NESEA Lifetime Member Michael Hindle, of Passive to Positive, wrote the following post in response to the keynote address "Why We Stopped Doing Deep Energy Retrofits" on day two of the 2023 BuildingEnergy Boston Conference. For additional context, you can watch a recording of the keynote and read additional thoughts from presenter Brendan Kavanagh.

The presentation, “Why We Stopped Doing Deep Energy Retrofits” by Rachel White and Brendan Kavanagh of Byggmeister was in the proudest tradition of NESEA. It was thoughtful, grounded in years of experience and data, and demonstrated a commitment to, and the value of, ongoing inquiry and analysis. Most importantly, the presenters demonstrated flexibility, humility and honesty in being willing to change course if evidence appears to support a conclusion different from their own prior convictions. I was impressed by the thorough and wide-ranging analysis. By all these measures it was a strong presentation and a valuable contribution to the conference.

The conclusions, perhaps not surprisingly, were that spending a whole lot for a DER was not as cost effective as doing something less. It was clear that the savings in energy could not offset the increase in construction cost for aggressive, whole-house retrofits (as defined by the presenters). One compelling argument was a graph showing the effectiveness of dollars spent per kgCO2e reduction in more moderate retrofits vs deep energy retrofits. It looked an awful lot like charts of diminishing returns for insulation - graphs that many of us have been pushing aside for years while we suspend disbelief and “tunnel through the cost barrier”.

Bygmeister says they have “changed their minds” and likely won’t do DER’s anymore because they are not as cost-effective per kgCO2e kept out of the atmosphere as a moderate retrofit. Perhaps more telling was the statement that since the termination of a Massachusetts DER pilot with an attached the subsidy, the owners won’t choose them anyway.

In some ways, this presentation represents a classic case of what Donella Meadows referred to as Bounded Rationality. Bounded Rationality is the idea that most actors are behaving rationally within the confines of a defined set of boundaries with access to certain (limited) information, even if their behaviors seem irrational or are cumulatively destructive when viewed from a larger context. The arguments set out in this presentation make perfect sense to a design/build firm working with private clients who bear the full cost of construction in a society with artificially cheap energy. But those conditions are themselves the source of both the original problem and the limitations of the analysis. In a free market economic system with NO appreciable feedback mechanism reflecting the cost of environmental harm, this was a foregone conclusion.

My issue is not with the analysis itself, but rather with the systems boundaries for the analysis. By focusing on the cost-benefit concept in the context of a small business and the family-level economics of a home renovation, Rachel and Brendan draw the systems analysis boundary around that which directly affects their business practice and the owners’ decision. This is a perfectly rational approach in a normal context. But we are not in a normal context. We have blown past our limits, and now, every one of us, in every decision we make (unless we are very careful) pushes us further over the edge and worsens an impending catastrophe.

The problem is that this kind of analysis leaves half of the “cost-benefit” equation completely off the ledger. It speaks of cost to the consumer of better construction, and benefit to the same consumer of savings, but nothing of the cost born by all of humanity and ecology of NOT doing Deep Energy Retrofits, and indeed, deep carbon reductions in every sector. In this crisis, all systems boundaries between us and our world melt away and reveal only one encompassing boundary – the very real limits of the planet.

This is the ultimate example of the rather dog-eared trope of “the tragedy of the commons”. Each and every one of us benefits from air and water, a dependable climate and food production etc. and yet within the narrow frame of our economic lives, it is always “cost beneficial” to do a little less to protect those commons, or indeed to keep actively harming the commons a little more. Unless the commons are assigned a value, and every economic decision is inclusive of the cost of harm to said commons, “cost benefit” is a one-sided fiction.

In short Rachel and Brendan were applying a cost benefit analysis for a micro-economic context to make a statement about our industry’s strategic responses to a crisis of the global commons known as the atmosphere. The tool does not fit the task. It is not their fault, really. The entire global system of finance, trade and industry is still blithely playing by the old rules in the face of global catastrophe. Our economic system is structured such that nothing is deemed worth doing without a high rate of return for the financial class, while it quite intentionally, externalizes harm to people and ecology. We Americans love to privatize profit and nationalize the cost of cleaning up the devastation (think superfund sites).

This makes it very hard for any of us small fry, dependent on financial institutions and myriad industrial supply chains to make different decisions. We are all embedded in this system and can do precious little about how value is assessed or how the rules are set. However, continuing the same sort of analysis just plays into this systemic habit.

