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Cash for caulkers

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It would be an extremely good thing if the nation's houses were weatherized. It would save homeowners money. It would lower carbon emissions. It would create jobs. The problem, however, is that it's not necessarily a rational investment for most individual homeowners to make. David Leonhardt explains:

This year, my wife and I had an energy audit done on our home. We were interested in finding out if we could save money and, given the attention that weatherizing was starting to get, I figured it could also make for good column fodder. For $400, an auditor spent hours scouring our house, with the help of a big fan he set up in our front door and an infrared camera. He produced a full-color, 13-page detailed report, informing us of the leaks in our house, and he was also willing to tell us which changes were usually a waste of money (new windows).

Even so, we are still trying to figure out which weatherization projects we should do. The whole package would probably cost $4,500 and save us something like $400 a year. We may not stay in the house nearly long enough to justify the investment.

But a straightforward, aggressive government program to help subsidize this cost would change the calculus. As Leonhardt reports, a number of such programs are being considered under the cute title "cash-for-caulkers," both because they're good stimulus policy and good energy policy. It's exactly the sort of stimulus the government should be funding: It wouldn't happen without federal support, it works in concert with other government priorities, and it's both a stimulus program and a jobs program.

Photo credit: Jahi Chikwendiu/The Washington Post.

By Ezra Klein  |  November 18, 2009; 1:05 PM ET
Categories:  Stimulus  
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Comments

National Grid in Massachusetts offers incentive payments of 75%, up to $2000 for just this kind of weatherization. And they do the initial energy audit for free. This is on top of a bunch of other rebates (programmable thermostats, on-demand hot water heaters). Mr. Leonhardt is getting hosed.

Any national program would have to integrate all the energy providers currently offering these services so as not to bigfoot the industry and turn a good idea into a counterproductive quagmire.

Posted by: andrewlong | November 18, 2009 1:21 PM | Report abuse

You thought the home buying credit was fraud-ridden. You thought 'cash for clunkers' had loopholes. This would be a far tougher program to manage. How do you do it without a huge bureaucracy and mind-numbing red tape?

Posted by: wagster | November 18, 2009 2:02 PM | Report abuse

One of the thing's that's interesting here is the obvious market failure implicit in "We may not stay in the house nearly long enough to justify the investment." If homebuyers were rational, lower operating costs would translate directly to a higher offering price.

So it's not just useful stimulus and good policy, but clearly aimed at something the market isn't capable of handling by itself.

Posted by: paul314 | November 18, 2009 2:16 PM | Report abuse

We had a free audit (city utility) done in Tallahassee and paid $500 while the city utility paid $400 to weatherize our 1972 house. After the weatherizing we could turn up our thermostat 5 degrees and feel as comfortable as before (!). We also changed all our bulbs to the energy-saving kind. We even tried to cut down on usage everywhere we could think of -- without being uncomfortable, I have to admit. Unfortunately, we haven't saved on Kilowatt hours from last year. I guess we're mostly using electricity on TVs, computers and maybe our refrigerator, which is not old (2004). Very depressing until you think that's our entertainment (even the fridge). We don't drive much, cook from scratch (electric oven but propane range [that uses electricity too]), check the Internet, volunteer from home using the computer and generally do what cocooners do: use a lot of KWH.

Posted by: tallfl | November 18, 2009 2:21 PM | Report abuse

Man, this is exactly what pricing emissions is supposed to capture. The right answer to this is heating costs reflecting carbon harm, not government control.

For what it's worth though, this DOES seem to be exactly the kind of thing that an ambitious state or region might want to encourage. I think this is a good argument for including state/local governments in emissions distributions -- they're the ones who have primary responsibility over this stuff.

Posted by: NS12345 | November 18, 2009 2:21 PM | Report abuse

Leonhardt mentions, in passing, the best part about the cash for caulkers program, but misses its signficance: most people wouldn't get around to doing it without government subsidies. As such -- unlike the case for clunkers program -- a cash for caulkers program is not merely time-shifting investment that would have occurred anyway at a later date (and thus sets up a later drop-off), but would stimulate economic activity that would otherwise never occur.

Posted by: retr2327 | November 18, 2009 2:39 PM | Report abuse

A $400 payout in perpetuity, costing $4,500 up front is the equivalent of a 8.9% return. The US government borrows at around 4.3% over 30 years. If Mr. Leonhardt's is a representative transaction forgone, there is a whole lot of leeway for government subsidy, independent of the macroeconomic benefit from increased employment, before one should begin worrying about the costs of potential fraud.

Posted by: schtevie | November 18, 2009 2:43 PM | Report abuse

Well, la de da. It's uneconomic without subsidy, it makes me feel ever so warm and fuzzy, so let's subsidize it!

Have you ever spent any time working on tax code issues? The tax code is lousy with tax credits for activities that make someone somewhere feel W&F.

