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Solving the Energy Efficiency Quandary

New research showing dismal results for energy efficiency in homes highlights the need for performance-based measures.

American industries have done a good job of becoming more efficient. According to a new report from the American Council for an Energy-Efficient Economy, the energy intensity of the U.S. economy (measured in BTUs consumed per dollar of GDP) has roughly halved since 1980. Energy use in the United States rose by 26 percent from 1980 to 2014, according to the group—a period when the U.S. GDP went up 149 percent.

Making homes more energy efficient has proved more difficult—and harder to measure. While the energy intensity of the residential sector has gone down slightly in recent years, the increase in average house size (along with greater use of home electronics) has meant that overall energy consumption by households has continued to rise, according to the U.S. Energy Information Administration. That has fueled a search for more effective residential efficiency programs—and intensified the debate over their benefits relative to their costs.

That debate has gotten hotter since the release, in late June, of a study by researchers at the University of Chicago and the University of California, Berkeley. Entitled Do Energy Efficiency Investments Deliver? Evidence from the Weatherization Assistance Program, the study examined 30,000 Michigan households participating in the federal Weatherization Assistance Program (WAP), which has provided free home upgrades like insulation and weather stripping to low-income households since 1976. The results were striking: “The costs to deploy the efficiency upgrades were about double the energy savings.”

The results challenge the conventional wisdom that energy efficiency measures provide a cost-effective path to conservation and reduced carbon emissions. And the study has provoked an outpouring of reactions that range from the indignant to the dismissive.

Critics have focused mainly on two arguments: they say that the economists (Michael Greenstone of Chicago and Meredith Fowlie and Catherine Wolfram of Berkeley) failed to account for WAP’s non-energy benefits, such as the health, comfort, and safety of the residents, and that the evidence from a single program targeting low-income households in one state doesn’t necessarily apply to other energy efficiency measures, such as smart thermostats, solar water heaters, and the like.

There’s plenty of counter-evidence: the Google-owned smart-thermostat provider Nest, for example, has highlighted a series of studies—from Nest subsidiary MyEnergy, the Energy Trust of Oregon, and Vectren—indicating that Nest devices reduce energy use by 13.9 to 15 percent for cooling and 10 to 12 percent for heating, savings users 9.6 percent on gas bills and 17.5 percent on electric bills.

Greenstone and his coauthors responded to the criticisms in a July 7 blog post. The weatherization program, which has served more than seven million homes, “is a compelling setting to learn about the returns to energy efficiency investments,” they say. “If one is attempting to assess the performance of commonplace residential energy efficiency investments on a large scale, there may be no better option.”

According to many proponents of energy efficiency, however, this debate misses the central point: they say engineering models suggest that projected savings from efficiency programs are often overstated, and that such programs should be measured by actual savings at the electricity meter.

That’s the aim of CalTRACK, a California effort to create a transparent energy efficiency marketplace by using data from electricity meters to track actual savings and adjust projections to match performance. Supported by environmental groups and utilities such as Pacific Gas & Electric, CalTRACK is based on the Open Energy Efficiency Meter, a technology standard designed to help businesses, homeowners, utilities, and regulators reliably calculate the savings from energy efficiency projects.

Measuring those savings is not simple, notes Matt Golden, an energy finance consultant for the Environmental Defense Fund, because you have to calculate the difference between what actually happened and what would have happened in the absence of the efficiency measures. But it’s vital to creating a market where energy efficiency can be accounted for and financed like new generation capacity or any other energy resource.

“In this model, energy efficiency gets baked in,” Golden says. “You don’t have to debate whether it’s the most cost-effective way to save energy and lower [greenhouse-gas] emissions—the market will figure it out.”

CalTRACK and similar pilot programs could “spur private sector innovation and investment by building a market for efficiency,” according to comments from the Natural Resources Defense Council to the California Public Utilities Commission, enabling energy efficiency programs to be financed on the basis of projected cash flows, just like new power plants. That sounds a lot better than arguing over the costs and benefits of providing free insulation to low-income households.

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