Does Retrofitted Insulation Reduce Household Energy Use? Theory and Practice.

Author:Grimes, Arthur
 
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  1. INTRODUCTION

    In 2009, the New Zealand government established the Warm Up New Zealand: Heat Smart (WUNZ:HS) scheme (1) to subsidize the costs to homeowners of retrofitting insulation and installing clean heat devices. The subsidies were designed to encourage homeowners to raise the heat levels, lower the humidity and increase the energy efficiency of their homes, with the aim of reducing household energy demand and improving health outcomes. These aims were in the context that, by Organisation for Economic Co-operation and Development (OECD) standards, New Zealand homes are poorly insulated and heated (Howden-Chapman et al., 2009; Phillips and Scarpa, 2010). WUNZ:HS provided homeowners up to NZ$1,300 (2) towards the cost of retrofitting insulation and NZ$500 towards the cost of an efficient clean heating source. (3) It was available for all houses built prior to 2000 regardless of household income (EECA, 2011a). The initial four-year program had the intention of retrofitting 188,500 houses that were insufficiently insulated (EECA, 2011b).

    The large-scale, universally available, subsidized retrofit insulation scheme was introduced at a similar time to large-scale, subsidized retrofit insulation energy-efficiency schemes in Australia, USA, Canada, and the UK. (4) Previous analysis demonstrates that price mechanisms outperform command-and-control mechanisms in delivering house insulation efficiently in newly built houses (Jaffe and Stavins, 1995). In the case under study, however, the houses are already built, but without adequate insulation. Our question is whether the addition of universally available, subsidized insulation (and clean heating) to those houses resulted in energy savings in the treated houses. The study is the first analysis to evaluate the energy impacts of this large-scale subsidy-based scheme. It complements prior New Zealand-based studies of smaller-scale schemes (e.g. Howden-Chapman et al., 2005; Chapman et al., 2009; Preval et al., 2010) and international evaluations of similar schemes such as the US Weatherization Assistance Program (WAP) (Brown et al., 1993; Schweitzer, 2005) and Mexico's "Cash for Coolers" program (Davis et al., 2014).

    We analyze the impact on monthly metered household energy use (electricity and reticulated natural gas) of those houses that had retrofitted insulation and efficient clean heating installed under the program. (5) We find that there are statistically significant reductions in metered household energy consumption as a result of insulation treatment. Installation of efficient clean heating (heat pumps) increased electricity use but left total metered energy use broadly unchanged except at higher temperatures, when energy use increased, indicating that heat pumps were being used as air conditioners. Insulation treatment is most effective in saving metered energy at colder temperatures, with no estimated savings once mean monthly temperatures reach 20[degrees]C. A comparison of our findings with ex ante estimates finds that actual energy savings from insulation are approximately one-third of modeled energy savings predicted by an engineering model. This result implies that households used energy efficiency savings to boost internal temperatures, which is consistent with findings from related studies that found health benefits arising from the WUNZ:HS scheme.

    Section 2 of the paper briefly reviews prior studies and provides a theoretical framework for the analysis. Sections 3 and 4 outline our methodology and data. Results are presented in section 5, with discussion in section 6. Conclusions are presented in section 7.

  2. BACKGROUND AND HOUSEHOLD OPTIMIZATION

    2.1 Prior Studies

    Previous smaller-scale (often targeted) New Zealand studies have found that houses with retrofitted insulation save energy (Orion Ltd, 2004; Howden-Chapman et al., 2005, 2009; Lloyd et al., 2008; Chapman et al., 2009; Phillips and Scarpa, 2010). However, prior New Zealand estimates of energy savings from installing new heating sources show only small and/or insignificant impacts (Orion Ltd, 2009; Preval et al., 2010). (6)

    Impacts of major insulation and heating retrofit programs on energy use have been described in the international literature. In particular, extensive research has been carried out on the impact of the US Department of Energy's WAP, which includes audits and a range of energy efficiency-related upgrades, including insulation retrofits, heater replacement, and draft-proofing (weatherstripping). Evaluations of the WAP include a nationwide quasi-experimental analysis of the impacts of the program on household energy use (Brown et al., 1993), and later meta-analyses of state-level evaluations of the impact of WAP on energy use (Schweitzer and Berry, 1999; Schweitzer, 2005). Schweitzer (2005) finds that participation in the WAP reduces total natural gas use in a typical household by 22.9%. (7)

    Other recent quasi-experimental international research on the impact of insulation and heating retrofits on energy use includes Hong et al. (2006), who evaluated England's Warm Front, a targeted scheme aimed at reducing fuel poverty by providing insulation and heating retrofits to vulnerable householders. They found that insulation resulted in a 10% reduction in electricity use in central-heated properties and a 17% reduction in noncentral-heated properties, but that a gas central-heating upgrade did not reduce fuel consumption.

