A WaPo article from yesterday details state-level efforts often spearheaded by developers, to roll back or slow down building code reforms that would increase energy efficiency improvements in new housing. A key dividing line between developers and EE advocates is the upfront premium for EE improvements like better insulation, triple glazed windows, and electrical systems that would facilitate EV charger upgrades. While developers quoted in the article claim $20K (perhaps a 10% premium on home value), EE advocates argue it’s closer to $6K.

One developer who is building EE cottages in North Carolina shared this thought-provoking statement:

“We do need to wrestle with the issue of cost, but it strikes me funny that we’re measuring improvements to houses by this simple payback calculation,” he said. “Nobody is asking you what the payback is on your fancy cabinets or flooring. But energy efficiency always comes down to that debate.”

And the immediate answer is that cabinets and flooring are of course still subject to payback calculations, but the math pencils out for them because it makes the owner happy and their willingness to pay is what seals the purchase. EE investments of course can also lead to occupant happiness (or misery, especially for their absence), but there’s a solid counterfactual with knowable and recurring costs against which lump-sum, upfront expenses can be compared. Just like there’s some cash-in-hand value at which a homebuyer would be indifferent between a home with premium Puustelli cabinets and a more humble alternative replete with Hampton Bay cabinetry with $X thousand savings, homeowners at some breakpoint discount rate should be equally satisfied between a more expensive but efficient home and a cheaper yet draftier version.

So where do you stand? Assume you’re shopping for a home in a new state and don’t have any prior utility bills to evaluate monthly energy costs. A first point of contact might be the DOE’s Residential Energy Consumption Survey which is a quasi-quinquennial, national survey of nearly 20,000 households. The latest data (2020) for NC indicates an average annual energy bill of $1,731, totaling up expenses from space heating, air conditioning, water heating, and refrigeration. Assume that EE investments could shave off 20%, or $340 in annual savings. Ten years of savings with a 0% discount rate (for simplicity) are only slightly north of $3,000, and that number is decently higher than the true present value discounted at 2-3%. Holding to the side that EE improvements and energy code compliance costs do vary by state, we can alternatively look at some of the higher energy cost states and reassess when and how EE premia pay for themselves in the long run. CT is a good contender here, with an annual bill of $2,800.

Now one thing to keep in mind when reviewing the RECS data is these are all pre-pandemic responses and therefore exclude the additional energy costs associated from working at home. For households with any members in WFH status, space heating and air conditioning totals are likely to be substantially higher than the 2020 values where houses are vacant during the day and thermostats set accordingly. With many working professionals still WFH for at least part of the week, the payback period for EE improvements would shorten even further.