Two weeks ago, the House passed the Home Star Energy Retrofit Act (HR 5019), more commonly referred to as Cash for Caulkers. A two-year program with a $5.7 billion budget, Cash for Caulkers is designed to function much like the popular Cash for Clunkers program in offering federal rebates to American consumers on home energy efficiency projects. The program has two major components. Silver Star offers homeowners up to $3,000 in rebates for simple upgrades such as new insulation, duct sealing, or water heaters. Gold Star, requiring more comprehensive energy audits and energy use reductions of at least twenty percent, offers homeowners rebates of up to $8,000.
Days after the bill left the house for the Senate, over 100 small business contractors, organized by Efficiency First and CleanEdison, gathered in Washington D.C. to advocate for its swift passage. Efficiency First is a national non-profit trade association that represents home retrofit contractors, building product manufacturers, and related businesses and organizations. CleanEdison, on the other hand, is a green job training firm that happens to be the largest training provider for the Building Performance Institute (BPI), the sole accrediting body for Home Star gold level contractors. Clearly certain private sector actors are slated to benefit directly from the bill’s passage and are seizing this critical moment. The question is, why should we be concerned?
Among the various ways to grow a nascent sector such as home energy efficiency retrofits using federal funding, Cash for Caulkers represents a highly market-centric approach. By employing consumer rebates to stimulate demand for home retrofit services, the program transfers dollars directly from federal coffers to the accounts of home retrofit contractors, building product manufacturers, green job training firms, and related businesses via consumer spending. Firms in turn are subjected to a few requirements, including BPI certification, state contractor licensing, and insurance coverage, but otherwise exercise a high level of discretion with respect to hiring and employment conditions. Through this market exchange among private parties, the federal government realizes goals of environmental improvement, consumer savings, and job creation.
Relying on market incentives to spur an industry’s growth is not necessarily problematic, except when applied to an imperfect market such as residential retrofits, saddled with problems of high transaction costs, incomplete information, information asymmetry, and split incentives. In fact, more seasoned energy efficiency experts have been steadily moving away from traditional market approaches to try social network-based approaches that build on partnerships with communities and public agencies. Given the nature of the home retrofits market, this is hardly surprising. Where scaling up energy efficiency requires extensive public buy-in and social mobilization, rewarding the strongest market players (i.e. firms and consumers best equipped to access the rebates) at the expense of a much larger body of American taxpayers appears shortsighted.
An alternative approach is for the federal government and other public agencies to assume a more central role in planning and coordinating the sector’s development is to ensure that growth proceeds in a balanced and stable manner. After all, the Home Star Bill is being enacted as a provision of the American Recovery and Recovery Act whose goal is widespread economic recovery and investment in future growth industries. As it is, Cash for Caulkers lacks the means to ensure that the estimated 168,000 jobs to be created through the program are equitably distributed and lead to viable career paths for an inclusive workforce. While the BPI accreditation requirement sets a skill standard, it advantages those best equipped to invest in the months of training and examinations necessary to complete the process. Consumer rebates likewise favor those with preexisting means to invest in home energy efficiency improvements. Meanwhile those most neglected by Cash for Caulker’s market-centered approach, as members of the most energy inefficient communities (due to the age and poor quality of housing) and a growing portion of the American workforce (i.e. the United States will be majority minority by 2050), are the largest source of growth for the industry.
Post by Lily K. Song.