    In addition to the evaluations of large-scale retrofit programs described above, the international literature on the impact of household heating and insulation retrofits includes a number of quasi-experimental studies. However, these studies are often limited by the absence of a suitable control group or other design issues (Sorrell et al., 2009). There are also assessments of the energy impact of insulation and heating upgrades based on engineering models (for example, Clinch and Healy, 2000; Tommerup and Svendsen, 2006). A limitation of studies based on engineering models is that predicted energy savings may be limited by the phenomenon known as the "take-back" or "rebound" effect (Berkhout et al., 2000; Howden-Chapman et al., 2007, 2009; Phillips and Scarpa, 2010; Gillingham et al., 2013; Gillingham et al., 2014; Levinson, 2014a,b). (8) The direct take-back effect represents the proportion of potential energy savings resulting from an energy efficiency upgrade that is instead "spent" via additional consumption of that energy service.

    In the context of insulation and heating retrofits, this direct take-back is sometimes known as temperature take-back, as occupants may respond to a reduction in the effective cost of heating their homes by changing their heating behavior in order to live in warmer homes. A recent analysis, based on a meta-analysis of 12 quasi-experimental and nine econometric studies, found an average temperature take-back effect of 20% (Sorrell et al., 2009). In some cases, the direct take-back effect may even result in increased net consumption of energy; this effect is known as "backfire." Backfire was demonstrated in a recent evaluation of the energy savings resulting from the replacement of air conditioners with more efficient models in Mexico as part of the "Cash for Coolers" program (Davis et al., 2014).

    Factors that may influence the degree of temperature take-back following an insulation or heating retrofit include internal and external temperatures prior to the retrofit, socioeconomic characteristics of households, and maximum heating capacity (discussed in Section 2.2). For instance, Milne and Boardman (2000) find that initial low indoor house temperatures induce households to increase indoor temperatures as a result of energy-efficiency improvements, but as temperatures rise, energy savings are increasingly taken as cash savings. In the New Zealand context, the WUNZ:HS program was predicted to produce both energy savings and health benefits from increased temperature and reduced damp, which implies that some take-back effect was anticipated. In this respect, our discussion of the take-back effect should be considered in the context of a "Policy-Induced Improvement" in energy efficiency that bundles together energy efficiency improvements with other co-benefits (Gillingham et al., 2014). Previous New Zealand randomized control trials of insulation (Howden-Chapman et al., 2007) and heating upgrades (Howden-Chapman et al., 2008) demonstrated both temperature increases and health co-benefits, and thus evidence of the direct take-back effect in action.

    Our study differs from the New Zealand and most international studies cited in that it pertains to a subsidy-based scheme that is universally available, restricted only by the requirement that participating homes had to be built before 2000. Unlike some previous small-scale New Zealand programs, there was no randomization of treatment within this government-sponsored scheme, so our methodology uses quasi-experimental methods to assess the scheme's energy impacts.

    2.2 Theory: The Household Insulation Problem

    Given the generally temperate climate in New Zealand, (9) very few houses are fitted with central heating, most households instead relying on stand-alone heating appliances. To understand the potential impacts of retrofitted insulation on energy use in this context, consider the following household problem. The household's utility (U) is defined over both internal house warmth (w) and other consumption (c), with [u.sub.w] > 0, [u.sub.c] > 0, [u.sub.ww]

    Maximize: U = u(c, w) (1)

    subject to: [p.sup.c]c + [p.sup.e]e [less than or equal to] Y (2)

    w = w(e, temp, insul) (3)

    0 [less than or equal to] e [less than or equal to] h (4)

    where Y is household income; [p.sup.c] and [p.sup.e] are the price of consumption goods (c) and energy (e), respectively; (2) represents the household's budget constraint; (3) represents the technology relating internal house warmth to energy and...

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