When it comes to energy, the misnamed Inflation Reduction Act is mostly about tax credits, but there are a few programs that actually spend taxpayer money. A truly wild one is the $4.3 billion dollar HOMES Rebate Program.
The Program’s full title is “HOME ENERGY PERFORMANCE-BASED, WHOLE-HOUSE REBATES.” Sorry to shout, but it is all caps in the law. Let’s just call it HOMES. The program pays people to do projects that make their homes more energy efficient. Nothing new about that, but HOMES wants to base the rebate on the actual energy savings. This gets wild fast.
In principle HOMES is a fascinating energy efficiency (EE) program, because it deals with a nasty topic called “the rebound effect.” Rebound means that after installing energy efficiency improvements, people use just as much energy, or even more than before.
Since efficiency makes energy cheaper people might use more. A classic example is insulating the house then turning up the heat because it can be warmer for the same money.
There is a huge technical journal literature on the rebound effect, with thousands of studies and articles. The upshot is that rebound is a real problem that can negate a project, making it effectively worthless.
So in HOMES the rebate will be based on measured consumption before and after the EE project is done. This is easy in principle but impossible in practice, making HOMES a big mess. The first problem is that in order to measure the EE project’s true impact the before and after measurements have to be done under identical energy consumption conditions, which never happens. The second problem is that cheating is easy.
The law is extremely vague on how to do this fairly. Nor can it be done accurately since before and after conditions are never equal. The law calls for “weather-normalization” but leaves it up to the Department of Energy (DOE) and the State Energy Offices that administer the HOMES rebate program how to do it. I doubt it is possible because weather is highly variable and home energy use is very sensitive to it.
Here is all the Inflation Reduction Act says about before and after energy use measurement:
“A State energy office seeking a grant under this section shall submit to the Secretary an application that includes a plan to implement a HOMES rebate program, including a plan … to use open-source advanced measurement and verification software, as approved by the Secretary, for determining and documenting the monthly and hourly (if available) weather-normalized energy use of a home before and after the implementation of a home energy efficiency retrofit, for purposes of measured performance home rebates…”
Here is a simple version of the problem. After a homeowner’s application is accepted their energy use for a month is recorded as the before case. Then say it takes two months to complete the EE project. If the next month’s energy use is used for the after case it is in a different season.
The heating or cooling requirements will be completely different, so there is no way to tell the impact of the project. We could take the same month as the after month a year earlier as the before case, if that data is available, but that month may have had very different weather.
Home energy use depends on much more than average temperature or so-called “degree days.” There is sun versus cloud, how windy it is, as well as the hour by hour pattern.
There are also behavioral changes to consider. For example, having kids in or out of school, traveling a lot, what kind of cooking one does, or projects that use a lot of energy.
But the amount of the rebate is based on the difference between before and after energy usage. The applicant has no way of knowing going in how much money they will get, if any.
In short the HOMES energy efficiency program is a complete gamble. Call it rebate roulette. It is conceivable that the only people who would apply are those that are going to do the project anyway. This would make the rebates a complete waste of money.
Cheating will also be easy, precisely because of the heavy influence of behavior on energy use. If the after case is just a month it could be very easy to minimize usage so as to maximize the rebate, then return to normal use which might be no less than before the project, or even greater.
Whether people will spend money not knowing what the rebate will be, if anything, is an open question. The four billion dollar HOMES energy efficiency program could easily become a complete failure.