The Obama Administration is making energy efficiency a major instrument in its climate/global warming policy. For example, half of the reductions that the Environmental Protection Agency (EPA) projects are needed to meet its Clean Power Plan for existing power plants come from demand-side energy-efficiency programs. Essentially, EPA expects people to use much less electricity than before the policy implementation, which will result in less carbon dioxide emissions. With such expectations placed on this policy instrument, an economics professor at the Georgetown University decided to study the issue and found that there is no evidence that homes constructed in California use less electricity today than before the state building energy codes were enacted.[i]
California enacted its building energy codes in 1978–the first state to do so–and projected that they would reduce residential energy usage and associated pollution by 80 percent. Building codes that regulate the energy efficiency of new buildings have been an environmental policy in the United States for 40 years. In contrast to the California study, another study was performed on residential data in Florida and it found that both electricity and natural gas consumption was reduced slightly due to more stringent state standards that went into effect in 2002.
The California Study
The Georgetown University professor noted that recently built homes in California use more electricity than homes built prior to the 1978 building codes and they are larger, built in warmer areas and have more residents than the pre-1978 homes. Controlling for these issues and others, the report published by the National Bureau of Economic Research uses three approaches to analyze the energy usage in California homes: comparing current electricity use by California homes of different vintages constructed under different standards, controlling for home size, local weather, and tenant characteristics; examining how electricity in California homes varies with outdoor temperatures for buildings of different vintages; and comparing electricity use for buildings of different vintages in California to electricity use for buildings of different vintages in other states. All three approaches yielded the same result–no discernible effect.
The California building codes added $8,000 to the construction cost of a new home–essentially an $8,000 tax with what appears to be little benefit to the homeowner. Because of the rebound effect — where efficiency improvements lower energy costs which generally increases energy usage — the professor notes that the codes may still make homes more energy efficient than his analysis shows. Thus, the professor warns against using his research “as an indictment of building energy codes.”[ii]
But it is not clear from the paper what the benefits of building energy codes are if they do not result in lower energy use. This is especially true because the codes mandate an increase in the cost of buildings. The paper might not be an indictment of building energy codes, but it shows that there is no reason to mandate them if the homeowner must pay more and energy usage is not lowered.
The Florida Study
Another study evaluated the impact of a change in Florida’s residential energy code using billing data for both electricity and natural gas for residences constructed 3 years before and 3 years after an increase in Florida’s energy code in 2002. The authors evaluated the effect of a change in the energy code applied to buildings using residential billing data for the city of Gainesville combined with data on observable characteristics of each residence. Because the approach is based on actual changes in both the building code and energy consumption, it accounts for changes in construction practices and for potential behavioral responses. The authors found that the code change resulted in a 4-percent decrease in electricity consumption and a 6-percent decrease in natural-gas consumption. They further found that the differences in the energy savings by month and weather variability were consistent with reduced consumption of electricity for air-conditioning and reduced consumption of natural gas for heating. They estimated the payback period for the average residence to be 6.4 years.[iii]
Conclusion
These studies show that there is clearly difficulty in determining the savings from energy building codes. Considering the actual savings from building codes is not apparent due to the rebound effect and to new energy-consuming technologies among other factors, the fact that the Obama Administration is placing so much emphasis on efficiency in complying with its proposed rule for existing power plants is troubling. It is not clear that the assumptions EPA is making will actually pan out and yet, states will be held accountable for meeting their EPA assigned reductions under the proposal. Reality needs to be factored into the regulatory process; this is an example of how the Administration’s analysis is likely to be inaccurate when it comes to the costs/benefits that underlie its regulatory proposals. If EPA’s assumptions all turned out as poorly, the result of such failures could well be even more damaging to the economy.
[i] National Bureau of Economic Research, How Much Energy Do Building Codes Really Save? Evidence from California, December 2014, http://www.nber.org/papers/w20797
[ii] Washington Examiner, Green building codes don’t save energy, January 2, 2015, http://www.washingtonexamin Are Building Codes Effective at Saving Energy?
[iii] Review of Economics and Statistics, Are Building Codes Effective at Saving Energy? Evidence from Residential Billing Data in Florida, June 2011, http://pages.uoregon.edu/gdjaco/Codes.pdf
