We can do a lot to fix America’s energy future and put people back to work by weatherizing light commercial buildings and homes of all income levels including those facing foreclosure without increasing the national debt…

We can reach more buildings and save more energy for middle class and poor alike if we could write weatherization contracts that would tie repayment to the electrical bill rather than the owner’s credit or home-equity or to government handouts and all their paperwork.

As many as 60% of the homes and small commercial buildings in America could reduce their energy bill by $600 per year if they received a weatherization package that cost $5,000 or less and could be paid off with a $50 a month payment. Energy Star licensed HERS raters would filter out the inappropriate houses where $5,000 would not yield enough savings to pay back the $600 per year so as to maintain customer satisfaction.

For-profit banks could make low interest micro-loans marketed and collected through the homes electric bills. The work can be performed by existing private home insulation companies under the supervision of existing licensed Energy Star HERS raters and state energy offices. The cost would be collected through the monthly power bill, saving taxpayers the cost of the work, meaning that more work could be done, and more jobs created, over a longer period of time while saving the stimulus plan money for other priorities.

The government could work through state energy offices to implement the project by facilitating the loan contracts and bundling them into securities for re-sale to banks and investors. Since the loans would be secured by the electric grid connection and would not result in a cost increase to the electric consumer the banks risk (and interest rates) would be low and the program would be applicable to people with bad credit, renters, small businesses, and even homes with no equity or in foreclosure. Once the loan was paid back (or if energy prices increased) the savings would go to the consumer.

The idea has been published at much greater length as a blog by Fine Homebuilding Magazine: http://finehomebuilding.taunton.com/item/4860/a-modest-green-proposal

Many people have contacted me for clarification as a result of the Fine Homebuilding article; my responses to those questions are below:

If the savings are there for the taking why aren’t homeowners already doing it?

There are several factors at play here. First, many are unaware of the magnitude of the opportunity esp. in envelope improvement and are unwilling to spend money for an energy audit and would rather just blindly keep paying too much for energy.

When they do hit the home equity line or savings account for energy upgrades they tend to get sold on 20 SEER heat pumps and tankless water heaters without consideration of envelope opportunities that would have a better payback (like putting a V-8 in a car with four flat tires.) Or they add insulation to their attics without air ceiling the ceiling plane first (adding insulation to a wall with an open window.)

Many of us see our home equity loans as “emergency money” and annual bonus money as “fun money.” Neither of these categories lend themselves to duct sealing, energy audits, and insulation upgrades. They just aren’t sexy enough to attract discretionary spending.

Finally many of the homes and light commercial properties that need the most help aren’t owner-occupied. They’re rentals, and landlords are singularly un-motivated to spend time and money to reduce their tenant’s energy bills.

So we need a system that gets people into an energy audit and weatherization package that is no money down and no net change in monthly cost to the occupant with no impact on that sacred home equity line. There is a socio-economic component to energy policy here that must be taken into account. The default option is to continue to waste fuel living in a drafty, uncomfortable home with unhealthy indoor air.

Is it necessary to require the utilities to handle the payments?

We need an alternative way to encourage weatherization projects. Even though these investments can pay for themselves people are resistant to making the investment. People in Washington seem to be focused on giving weatherization away to the poor or giving tax credits to the middle class. But there is no need to spend tax money on something that will pay for itself and the issue becomes more urgent when we are talking about borrowed deficit spending. We need to get the best bang for our tax dollar that we can especially when the plan is to let the kids pay for it.

But we shouldn’t expect the utilities to do more than insert the information flyers to targeted neighborhoods in their monthly statements and forward the monthly payments to the state energy office for processing. They can get some benefit from the good press of playing along with this plan to reduce demand for their products but the people who really stand to profit are the insulation and weatherization contractors who will do the work.

Can we design it so the loans provide significantly greater payback than the payments?

In many cases this will be the case. But I don’t think it makes sense to exclude a building from the project due to the fact that the savings are only just equal to the payment. As energy costs go up the savings will increase. I think a case can be made that participation in the program should be extended to buildings where the break even point is at a 15% increase in energy cost. But I agree that there will be unhappy customers if the savings are significantly less than the cost.

Each building will need an energy audit before and after.

This is an important part of the plan. In many cases though the first energy audit will not include a blower door and duct blaster test. No point in testing a house with open gaps in the ceiling and floor and duct work in an advanced state of decay. Every house will get a post weatherization test showing what has been accomplished and what other options the owner might take to continue the work beyond the scope of this program. The weatherization contracts should also give the State Energy Office access to before and after energy bills for research and monitoring purposes.

The post weatherization HERS rating may become valuable if the house is offered for resale as many areas may soon require an energy disclosure when listing a house for sale as they require a termite report now. The raters providing these reports would be licensed by DOE Energy Star and follow up sample auditing of their work would be performed by the state energy offices on an annual basis similar to the way the pesticide applicators get spot soil samples taken annually to verify proper pesticide application.

Who’s going to pay for all these energy audits?

The people with the most to gain from this program are the insulation and weatherization companies who will be doing the work. They would hire the licensed HERS raters to go into neighborhoods to line up as many weatherization contracts as possible. The cost of this auditing and sales push would be covered by the companies doing the work but the auditors would be licensed and third party verified for quality assurance.

What happens to the monthly payment if the house goes into foreclosure or is sold?

