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CHAPTER 5
HOME ENERGY RATINGS
Building technology is too complex for the average home purchaser
to be able to make an informed decision about the energy costs of
operating different homes. Therefore, home energy ratings have been
advocated to help consumers, as well as builders and lenders, take
energy costs more fully into account in their decisions. This com-
mittee agrees. After careful study of the factors affecting
energy-related decisions by individuals and organizations, we
recommended that "federal or private agencies . . . develop simple,
understandable indices of energy efficiency, comparable to miles-per-
gallon, for . . . building shells" and that "labeling, rating, and
certification programs should be supported to ensure that indices of
energy efficiency come into common use" {Stern and Aronson, 1984:
197,1981.
This chapter addresses some of the problems involved in developing
such rating programs and getting them used. Research on energy ratings
has so far focused mainly on developing ratings that meet three major
technical criteria: reliability, validity, and accuracy. A reliable
rating system is one that gives the same building the same rating
regardless of who does the rating. A valid rating system is one in
which the higher a building's rating for energy efficiency, the less
energy it in fact uses to provide given levels of heat and cooling
(holding constant climate, occupant behavior, and other external
factors). An accurate rating system is one in which a building's
rating is borne out by measured energy use: if a building's energy use
is rated to be double that of another building or double what it would
be after retrofit, that predicted use will be the same as the measured
energy use (when external factors are held constant).
However, reliability, validity, and accuracy do not necessarily add
up to success for an energy rating system. In fact, the chief barriers
to success at present are not technical. According to a recent study
of six existing rating systems by the Consumer Energy Council of
America (McCarty and Willner, 1985), the most significant barriers they
face are funding, inadequate involvement among some sponsor groups, and
low levels of consumer awareness. It is essential to keep in mind that
the goal of a rating is to affect the decisions of home purchasers,
builders, real estate agents, primary and secondary mortgage lenders,
and other intended audiences so that energy efficiency is reflected in
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65
a home's market value or so that new and retrofitted homes reach higher
standards of energy efficiency. Technical adequacy is important, but
it is equally important that a rating system be understandable to its
intended users, available when needed for decision making, and credible.
This chapter addresses three of the five major behavioral questions
that arise in informational programs (see Chapter 1), focusing primarily
on issues of designing programs to diffuse information and get it used
and also on the issue of program evaluation. It is premature to address
the remaining questions--about forecasting the effects of programs and
about attributing these effects to one cause or another--until careful
evaluations have been done.
There is little direct knowledge about how design and implementation
aspects of home energy rating systems affect whether a system is used.
Over 40 home energy rating or certification systems of various types
were in operation in the United States by 1982 (Hendrickson, Garrett-
Price, and Williams, 1982~; however, few if any of these were designed
on the basis of systematic analysis, and there has been little or no
careful evaluation of their effects. Since 1982 the situation has
improved only a little, but enough is known about the context of energy
ratings to identify the critical questions in designing and implementing
energy ratings, make some educated guesses about possible answers, and
offer ways to check the accuracy of the guesses.
This chapter begins by discussing the characteristics of a home
energy rating system that would make it ideal for its various users.
It then discusses some major issues in designing and implementing home
energy ratings and offers suggestions for research and programs that
can move home energy ratings toward wider use. Design questions
concern characteristics of the ratings themselves that can make them
more or less understandable, interesting, meaningful, or relevant to
potential users. Implementation questions concern ways of delivering
ratings to their potential users. Although it-may seem to make sense
to think about implementing a program only after its design is clear,
it makes as much sense to reverse the order: a rating system designed
so that it is irrelevant to the organizations that will implement it is
destined for failure.
CHARACTERISTICS OF AN IDEAL HOME ENERGY RATING SYSTEM
Home energy rating systems can have many users and many uses.
Thus, an ideal rating system must be intelligible to home builders,
primary and secondary mortgage lenders, appraisers, real estate agents,
retrofit contractors, and the buyers, sellers, and occupants of homes.
It must be relevant to decisions about building design, financing,
retrofitting, advertising, and purchase. And it must be applicable to
both new and existing homes.
Although it is probably impossible to design and implement a system
with all these characteristics, we offer as a guide to what may be
sacrificed in terms of a program's acceptance and usefulness as a
result of technical decisions. Based on our earlier work on the way
individuals and organizations use energy information, we offer the
.
.
