Energy conservation standards for new federal residential buildings: A decision analysis study using relative value discounting

This report presents a reassessment of the proposed standard for energy conservation in new federal residential buildings. The analysis uses the data presented in the report, Economic Analysis: In Support of Interim Energy Conservation Standards for New Federal Residential Buildings (June 1988)-to be referred to as the EASIECS report. The reassessment differs from that report in several respects. In modeling factual information, it uses more recent forecasts of future energy prices and it uses data from the Bureau of the Census in order to estimate the distribution of lifetimes of residential buildings rather than assuming a hypothetical 25-year lifetime. In modeling social preferences decision analysis techniques are used in order to examine issues of public values that often are not included in traditional cost-benefit analyses. The present report concludes that the public would benefit from the proposed standard. Several issues of public values regarding energy use are illustrated with methods to include them in a formal analysis of a proposed energy policy. The first issue places a value on costs and benefits that will occur in the future as an irreversible consequence of current policy choices. This report discusses an alternative method, called relative value discounting which permits flexible discounting of future events-and the possibility of placing greater values on future events. The second issue places a value on the indirect benefits of energy savings so that benefits accrue to everyone rather than only to the person who saves the energy. This report includes non-zero estimates of the indirect benefits. The third issue is how the costs and benefits discussed in a public policy evaluation should be compared. In summary, selection of individual projects with larger benefit to cost ratios leads to a portfolio of projects with the maximum benefit to cost difference. 30 refs., 6 figs., 16 tabs. (JF)