Posted by: ostap666 | November 18, 2009 2:49 PM | Report abuse

Uh, I believe that there is just such a program in place now, with a 30% tax credit (up to a max rebate of $1500/household). Could take a big chunk out of that caulking job. This is in effect this year and in 2010. It's called the Federal Energy Efficiency Tax Credit.

We're in the process of replacing an inefficient water heater with an approved energy star water heater, and that 30% credit (it includes the cost of installation) was a big motivator for us to do it this year.

Visit the Energy Star website for details. It explains everything and has a complete list of approved devices and appliances. Couple this credit with the energy efficient appliance rebate coming early next year, and you could get some good deals.

Posted by: Beagle1 | November 18, 2009 3:09 PM | Report abuse

the problem described in this post is with the auditor that the author hired. any decent energy audit is going to provide estimated payback periods on any investment made - so that homeowners can choose the energy efficiency measure(s) that make the most financial sense. there is even free software available on the web for people who want to perform audits themselves.

i'm sorry that mr. leonhardt paid good money for an inferior audit, but weatherization is generally a financially feasible undertaking for most homeowners.,

Posted by: trishka_cvo | November 18, 2009 3:16 PM | Report abuse

--"a straightforward, aggressive government program to help subsidize this cost"--

Where does the money come from, Klein? From people who were going to do what with it? Use it for something that they needed? As opposed to having a guy across town insulate his pipes with it? What makes what the guy across town wants more important than what the person you're stealing the money from wants? Why do YOU think you're smarter than the guy you're stealing from? And even if you are smarter than the guy you're stealing from (and you're not, because you're a moron), what gives you the RIGHT to steal from the guy? Just because you think you're smarter? And you know what's best for your fellow Americans? Because you graduated from UCLA? I mean, what is it with you?

Posted by: msoja | November 18, 2009 3:24 PM | Report abuse

As mentioned my a number of posters here, there are quite a few programs aimed at consumers that will assist with the purchase of energy efficient appliances, weatherizing, solar conversions, etc.

What if "cash for caulkers" was limited to every single government building in this country? That would be a massive project, would still create many jobs, would save lots of energy, and the whole issue of "I may not live in the house that long" is moot.

Posted by: scott1959 | November 18, 2009 3:42 PM | Report abuse

Probably not the most popular suggestion in the world but maybe the cost of energy is still too cheap.

If they jacked up the price of that so that Leonhardt & his wfe could see a return on their investment -- not in ten years but five (or two), maybe they'd have a greater incentive to remodel.

Capitalism done right, I say.

Posted by: leoklein | November 18, 2009 4:20 PM | Report abuse

--"If they jacked up the price [...]"--

If "they" is the government, then it ain't "Capitalism", right, wrong, or any other which way. It's something else, and it's wrong.

Posted by: msoja | November 18, 2009 6:00 PM | Report abuse

My county just inaugurated a program that overcomes the concern Leonhardt had: not keeping the house long enough to pay back the investment.

Here's how the local paper described the program:

"Santa Fe County commissioners unanimously approved the state's first renewable-energy financing district Tuesday, which will allow property owners to pay for solar, wind and geothermal energy systems through their property taxes.

The county fronts the money for property owners to buy and install such systems, explained Duncan Sill, the county's economic development director. "Repayment takes the form of a special assessment on the property owner's tax bill."

The program is voluntary. Residential and commercial property owners in the county can apply to be part of the renewable energy district. Those approved are the only ones who will be assessed a special property tax to pay back a renewable energy system loan, Sill said.

The renewable energy district will allow property owners to obtain long-term loans, up to 20 years, to buy and install solar thermal, solar photovoltaic, wind and geothermal systems at low interest rates.

The systems cost thousands of dollars, and many property owners can't raise the upfront capital or find affordable loans to pay for them, Sill said. "This will make energy improvements more accessible and affordable to the public," he said."

Posted by: gaines1 | November 18, 2009 7:36 PM | Report abuse

--"The county fronts the money for property owners [...]"--

The county has collected an excess of taxes? I bet the other property owners appreciate that.

What kind of allowances for defaults are there? I hope they keep the kind of reserves on hand that the average federally regulated bank does. Or, of course, they can always add another few points to their assessments. Win Win!

Posted by: msoja | November 18, 2009 8:43 PM | Report abuse

This is exactly the type of argument that big businesses make when requesting (and usually getting) government subsidies. There's a good long-term outcome, but the short- to medium-term results aren't enough to push private companies to pursue that path, so they lean on government to help them out -- for the greater good.

Which is why it'll never pass. The government doesn't work for individuals. It's owned by the businesses.

Posted by: dpurp | November 18, 2009 9:14 PM | Report abuse

The price of energy is too cheap as leoklein suggested. What we pay for energy excludes any negative externalities...the energy companies keep the profits and push those costs on to society as a whole. If the price of energy reflected these externalities, then Leonhardt's cost/benefit ratio would change dramatically

Posted by: scott1959 | November 19, 2009 12:26 AM | Report abuse

--"The price of energy is too cheap"--

Then what are all the local charities set up to help people pay their electric bills?