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66
following list of character istics of a home energy rating system the t
would be ideal from the users ' perspectives: (1) it is simple; (2) it
is expressed in familiar units; {3 ~ it it easy for the user to verify;
(4) it is readily translatable into cost; (5) z~ can provide meaningful
regular (e.g., monthly) feedback to indicate changes in the energy
intensity of the home; and (6) it allows the user to examine either the
efficiency of the building's construction, the effects of occupant
behavior, or both, as desired.
The last two characteristics are relevant only if the system will
be used by building occupants; they are not necessary in a rating
designed only to influence purchases. The obverse of this point is
that a rating system that is not designed to give feedback or take
behavior into' account is much less useful as a stimulus to retrof it
existing buildings. This list of ideal characteristics sets the
context for our discussion.
QUESTIONS ABOUT DESIGNING RATINGS
In What Units Should a Rating be Presented?
Home energy ratings have been expressed in energy units, in
dollars, and on var ious arbitrary scales .
Energy Units
From a technical s tandpoint, energy units have a clear advantage:
energy use is what is to be rated. They also have a disadvantage: a
difficult decision must be made because different fuels are measured in
different units and because there might be debate about what constant
should be used to compare electricity with fossil fuels. For example,
if all homes are rated for energy use in kilowatt-hour equivalents, the
ratings will confuse many purchasers of gas- or oil-heated homes.
Behaviorally, there is no advantage to using energy units: people
are not likely to understand them. People understand the meaning of
miles-per-gallon because both miles and gallons are familiar units and
because a mile of travel is an understandable index of what gasoline
produces for consumers. But the units of measure for household energy
are not so intuitively meaningful. As a result, people generally think
of household energy use in dollars per month, weeks between oil
deliveries, or other budget-based units (Kempton and Montgomery,
1982)e There is no evidence that householders readily understand
information presented in~Btus per degree-day, therms per winter, or
other physical units, and little reason to believe that bankers or
builders are much different. Home energy ratings presented in energy
units are more likely to confuse people than enlighten them.
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67
Dollars
Rating homes in dollars of energy cost, or dollars per square foot,
has the advantages of familiarity, relevance to purchase decisions, and
comparability across homes. A representative of the Federal National
Mortgage Association (Fannie Mae) told Pennsylvania researchers that
for the needs of lenders, it was important to have estimates of costs
of energy conservation investments and savings in terms of a home's
operating costs (Gallagher and Desmond, 1984~. Such information is
relevant to decisions about whether to raise a borrower's debt limit to
allow a mortgage on an energy-efficient home.
Unfortunately, however, there are technical problems with ratings
in dollars. A determination must be made of whether a rating should
use current energy prices or expected future prices, and if the latter,
what estimates should be used. For example, if a mortgage lender takes
future energy costs into account in setting debt limits, the viability
of the mortgages will be affected by how well the energy rating system
anticipates the price of fuel. Also, a meaningful dollar rating must
assume constant climate and occupant behavior. Such ratings may
mislead householders who expect to pay the rated energy cost in the
first winter of occupancy. Users would have to be educated about what
they can and cannot expect from a dollar rating.
Arbitrary Scales
Ratings can be given on a binary scale {e.g., pass-fail) or in
other arbitrary scales of varying sophistication. An advantage of
arbitrary ratings is that, unlike dollar ratings, they are unaffected
by changes in fuel prices, weather, and occupant behavior. But their
arbitrariness can be a disadvantage unless an effort is made to give
them meaning, possibly by "anchoring" them to certain meaningful values.
We know of only one empirical effort to examine user response to
alternative units for use in home energy ratings. In a pilot project
in Massachusetts, a home rating system was developed for use in the RCS
energy audit program (Ackerman et al., 1983~. The researchers discussed
the concept of ratings with selected lenders, appraisers, and real
estate agents, both before and after developing eight possible formats
for a rating system. The formats were also the subject of two focused
group discussions among local homeowners. The system chosen used a
0-10 scale in which zero represented a home with no energy-saving
features and 10 represented a home with no energy bills (Ackerman et
al., 1983~. All the groups, as well as the organization doing the
rating, found the "anchored" 0-10 scale, combined with estimated annual
energy costs, understandable and acceptable.