By the time the economic chickens come home to roost for the financial sector through environmental stresses on the markets, most of what we now hold dear will be seriously disrupted, and for many millions, outright destroyed. We are past the point where standard cost benefit analysis can meaningfully guide us. If we keep at it, we will soon cross another point - the tipping point - from beyond which there is no return. We are literally cost-benefiting ourselves to death.

The problem still remains, how do we, with virtually no leverage, change our own, and our clients’ assessment of “value”, “cost” and “benefit”?

Systems ecology and environmental economics attempt to understand the function and value of in-tact natural systems in units of energy and dollars, but these disciplines are very arcane, and the models of such complex systems would appear to be inherently speculative. (Not so long ago, the same was said of climate modeling.)  But one need not do advanced math to understand the fundamentals. We live in a culture that promises perpetual economic growth on a finite planet. This is obviously impossible, but our entire economic (and political) system is utterly dependent on it.

Even if we can assign the value of the ecological services and resources of a functioning geobiosphere in dollars, our economic system is blind to it unless someone can commodify them as products or services and make a profit.

The economy, like the ecological base on which it depends, acts very strangely when put under stress. Rapid growth or equilibrium can suddenly give way to collapse. The climate system is seriously stressed. Each 1 degree of temperature rise will yield a 10% drop of agricultural productivity globally, and the local effects hidden by that already frightening average would be catastrophic. No economic argument could justify millions of lives lost and disrupted by mass migration and starvation, and no economy, or concept of human dignity and justice could survive such a shock. Cost-benefit is even more of a fallacy when faced with systemic collapse.

In the discussion session at 4Pm on Wednesday, the second day of the conference, Eva Rosenbloom of RMI made the comment that perhaps the controversy was really not a controversy at all – that perhaps it was more a question of semantics. After all, she suggested, these retrofits are reasonably ambitious, and the definition of DER was perhaps a little too rigid in the first place.

I agree with Eva, that this might be more a debate about terminology and definitions, than about “doing” or “not doing” DER’s. However, rather than putting me at ease, this actually leads me to the way in which I disagree, and fairly forcefully, with the presentation’s conclusions, and the way the title and analysis frames the debate.

I enjoy the healthy skepticism and the contrarian instincts of the sustainable design and construction community, and the appropriate debate about the most effective measures.  But we are not - and certainly less informed clients are not - immune to conventional wisdom. The title of this presentation, and the fact that it was elevated to the status of a keynote will almost certainly convince many within our community that “the DER is dead” is the new conventional wisdom as they position themselves in the marketplace and work with clients. Indeed, in her Fine Home building article Rachel writes  “We did our last DER in 2017, and now we routinely talk people out of them”. This is a very unequivocal statement.  The power of the Headline and this statement will outweigh what followed in the article, which had considerably more nuance. She writes for instance that Bygmeister had shifted their focus towards trying to show clients that their programmatic need could be met within the existing square footage of their home. Well, yes! Isn’t that the first step of any good DER? Indeed, the reduction of scope can leave room in the budget for a little more insulation where it counts most. I would submit that the recipe of DER’s was never an automatic four inches of rigid continuous insulation or any other standard solution set.

We musn’t forget, our fairly enlightened corner of our industry exists within the larger context of developers, financiers and builders who really don’t give a damn and are maximizing returns come hell or high water (and they are likely to get both).  Many of these folks would gladly use the “DER is not cost-effective” premise as ammunition pushing back against Code improvements and better building standards. The logic of this presentation will only increase the resistance we face day to day, and make the goal of decarbonization that much more remote.

The argument that deep energy retrofits are not only expensive, but perhaps counter-productive because they don’t represent the “most efficient path” to decarbonization risks giving many people the perfect justification to do less than might be, in some instances, perfectly reasonable and achievable. In a gut retrofit or a renovation where siding replacement is needed regardless, the obstacles to “going deep” may really not be so great. There is enough confusion amongst our clients who want to do the right thing, and this argument provides a devastatingly simple bumper sticker to shut down such opportunities. Our community’s otherwise laudable focus on efficiency, in this instance risks blinding us to the absolute fact that every kg of CO2e avoided counts, wherever it can be achieved, and the atmosphere really doesn’t care how “efficiently” it was accomplished.

