Re-assessing the economic and analytical tools that measure and optimize households’ energy-efficiency improvements

Abstract

Since the Arab oil embargo of 1973, technologies associated with residential energy efficiency have developed from applications unfamiliar to building and remodeling contractors to recognizable techniques required by building codes. Codes specify minimum levels of energy efficiency, and installing energy-efficiency measures that go beyond code specifications have economic and environmental ramifications. Commonly used decision-making tools regarding energy-efficiency improvements for consumers are described, along with some of the pitfalls associated with these analytical methods. The purpose of this paper is to provide an argument for expanding the evaluation techniques related to energy-efficiency improvement upgrades within the home. An alternative method of evaluating energy-efficiency upgrades is proposed, which incorporates measures beyond simply monthly cost savings such as growth in house price attributed to energy-efficient upgrades.

Keywords:

• energy efficiency
• benefit–cost analysis
• lifecycle costs
• savings-to-investment ratio
• payback time analysis

Acknowledgments

The authors would like to recognize the efforts of three anonymous reviewers in providing quality comments toward strengthening this article. We would also like to address the good work of Nikki Williams in providing general editorial and copy-editing comments and suggestions over multiple drafts provided to her.

Notes

1. The time value of money is considered in these equations through the application of a discounting factor to each of the costs presented.

2. Other beneficiaries recognized as beneficiaries of such energy-efficiency adoption measures include utilities, government agencies, non-participating ratepayers, and all utility customers.

3. An example of such a circumstance would be the decision to increase the thermal mass of building walls instead of using exterior shading devices for south-facing windows.

Additional information

Notes on contributors

Joseph Laquatra

Joseph Laquatra is a professor in the Department of Design and Environmental Analysis at Cornell University. He focuses his teaching and research efforts on sustainable aspects of housing with emphases on residential energy efficiency and indoor environmental quality.

Andrew T. Carswell

Andrew T. Carswell has been with the University of Georgia’s Department of Financial Planning, Housing and Consumer Economics since 2003. His research has covered such housing topics as mortgage fraud, multifamily management and operations, housing counseling, and residential satisfaction.