The Massachusetts 0-10 system was constructed with users in mind
and was accepted by users in early field testing. For this reason, it
is worthy of further test and adaptation. Other rating scales may
prove equally acceptable. One of these is a five-star rating system
developed by Western Resources Institute (Luboff, 1983), which also
arose from an effort to seek consensus among segments of the building
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68
industry. Both these approaches, which have the advantage of sim-
plicity, have had good user response in f ield tr ials, and both deserve
systematic evaluatic~n under f ield conditions . Groups interested in
developing new rating systems can learn from the methods used to
develop them even if they do not choose to use either of them.
How Much Precision Should a Home Energy Rating Offer?
Is it better to use a binary (certification) scale or one with more
levels presented? If the latter, how f ine should the detail be? One
principle to keep in mind is that a rating should not offer precision
that exceeds its accuracy. If a rating is only accurate within 10
f inures can undermine its
_
percent, presenting it to two significant __,
credibility; if it is accurate to within 20 percent, it should not be
presented as anything more precise than a f ive-point scale ~
A binary scale (a pass/fail or certification approach), such as
utilities sometimes use when they certify Energy-efficient homes, n has
the advantage of s implicity. Certif icates are meaningful to builders,
realtors, and others who can use the rating as an advertising point.
They may be more useful in the new home industry than in influencing
the home resale market.
The ability of users to take advantage of a more detailed rating
system depends on whether they can relate different meanings to
is, , ~ ~
tenant ratings. In a category system (e.g.' poor, good, very goon,
excellent ~ the number of categor ies should be kept small, probably not
more than five. This sort of rating probably has meaning for comparing
homes, but it is likely to be less useful for deciding whether to
invest in a retrofit because the categories are so coarse.
Numerical ratings add further detail, but can be confusing if the
meaning is unclear. Ratings in dollars are easy for people to inter-
pret, although they can lead to unrealistic expectations of predictive
accuracy because homeowners will compare ratings with actual energy
bills, which are affected by weather and occupant behavior. Arbitrary
scales promise less, but tend to be less meaningful. The notion of
anchoring them to some understandable values, as done in the
Massachusetts project, seems wise.
Decisions about the precision of a rating system should depend on
its goals and on what is meaningful to the intended users. Binary
scales may be appropriate for certifying new buildings because the
dividing line can be set slightly above ordinary building practice to
provide an incentive for improving energy efficiency. More detail is
appropriate, however, when a program aims to influence retrofits of
existing houses before resale. There are usually many effective
retrofits that can be made in an old home that would still leave it
below an energy-efficiency criterion set for new buildings. Arbitrary
numerical scales should probably be anchored to points that have some
meaning for all the intended users. But these conclusions are all
tentative . Prototype scales should be presented to samples of the use r
populations to get their reactions before a rating system in put into
use.
l
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69
Should a Rating Explicitly Estimate the Effects of Retrofits?
The Massachusetts home energy rating system experiment gave each
home two ratings: as audited and as they would be after taking the
energy efficiency measures recommended by RCS. It also offered
estimates of average annual energy costs with and without the retrofits.
Because this approach makes it easy for the seller or buyer of an
existing home to judge the likely cost and savings from recommended
retrofits, it makes good sense when a rating system is intended to
encourage retrofits of existing housing before resale and to increase
the market value of energy-efficient homes. To remain credible, though,
such estimates must be accurate, which requires a full energy audit of
the home. Although such an audit normally costs $100-150, an estimate
of the effect of retrofit can be done for an additional $15 per home
when a rating is attached to an RCS energy audit (McCarty and Willner,
1985), and for $25-35 when included in a mortgage lender's appraisal
process {Hoskin, 1983~. Accurate estimates from ratings can be useful,
but the additional information may confuse people who have no interest
in undertaking retrofits. This possibility should be addressed
empirically in pilot projects with rating systems.
What Energy Uses Should a Rating Reflect?
Ratings may attempt to estimate only energy use for heating, or
energy for heating and cooling, or a larger proportion of home energy
use. It is reasonable to expect that the interest of potential users
in one or another package of information depends on climate, but there
are no relevant data on this point. As more energy uses and more
discretionary appliances are subsumed in an energy rating, it becomes
more difficult to produce an accurate rating. The potential for
confusion among users probably also increases, especially when ratings
are used to compare homes with different appliances included. For
example, a home with a central heat pump air conditioner may use more
energy than a home that is only partly cooled by room air conditioners,
even though it uses the energy more efficiently. It will probably be
difficult to express these differences simply and clearly in a rating.
If an energy rating is to encompass more than space and water heating,
careful thought, technical research, and assessment of user reactions
should precede introduction of the rating.