The efficiency argument may justify doing marginally better rather than radically better, because marginal improvements are more “scalable”. But in absolute terms, scaling up inadequacy more efficiently, just means even more inadequacy.

Some will even say that it is unjust to spend less “efficient” carbon mitigation dollars on an upper middle class clients house because it would be better spent on an affordable housing project, despite the very obvious fact that those dollars, if not spent by that particular upper-middle-class client on a DER, will not, in fact, be redistributed to lower income housing. Why don’t we encourage them to use their resources for something that has benefits for all?

The efficiency test, it seems to me, should really only be applied where the same dollar can be allotted to different kinds of projects through subsidy or direct government action. Even then, cost benefit is not a useful tool unless it chooses the right time frame (before the tipping point) and an appropriate goal (an absolute ceiling on carbon emissions to prevent reaching the tipping point) and a fair share allotment of responsibility to achieve that goal. Until then, I will hold off on making any suggestion to anyone that we don’t need to do all we can.

It will surprise no one that a very reasonable and measured response was offered by Marc Rosenbaum in the discussion period on Wednesday afternoon. He made the correct statement in my view that all projects are different, and each retrofit will have its own appropriate mix of opportunity and compromise. He also movingly pointed out that we spent more on the wars in Iraq and Afghanistan than it would take to retrofit every building in the US, which is to say that we are not averse to spending money in this culture, we just love to spend it in the wrong places and where it will yield generous profits to a few.

If we are to change course, stop spending money in the wrong places, and are to have hope of a just and livable future, we must all try our very best to look beyond the bounds of our rationality, and try to quantify and communicate the cost of failing to do what is actually necessary. We will make mistakes. Models will be wrong. And we can admit as much. But in our communications with each other, policy makers, the world of finance, and our clients, we must try to force the cost of failure onto the balance sheet. 

My proposal is this: whenever any of us does a cost-benefit analysis for a NESEA presentation or anywhere else, we should add a column for the cost of carbon in terms of the cost of ecological and social collapse. It will be inevitably incomplete, but we have to show a cost of carbon (and carcinogens and bioaccumulating neuro toxins – and the list goes on) against the cost of better design and construction to frame the debate properly, even if the market does not recognize those values as real (yet). 

Perhaps NESEA could resurrect the Systems Thinking track at conferences to explore the systems dynamics driving our current system and how we can all get our hands on some “leverage points”, and collectively start to bring this vertiginous socio-economic flight of profligacy and hubris in for something resembling a soft (and survivable) landing. We have to get our heads out of the prevailing paradigm and imagine it’s alternative – or we will inevitably remain stuck in our current, delusional fiction.

For my part, I will continue to focus on Deep Energy Retrofits (loosely defined) as an essential part of our path to decarbonization. Our small company will approach every project with the goal of doing whatever is possible to create the lowest operational, and lowest embodied carbon project conceivable within the limits of our client’s ability. And where they cannot go the full mile, we will help them understand the possibility of master planning for zero carbon over time, as future renovations are needed or future funds become available.

It gives me quite a lot of hope (that risks being snuffed out if “the death of the DER” becomes conventional wisdom) that in our practice we have had a sudden groundswell of inquiries from middle-class families with normal, modest, suburban homes wanting to do everything they can to make their homes climate friendly. We have told them upfront that they will most likely not make the money back. Each one of them has said “that isn’t why we are doing it. We want to help fight climate change.” Please! Do not do anything to convince them that this is not a worthy goal. The mindset of these people is literally the antidote to our current market-based madness of extraction and destruction of common resources.

I have read that John Maynard Keynes, while acknowledged as a brilliant economist, rarely did any math. He did however use a very holistic economic imagination to describe the benefits to the collective well-being of allocation of resources to less tangible, but powerful things like education, clean air in cities, and a functioning environment. To suggest pre-emptively that it just doesn’t make sense to do as much as we can for the climate (maybe a DER) is to circumscribe our creativity, and our client’s conception of what is possible. And if there are two things we need now, it is creative ambition, and a belief that saving ourselves and the biosphere is still possible - and perhaps the recognition that doing less cost-effective things may indeed be the most worthwhile decision any of us could make.
 

Michael Hindle, MFA, CPHC
07/05/2023

More:

• Watch video of the Keynote address
• Read Brendan Kavanagh's blog post on this subject