Building Codes and Energy Policy

Concerns about energy and climate change have brought greater attention to the energy efficiency of buildings. While efforts are underway to increase the stringency of building codes, it is important to consider whether such codes effective, if they make sense on economic grounds, and how they might interact with other climate policies.

Improving energy efficiency in the built environment is now seen as a growing policy priority. In the United States, buildings account for 72 percent of electricity consumption, 39 percent of energy use, and 38 percent of carbon dioxide emissions. Energy codes are the most common policy instrument designed to affect the energy efficiency of both residential and commercial buildings. Most of the existing codes were first put in place after the 1973 oil embargo. Codes vary by state, but they generally establish a minimum energy efficiency standard for both new and remodeled construction.

Although Congress is currently at a standstill regarding climate legislation, energy codes are a central part of the two bills that have most directly shaped terms of the debate about climate policy. The Waxman-Markey climate bill (H.R. 2454) would require that by 2014, all states enact residential building codes that are 30 percent more stringent than the 2006 International Energy Conservation Code, which is currently the prevailing standard for building energy efficiency. The target then increases to 50 percent more efficient in 2017, and thereafter the bill calls for a 5 percent increase every three years until 2029.Although Congress is currently at a standstill regarding climate legislation, energy codes are a central part of the two bills that have most directly shaped terms of the debate about climate policy. The Waxman-Markey climate bill (H.R. 2454) would require that by 2014, all states enact residential building codes that are 30 percent more stringent than the 2006 International Energy Conservation Code, which is currently the prevailing standard for building energy efficiency. The target then increases to 50 percent more efficient in 2017, and thereafter the bill calls for a 5 percent increase every three years until 2029.

The Boxer-Kerry bill in the Senate (S. 1733) would also mandate increased stringency, requiring the U.S. Department of Energy to establish building code energy efficiency targets by January 1, 2014, and the bill also includes provisions for state adoption of a national building-code standard.

New Evidence on Energy Code Effectiveness

Given their current policy relevance, it is important to understand how effective energy codes are at saving energy and reducing emissions. Most of the existing evidence comes from engineering simulation models. While this approach is useful for making predictions, it fails to account for actual enforcement and compliance, changes in building practices, and the behavioral responses of building occupants. One such behavioral response is the “rebound effect,” whereby consumers in more energy-efficient residences might, for example, heat their homes more because doing so is less costly. Evidence also shows that the realized returns of energy-efficiency investments sometimes fall below those indicated by engineers and product manufacturers. To complement the engineering approach, a few recent studies provide new evidence on energy-code effectiveness by looking at actual energy consumption.

We conducted a study of the increased stringency of Florida’s residential energy code that occurred in 2002. Focusing on the city of Gainesville, we compared utility bills for homes constructed within three years of the code change—before and after—to estimate how the energy-code’s increased stringency affects energy consumption. After controlling for characteristics of the residences, those built after the code change used four percent less electricity and six percent less natural gas. We also examined how residences built under the stricter energy code differ in their responsiveness to weather fluctuations.

Together, our results are consistent with reduced consumption of electricity for air-conditioning in the summer and reduced consumption of natural gas for heating in the winter. Additionally, our estimates are statistically comparable to engineering simulations of Florida’s energy-code change, lending validity to both approaches for evaluating the effectiveness of energy codes.

In our study, we also estimated the economic costs and benefits and found that the private payback period of the energy-code change for the average residence is 6.4 years. This means that the additional construction costs imposed by the more stringent building code will pay for themselves to the homeowner in just over six years. The social payback period is 3.5 years, and this number is lower because it accounts for the avoided social costs of emissions that do not occur because of the more stringent building code.

It is worth noting, however, that the social payback calculation assumes that emissions reductions in one area are not offset by emissions increases in another, which may very well be the case if reductions are sufficiently large to affect behavior in existing or potential cap-and-trade programs. This possibility underscores the importance of considering the interaction of multiple policy instruments in order to evaluate the true effectiveness of any one.

While the results from our Florida study are likely to be representative of energy-code effects in many regions of the United States, other studies provide further evidence. In particular, a recent study used aggregated data from U.S. states to evaluate the relationship between the implementation of a state energy code and aggregate state residential electricity consumption. The study found that states with energy codes have experienced decreases in aggregate consumption in the range of three to five percent, and the decreases were largest in states with stricter codes and better enforcement. Additionally, another study, which used a billing data methodology similar to the one we applied in Florida, examined the effectiveness of energy codes in California. This study also found some evidence that energy codes are effective at reducing residential energy consumption.

Policy Implications
Recent empirical evidence supports engineering simulations that predict how energy codes can reduce energy consumption. Although encouraging, the findings do not imply that energy codes are the most effective policy to promote energy conservation and a reduction in greenhouse gas emissions.

The alternatives—a comprehensive cap-and-trade policy on emissions or a carbon tax— would increase the price of energy and therefore provide an economic incentive for conservation. Economic theory suggests that such price-based mechanisms are likely to be more efficient than direct mandates such as energy codes, because they exploit a much broader range of possibilities for emissions reductions, including, in particular, fuel switching in the power sector.

Political support for these price-based policies, however, is not very strong and recently has been eroding even further. In this context, energy codes offer a more politically feasible alternative that policymakers can pursue in the meantime. And even if a price-based policy is eventually implemented, building codes may still be a worthwhile component of national energy policy. Evidence suggests that consumers often overlook the long-term benefits of investments in energy efficiency even when the investments make economic sense—the “energy efficiency paradox.” Along with price-based incentives, therefore, mandatory requirements like energy codes may be advisable to include among the strategies for addressing energy and climate challenges.

Grant D. Jacobsen is an assistant professor in the Department of Planning, Public Policy, and Management at the University of Oregon.

Matthew J. Kotchen is an associate professor of environmental economics and policy at Yale University and a research fellow at the National Bureau of Economic Research.

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