The Returns to Insulation Upgrades: Results from a Mixed Engineering Econometric Model

Abstract

This paper estimates a new model of residential electricity demand. It differs from previous work in two ways. First, we utilize individual monthly billing data in a pooled time-series/cross-section framework. Second, we use an engineering/thermal load technique to model the household apace-heating technology. This allows more precise separation of the effects of economic variables from those of weather, and permits simulation of the effects of various conservation policies. We estimate the model using data from the Pacific Northwest, and use the results to analyze three conservation measures: a price increase, a reduction in thermostat settings, and an improvement of insulation levels. We find average rates of return for insulation upgrades of 4.9 percent for ceilings and 8.3 percent for walls.

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