The weatherization payment goes with the electrical connection to the next owner in the same way it does now and similar to arrangements made for buried propane tanks. If, on purchasing a house, you decide to switch to a different propane company you would need to buy out the contract on the buried tank. If a seller wants to convey a house un-encumbered by the weatherization contract it would need to be paid off at the closing. If the electric bill goes un-paid the power gets shut off and the payment goes into default until the bill is paid and the power turned back on.

What do you mean by saying that people of all income levels are too hand-to-mouth to afford a $5,000 weatherization package, doesn’t hand-to-mouth imply low income?

Welcome to America. Many people with $100,000 plus incomes are solidly middle class but chronically live beyond their means due to bloated home equity and credit card debt etc. Many of the relatively new McMansions they live in were built to the lowest code-legal standard and would benefit greatly from $5,000 worth of weatherization. Our energy problems are not limited to low income homeowners and the solutions won’t be either.

Where is the money going to come from and what’s in it for the lenders?

This proposal does ask the federal government to send more money for staffing to state energy offices. It does not ask utilities to loan money to their customers or for anyone to make zero interest loans. However, since the penalty for not making your monthly weatherization payment is that you get your electricity shut off the loans are very low-risk. State energy offices should be able to bundle quantities of these $5,000 micro loans into securities that can be sold to banks and other investors at an attractive interest rate that would be included in the monthly payment. The electricity companies could also earn a small processing fee for their trouble but would also gain good press from their participation.

What’s wrong with just continuing the time-honored practice of offering free weatherization to low income homeowners and tax credits to the rest of us for doing this work?

Beyond the issues of tax farming and the fly by night operators who promote shoddy work for tax credits what we need to do is grow an industry here, not just weatherize two million buildings. When we give something away, either through direct subsidies or tax write-offs, we de-value that thing in the marketplace. We create a sense of entitlement in the consumer that makes it difficult to sell that same item on the open market for a price that reflects its true value. This undermines the industry.

The solar industry has been crippled by a feast and famine reality caused by being so dependant on tax subsidies for its survival. An alternative financing strategy doesn’t undermine the value of the work. The beneficiaries of this program are paying full price for the work they are getting done, it’s just being financed creatively. By nurturing an industry we can better take advantage of economies of scale and make the service available to rich and poor and renters and small businesses alike without impacting the national debt. Why should taxpayers pay to subsidize something that pays for itself?

Won’t this create a huge new bureaucracy?

As it stands, state energy offices are chronically underfunded and need more support. They would be asked to partner with the Department of Energy, Energy Star and BPI to implement this project with training help from the existing community college systems. The money to do this would come from our taxes but the money to do the work would be paid for by the beneficiaries. We are not so much creating a new bureaucracy as leveraging what we already have to solve our nation’s problems as economically as possible. Most importantly, since these are not gifts, there is no income, need or credit verification required. It’s just a contract to have work done for a fee on a payment plan. Much less paperwork.

Why not the 2030 Stimulus Plan being promoted by Architecture 2030?

This plan and the 2030 plan can certainly co-exist, but I have 30 years of experience building high performance buildings and the 2030 plan is based on the assumption that it is pretty easy to make a building perform at 30% better than code and that 50% better is also easily attainable. My company just built a house that had a 9” thick ICF foundation, solar water heating and radiant floor with tankless propane backup, passive solar glazing, 6” foam in the walls, 8” foam in the roof and 37” overhangs for summer shading. It was still only 35% better than code. I know that 50% better than code is attainable in new construction but to make it wide-spread in renovations and to spend $96 billion a year in deficit spending in pursuit of this goal seems unrealistically optimistic to me.

I like this idea and want to help, what can I do?

Obviously, plenty of you are already finding my e-mail address and phone number thanks to the miracle of Google. So I thank you for your enthusiasm and ask that you lose the phone number. E-mail is fine, Michael@ChandlerDesignBuild.com will get to me.

But what I will tell you all is to contact your government representatives, including your state energy office and your governor’s office. Some utility companies are very receptive to this as well. If you are a member of NAHB spread it within your HBA and to your contacts at National. The building industry has benefited greatly from the recent bail-out, we would do well to promote a low-cost initiative for a change. What you can do is spread the word.

What’s next?

It does come down to dollars and cents on many levels and so long as coal and oil are subsidized such that it is cost effective to burn 100,000 BTU of coal to deliver 35,000 BTU of electricity we will continue to have a problem.

Let’s put a resource extraction tax on coal, reduce the tax subsidies on oil and divert those resources to support the solar industry instead.

Instead of end user tax subsidies on weatherization and solar let’s put the subsidies at the front end of production.

Let’s subsidize the production cost of solar and weatherization components and raw materials and let market forces drive innovation and push the price down for all consumers, not just the ones who need a tax break.

Our power grid is at the limit of expansion but instead of replacing the grid we can shift to a distributed model of electric production.

Let’s put solar PV on all government buildings and build PV shade structures on parking lots to turn them into electricity producers that put the electricity into the grid closer to where it is being taken out.

Let the cost of conventional energy rise gradually through elimination of subsidies to change the payback equation.

I’m not running for public office so I can say that I think gas should be $3.75 a gallon and coal-fired electricity should be much more expensive than it currently is.

Use government investments to deliberately nurture and build a sustainable alternative energy industry.

Control the flow of government infrastructure projects (solar office roofs and parking lots, micro-cogeneration projects) to even out the demand in the alternative energy industry to change the boom and bust cycle to a steadily expanding market.

Invest government money in open-source research to drive innovation. The possibilities in solar, quiet wind, micro-cogeneration, and electric vehicles are unimagined as yet.