Contributed by Canuche Terranella:

Peter and Kristi live in a 1915 un-insulated Craftsman house.  In the first months in their new home they kept their thermostat at 68 degrees.  In December, with their first energy bill, they learned this behavior costs $350/month. Oh the financial pain!

Energy efficiency improvements are motivated by pain.  Energy pain comes in two varieties: financial and comfort.  Most energy models are based on customers like Peter and Kristi making energy improvements to reduce wallet pain.  As soon as they’ve insulated their home they will continue to keep their thermostats at 68 degrees but consume less energy.  These models point to great reductions in energy demand based on customers with financial pain installing cost effective weatherization and insulation measures.  If utility companies can use rebates and incentives to encourage customers like Peter and Kristi to invest in improvements to their homes it will be as good as investing in new power generation equipment to keep up with demand.   The assumption is that the pain of high utility bills will motivate investment in energy efficiency improvements and decrease energy demand.

Another possibility, however, is that their twins, frugal Keith and Patsy, might choose to put off the efficiency improvements and instead turn the thermostat down to 50 degrees and put on a hat and scarf for dinner.  This choice shifts the pain from financial to temperature discomfort, a challenge for the traditional energy models.  When utilities predict savings from improvements to homes incentivized by rebates they don’t usually predict what happens when Keith and Patsy finally make energy improvements and take off their sweaters.

After saving for a year frugal Keith and Patsy install attic insulation and weatherize their home. Now they can turn the thermostat up to 68 degrees.  Their energy bills are a much more reasonable $100/ month but they are consuming more energy than they were when the thermostat was at 50 degrees.

This results in what building scientists call the rebound effect. The rebound effect describes the difference between the actual society wide energy savings after energy efficiency improvements are made and energy savings as predicted in the lab models. Sometimes the rebound effect can be so large as to even result in an increase in energy used across the society. The UK Energy Research Center studied this effect and pointed to human behavior as the key component of the rebound effect. While seemingly counterintuitive, the examples above make the point clearly for residential customers.

The commercial impact is even more striking. If a local bike manufacturer invests in a new, more efficient, welding process and can therefore produce bike frames more profitably, then it will likely build more bikes. More bikes mean greater electricity use and a net increase in demand to the utility.

Does this mean we as a society should stop investing in energy efficiency? I’d say no.   The bike manufacturer is now making more bikes every month for less energy per unit. More bike production means more economic activity for the region.  Peter and Kristi have a higher quality of life in their home and are likely more productive members of society as a result. The utility company increased the efficiency of the energy used in both cases. Overall the demand for energy may be higher but the benefit to society per unit energy used is improved. Incentive decisions must measure society benefit in addition to energy savings to decide which new efficiency programs to fund.

G2B Homes makes smart efficiency improvements to homes to help families find the sweet spot where energy savings and comfort create lower operating costs and a higher quality of life.

Contributed by Sonja Gustafson:

Dow Jones Newswires published an interesting article two weeks ago on one national homebuilder’s announcement that it will be measuring the efficiency of all its homes.  Using what it calls an Energy Performance Guide (EPG), national homebuilder KB Homes is positioning the rating along the lines of a “miles per gallon” score we are used to seeing on cars, and hopes to use this to differentiate their homes against the competition.

Although I think the EPG is imperfect because it does not account for absolute house size (that is, a big home can get as good a score as a little one, even though the larger will consume much more energy), the idea of a homebuilder asserting a measurement of efficiency is a powerful tool for both the builder and the eventual homebuyer.  For some builders, it may be a way to differentiate their product amongst plentiful competition, or be a way to highlight the company’s fundamental values.  And for buyers, it’s just another valid piece of information that they deserve as they make a major purchase decision.  In the state of Washington, we are required to disclose if a home has a leaky roof, why not leaky walls and windows?  An EPG score may help to tease out some important information about the quality of the home.

What really strikes me about this article is the reaction of another builder who is ignoring the green position.  “I will build whatever the market demands,” says Eric Lipar, chief executive of LGI Homes, a Texas-based builder. “It’s not what the public wants.”  The sad truth is that many builders have in fact built green homes only to see buyers choose something a bit cheaper, a bit bigger, a bit lower in quality.

But.  Let’s look back in order to look forward.  Remember when the public didn’t want airbags in their cars? (I know, this dates me. If you’re too young to remember, there was a big brouhaha over the “significant” cost of adding airbags to cars).  “People aren’t demanding it”, lagging automakers said.  “They won’t pay the cost.”   Then Chrysler decided to install airbags standard across the product line, and suddenly they had both a differentiating factor that made the competition look a little slow, and also played innovative market mover. Can you even find a new car without airbags anymore?  The market didn’t initially demand them; and automakers actively fought against them.  But then, data showing crash survivability emerged and the market moved, and the laggards scrambled to catch up.

KB Homes is clearly making a bet that people will come to value green, even if over time.  They are smart to use an energy rating to assert their position with measurable data.  (We at Green Canopy are happy to see a national homebuilder take this position, one that we announced in 2009 when we chose the Energy Performance Score.)  Part of why builders have not been rewarded for green is that buyers don’t know what the heck green is.  Taking a measurable position (such as energy efficiency) takes out the mystery and makes your case that much more simple to assert.

So I believe that Mr. Lipar at LGI Homes will be one of the many laggards forced to catch up as the rest of the market uses the transparency of an energy score to tease out the information that helps them make their decisions. In this Google era, people are not asking for less information.  They are not asking for less green.  And as valuable data such as energy scoring becomes more commonplace in the residential market, we think consumers will come to demand this sort of information–and the efficiency measures that drive the scores upwards.  The market is speaking, Mr. Lipar.  Move along.