QUESTIONS ABOUT IMPLEMENTING RATING PROGRAMS
Technically adequate ratings have no effect unless they are
delivered to users in a way that encourages their use in decision
making. Careful design of ratings is necessary, but some institutional
questions must also be addressed.
1'
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70
Who Should Rate Homes?
Experience with other energy programs suggest that a rating system
will be implemented best when the organization responsible can do the
job at low cost; has the appropriate knowledge, sufficient resources,
and the motivation to do the job well; and is credible to the user
communities. These considerations do not point unequivocally to a
single most appropriate institution, but they do suggest some approaches
to try in pilot projects.
Cost considerations suggest that ratings be implemented as part of
other activities, such as those of home energy auditors, real estate
appraisers, or ''house doctors." Since the groups that carry out such
activities vary in knowledge and resources, some could provide good
energy raters only if a reliable, valid, accurate, and sufficiently
simple rating system were developed by an expert group for use in the
routine of energy auditing or appraisal. For example, in the Western
Resources Institute's program (Luboff, 1983), trained real estate
appraisers use a heat loss methodology already developed by the
Bonneville Power Administration.
To ensure credibility, two strategies seem promising: to have the
rating conducted by a credible institution or to get the rating system
accepted by a credible institution. It is possible to tell which
organizations would be credible sponsors by asking for the reactions of
potential users to a list of possible rating organizations. But a more
promising strategy involves building credibility into the system. The
Western Resources Institute's rating system seems to have accomplished
this by convincing local mortgage lenders to accept Bonneville Power's
heat loss methodology. The banks Day their appraisers to calculate
_ _ _
_ _
energy ratings using the methodology, and they otter larger mortgage
loans for purchasers of homes that receive high enough ratings. The
banks' acceptance creates instant credibility for the system among home
purchasers, and people considering selling their homes are likely to
feel an incentive to retrofit because an energy-efficient home will be
financially attractive to a larger number of buyers.
A sponsor's motivation should also be considered. House doctors or
other purveyors of retrofit services have a vested interest in making a
house look more energy efficient after they perform their service than
before, so their ratings may be suspect. Real estate appraisers are
motivated to accurately assess market prices, so may be good candidates
if a rating system can be made convenient for them. However, unless
energy ratings are used by banks in their lending decisions or
appraisers conclude that energy-efficient homes are worth more,
appraisers may be reluctant to conduct energy ratings.
Home energy auditors can rate homes conveniently. Their motivation
to rate accurately depends on the context of the audit. Auditors for a
utility company that is motivated to conserve energy, whether because
of a prospect of supply shortage or because of regulatory pressure,
would have a motive to produce accurate ratings. Utilities that are
not motivated to conserve energy would not be motivated to document the
need for it. An electric utility with a large overcapacity would be
unlikely to offer ratings, and if it did, its ratings might not be
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71
credible. Local nonprofit groups have sometimes produced more thorough
energy audits than utilities at lower cost (Polich, 1984), probably
reflecting in part a stronger motivation to cut energy costs for
consumers. Such groups might be effective raters if a rating system
were designed to be attached to energy audits.
The problem of who should rate homes becomes most difficult when
the organizations that have the motivation and credibility lack
resources or expertise. In some areas, utilities have low motivation
or low credibility, but more credible and motivated groups, such as
community organizations or local government, lack resources and
expertise. The RCS experience shows that collaborations that link the
resources of utilities or state government with the motivation and
credibility of local organizations can be effective (Cowell and
Rebitzer, 1984; Polich, 1984; Stern and Aronson, 1984~.
What are the Key Institutions for
Getting a Rating System Accepted?
Home energy rating systems can become effective in various ways:
they can be used directly by home purchasers in making decisions;
homeowners, developers, and real estate agents can use them to help
advertise energy-efficient homes; they can add value to energy-
efficient homes if used by appraisers; they can make homes salable at
higher prices if bankers use them in calculating total cost of owner-
ship and in setting mortgage limits; and operators of home retrofit
programs might use them to market their services. In short, rating
systems operate in a complex institutional environment, in which it is
not immediately clear whether any particular institutionts acceptance
is the key.
Institutional acceptance, however is a central question and a major
barrier to the acceptance of rating systems (McCarty and Willner, 1985~.
