Light. One provision was budget for a direct mail campaign, fulfilled by local utilities, to promote incandescent replacement with two CFL bulbs. CFL lighting reduces electricity consumption and GHG emissions dramatically. Many local utilities run CFL education and rebate programs. For example LADWP over the past 4 years has distributed more than 300,000 CFLs to residential customers, resulting in estimated energy savings of approximately 17,000,000 kWh or about $1.8M. A conservative estimate of the cost of a federal “C the Light” campaign to reach every utility customer once is $762M. [1].

Financial incentives for property owners. The Act provided incentives to improve energy efficiency of durables, HVAC equipment, insulation, and shell in the form of tax credits for project completion. According to AHS 2005, 78.8% of existing housing was older than 20 years. 85% of home HVAC was fueled by electricity and gas; considering the life of a furnace is 25 years, homeowners may not make replacement of the inefficient equipment that they purchased with their property a top priority. A high-efficiency, gas-fired furnace costs about $1,000, excluding installation; The fed credit is $150.

Changing US Tax Code directly benefits 70% of households.[2] Energize America measures significantly improved the value of eligible projects specified by the Energy Policy Act of 2005 by raising the maximum applicable rate to 50% of the total cost of any one project. Currently, each type of improvement has its own tax credit maximum, e.g. $200 for window system replacement, where total household tax credit is limited to $500 for the period. H.R. 6111, The Tax Relief and Health Care Act of 2006, extended the current benefit period to Dec. 2008. H.R. 5206 and S. 2677 (110th) are expected to extended certain provision into 2012.

Similarly, tax credit for installation of renewable power systems -- solar thermal, PV, or fuel-cell-- is capped at $2,000, roughly 10% of the estimated cost for fuel-type replacement, or investment-grade "home improvement".[*] S. 590 and H.R. 550, comprising Securing America’s Energy Independence Act, are expected to extend to 2016 and revalue the “investment tax credit” (ITC) of renewable systems: applying $1,500 and $1,000 per 1/2 kW capacity of solar and fuel-cell, respectively, while capping incentive at 30% of total project cost. SEIA estimated that new demand for solar energy would create 55,000 jobs, displace four trillion cubic feet of natural gas, saving American consumers $32 billion over equipment lifetimes (20 years). Four trillion cubic feet of natural gas: hold that thought.

Maintenance of effort. Finally, the Act provided home energy efficiency standards for FHA- and FmHA-insured mortgages originating within a Community-Based Energy Investment Act bond locality -- "Special provisions will exist for redevelopment zones and other financially-stressed American communities which have lower thresholds for local financing." This measure assures household conformation for bond issue.

In practice, the Act wouldn't be making new rules. But it could create a program to simplify lender to borrower matching. Energy Efficient Mortgages (EEMs) describe new and re-fi loans insured by FHA, Fannie Mae, Freddie Mac, and the VA.[3] Utility companies, EPA/DOE, and financial services firms market EEMs to borrowers. Eligible home improvements range from $6,000 to $20,000 in value. The cost of the improvement must satisfy financial hurdles; energy savings must be rated cost effective. Government financing requires a HERS audit.

But some lenders who specialize in EEMs also promote EnergyStar brand audits, mortgages, certified homes, appraisers and contractors. For example, EFS is loan program serviced by Wisconsin Energy Conservation Corp that markets both EnergyStar and white-label government-backed EEMs directly to borrowers, utility customers, or housing associations in several EnergyStar Home Performance states. Qualifying energy efficiency improvements vary by state -- a south-facing addition, radon detectors, wood per-heat water heating, “renewable energy systems” ...

So where are we going with this Act?

If it were possible for government to engineer a low-cost, high-impact, Big Box package of energy savings, The Efficient American Homes of 2007 should be it.

• Optimize household tax credits, “rebates,” and lending
• Target household adoption of renewable power by state
• Redirect objectives of state and federal agencies that source grants and financial services

However, the Act is fuel-neutral, while the markets for household finance and energy are not.