--"Leonhardt's cost/benefit ratio would change dramatically"--

Would it? The cost of each and every energy-saving device that Leonhardt might want to buy would have to go up, reflecting the higher energy costs used in the manufacture of it.

Now, it may be that it works out that Leonhardt's cost benefit does change, but what about the people who can't afford electricity or gas at today's (already government jiggered) prices?

Have you ever heard the expression: There's no free lunch. How about: You can't fool mother nature. Do you know what they mean?

Posted by: msoja | November 19, 2009 12:43 AM | Report abuse

The lack of income (a decent job) has nothing to do with the cost of energy (the inability to pay utility bills). That is why we have charities that are helping out. Don't confuse the lack of income with the cost of energy.

As for no free lunch, would you not agree that the ability to pass on negative externalities is handing a bit of a free lunch to the energy industry now?

Posted by: scott1959 | November 19, 2009 10:33 AM | Report abuse

It's bitterly amusing to watch people deeply concerned about the need for thorough accountability and deyailed understanding of financing and payback mechanisms for a program like this, whose effects are pretty much only beneficial. When it comes to shoveling 10 times the amount in the direction of the people who got us into this mess in the first place, we're told that excessive oversight would shrivel their creative souls and prevent them from doing what they do best.

Posted by: paul314 | November 19, 2009 10:59 AM | Report abuse

"We may not stay in the house nearly long enough to justify the investment."

It is strange reasoning to say that an investment that amortizes in 11 years is not good enough. Americans spend most of their money in ways that return way less. One should also think that the added comfort of living in a place that doesn't have huge leaks should justify a modest expense. The unwillingness to make such a moderate investment into an improvement that has only upsides and no downsides and saves money in the long run (but that doesn't add visual appeal) is clearly irrational. Yet Leonhardt's attitude is pretty typical and I hypothesize that this attitude goes a long way to explaining the current American misery. Americans have been trained to spend their money on useless stuff and make irrational economic decisions. The American construction industry has produced mostly crap for decades. American homes are bigger than in the rest of the world and come furnished with useless mansion-like embellishments that add to the cost of maintenance. Yet the quality of building is substandard (which is what keeps them "affordable"). We'll see what it takes to ever change this state of affairs.

Posted by: carbonneutral | November 19, 2009 11:11 AM | Report abuse

--"The lack of income (a decent job) has nothing to do with the cost of energy (the inability to pay utility bills)."--

LOL? Affordability is an equation with only one term? And you get to decide the term arbitrarily. Nice work if you can get it.

--"the ability to pass on negative externalities"--

Again, it's not an equation with all the factors on one side. There is no free lunch. The "energy industry" is merely a group of individuals with all the same stakes in their own welfare as everyone else.

Posted by: msoja | November 19, 2009 11:42 AM | Report abuse

"Then what are all the local charities set up to help people pay their electric bills?"

Oh yeah, our friend msoja the free market specialist doesn't understand that pricing for affordability requires a price of zero. There will always be somebody who couldn't afford energy whatever nonzero price you assign. What we are doing, however, is to subsidize the cost of energy not just for the needy but for everybody and especially for the not so needy who consume most of it. If energy were priced according to market principles, i.e. all hidden subsidies abolished and external costs fully accounted for, it would be a lot more expensive and the poor would need more help to be able to afford a minimum living standard. But those who are not poor would finally be forced to pay the true price of their consumption and they would start making rational choices about their energy use. It is one of the many paradoxes of American politics that the right-wing "free-market" extremists oppose higher energy prices on account that people don't like to pay more. What kind of market principle is that? As a result, we are subsidizing private consumption with public money.

Posted by: carbonneutral | November 19, 2009 11:43 AM | Report abuse

--"i.e. all hidden subsidies abolished and external costs fully accounted for"--

By hidden subsides, I suppose you mean those temporary suspensions of government theft from certain people's earnings, and the valuation of those "external costs" gets to be "calculated" by properly credential collectivists? Sorry, there's too much dishonesty and usurpation of individual rights in yer argument. If the things you propose were truly necessary, you wouldn't have to resort to government force to "convince" people of it.

Posted by: msoja | November 19, 2009 1:19 PM | Report abuse

Dearest msoja, let me spell out what you just wrote so that everybody can understand it:

"Yes, I, msoja, fully support giving billions of dollars of tax payer handouts to the oil industry. Denying them these billions is just a dishonest collectivist strategy. The oil corporations have the right to get their billions and denying them their individual rights is socialism. The Free Market requires us to subsidize Big Oil. Now shut up, dishonest liberal suckers."

Posted by: carbonneutral | November 20, 2009 6:43 PM | Report abuse

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