According to AHS 2005, less than 1% of household HVAC was solar powered. The number of households that used solar power for water heating was nearly 8x HVAC, but still represented less than 1% of all household fuel types. 16% of households used oil, wood, coal, bottled gas, kerosene or (ominously) “Other” to warm themselves. 52% of household HVAC was gas-fired, 32% electric (AC, grid); 55% of water heating was gas-fired, 39% electric (grid). [4]

In 2005, the entire solar energy market was worth $745.5M. The value of total collector shipments increased 33% to $45.8 million in 2005 from $34.3 million in 2004. The total value of PV cell shipments had grown nearly 40% to $701.7 million in 2005. But commercial buyers dominated PV sales growth, while collector exports (to Germany!) and domestic pool heating (nearly 92% of total shipments) dominated household end-use.[5]

By contrast, between 2000 and 2005 so-called “alternative energy” manufacturers collected $315Bn for R&D from private and public investors. So far the US government has contributed $5Bn (4%). US oil and gas companies invested $98Bn (in themselves), of which 88% was earmarked for N.A. “frontier” hydrocarbons, “to help meet projected U.S. [alternative] energy demand growth of 34%” over a 20 year period beginning 2000.

$31Bn (23%) of total R&D was directed to end-use, of which $15Bn (11%) was non-hydrocarbon. 31% of non-hydrocarbon end-use represents capitalization of fuel-cell tech for cars. In other words, all investors –including fed contributions-- put a total of $10.35Bn into “home efficiency” R&D on the supply-side. That figure represents a 3% share of all investments in “alternative energy”. [6]

Given the generally accepted assumption that a “home reference” combination of retrofits reduce household utility expenses by 30%-50%, the Act currently positions households to continue financing fossil fuel consumption. Is this "marketing" legislation more politically realistic than it is financially sound over the long term?

:: The Act In review

Strong. Generous “investment tax credit” minimizes household debt that underlies a payback period used to justify energy saving purchases. Linking federal funds with state-based and local utility "rebates" further reduces reliance on household equity financing. That could increase energy saving participation rates. And the cash benefit of lower monthly utility bills are easy to calculate.

Strong. The federal 2008 budget is cutting funds for popular EnergyStar initiatives. In future, "cost to own" programming could do more by bundling high-efficiency HVAC and debt for low-to-mid-income households as well as property owners of multi-unit housing. EnergyStar brand performance is well established in Home Performance Centers (CA, CO, ID, IL, MA, ME, MO, NJ, NY, OR, TX, VT, WI, WY). To be fair, terms available to bond holders should be easily accessible to households in underfunded utility service areas and prospective Home Performance states. 40 states have net metering rules; 20 of these are IOU-types.

Weak. “C The Light” duplicates advertising dollars spent by DOE/EPA and local utilities on education campaigns. Budget here might be better spent developing Community-Based Energy Investment Act knowledge products and optimizing existing EnergyStar referral services.

Faint The Act has no provision for household waste management, local recycling, or appliance reclamation.

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Expansion of renewable production has depended heavily on the value of customers’ choices of end-use. Looking back at 2005, it could be easy to characterize energy efficiency as a luxury item -- based on “affordability” per kWh and as compared to gas or grid-power, oil, wood, coal, bottled gas, and kerosene. That’s something to keep in mind as we ponder the return on the $315Bn investment in “alternative energy” since 2000. Let’s focus on how that $5Bn of fed tax revenue could be spent more efficiently to help homeowners buy clean systems.

::Notes
[1, 2, 4] 108,872,000 households x $7.00/DM package (assuming wholesale price of 2 CFL bulbs, printing, and mailing); 2005 estimate, "American Housing Survey for the US: 2005", US Census, HUD, and DOC, Aug 2006 HTML | pdf; 74.9M homes are owner occupied; 33.9M homes are renter occupied. 64% of all homes are detached, single-family
[3] "Financing an Energy Efficient Home"Federal Citizen Information Center; National Home Energy Rating System (HERS) score card
[6] “Oil and Gas Industry Investments in Alternative Energy, Frontier Hydrocarbons and Advanced End-use Technologies,” Robert Bradley et al (2006) pdf|HTML

*.The Home Efficiency Team Tester, Dave, put this “incentive” to purchase renewable energy to the test on his own home, somewhere above the 40th parallel.
My monthly demand averages about 200 kWh, and I live in one of the least sunny zones . I would need a 2.8 kW rated system, retailing for $18,463, along with mounting rails at about $319 each, for a total of $19,739. Add in the sales tax, and this initial parts amount is $21,564. I'm not sure how much the installation would be for roof mounting these things, and then getting an electrician, but this project would easily be more than $25,000.