We are aware of only two studies that have directly asked for reactions
to energy ratings from major institutions in the building industry. A
study in Massachusetts involved discussions with primary and secondary
mortgage lenders, appraisers, real estate agents, utility representa-
tives, and homeowners before and after implementation of a pilot home
energy rating system (Ackerman et al., 1983~. A more recent study in
Pennsylvania surveyed homeowners and had discussions with the major
industry groups before implementing a "home energy scorecard"
(Gallagher and Desmond, 1984~.
This limited evidence and the experience of the Western Resources
Institute rating system suggest that secondary mortgage lenders are a
keystone of the complex institutional arrangement. Several banks were
willing to use ratings in mortgage decisions only if such action would
not jeopardize the sale of the mortgage to a secondary lender. Thus,
some would raise debt limits to qualify buyers for mortgages on energy-
efficient homes only if secondary lenders would accept that judgment in
repurchasing the mortgages. It proved important in Massachusetts that
secondary lenders were willing to change a previous policy and allow
retrofit loans to be included in first mortgages before a retrofit is
complete. In the Western Resources Institute program, acceptance of a
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particular rating system by secondary lenders was essential to primary
lenders ' acceptance of the ratings. Once the primary lenders accepted
the rating system it was a fairly easy step to include a rating in the
appraisal process.
The involvement of secondary mortgage lenders can create incentives
for other actors in the housing market and can make home energy ratings
work without any effort by home buyers. The Massachusetts project was
approached by a nonprofit building corporation to rate some new homes
being constructed for low-income buyers; the builder had learned that
the local bank would allow higher debt-to-income ratios for borrowers
if the homes had high ratings. Thus, an energy-efficient home would
become affordable for people who otherwise would have remained in less-
efficient, older housing. In this way the energy efficiency of the
housing stock improves without the home purchaser needing to consider
energy costs explicitly.
Real estate agents have been reluctant to take the lead on home
energy ratings. In Pennsylvania, where a state survey found that 85
percent of residents believed that energy efficiency would be an impor-
tant consideration in selecting their next home and 90 percent felt a
home energy labeling program would encourage people to select energy
efficient homes, real estate brokers believed that the customers did
not want ratings (Gallagher and Desmond, 1984~. In Massachusetts,
realtors raised concerns about their possible liability for information
in the ratings. The Massachusetts realtors wanted to follow the
lenders. Even after the pilot program began, they wanted assurances
that the banks were committed to it.
Real estate appraisers often follow the market as they see it. In
Massachusetts, some appraisers did not believe that energy efficiency
affected home values (Ackerman et al., 1983~. Even those who supported
ratings did not want to do the retina themselves because they believed
~ ~ ~ an., ~ ha ~ ~ ~ ~
_ _ _ _ ~
Allay ~~U1Q llU ~ ~ MU ~11= ~~ ~ . In Pennsylvania two years later/
appraisers were very positive about rating systems: many reported that
they were being asked to appraise the value of energy conservation
features of homes and were alad to be offered a ready
~ ~~ ~ tool for doing
the job (Gallagher and Desmond, 1984~. The experience of Western
Resources Institute shows that appraisers follow the desires of their
customers, the banks, as well as the housing market.
Less information is available on the reactions of utility repre-
sentatives, trade associations, and builders. In both Massachusetts
and Pennsylvania, the utilities were concerned mostly with technical
points in the rating calculations. The Pennsylvania report concluded
that it was important to involve these groups early because it improved
the rating system and gained the acceptance of groups whose opposition
might be influential. The importance of possible utility company
opposition depends on the implementation of the rating system:
opposition is critical if a program is to be implemented by utility-run
RCS programs but not if it is part of the home appraisal process.
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73
What Other Institutional Arrangements
Might Strengthen a Rating System?
We have noted that home energy ratings exist in a complex institu-
tional environment: this suggests that yet other parts of that environ-
ment may make the difference between success and failure for rating
systems. For example, a rating system can make local building codes or
standards for energy-efficient construction more feasible. If a rating
system is incorporated in building codes, it could be implemented and
funded by local governments as part of the process of granting building
permits.
Or, if the accuracy of a rating system is backed by insurance, the
organizations responsible for conducting or using the system could
stand very firmly behind their ratings. Energy service companies now
take out insurance to back their guarantees of low levels of energy
use; builders can do the same. The cost of the insurance would depend
on the record of the energy service company or the builder in achieving
promised savings. A rating system with proven accuracy in the aggregate
might lower the cost of the insurance and thereby improve the position
of energy service companies in the home retrofit market and of energy-
efficient builders in the new home market.
DEVELOPING EFFECTIVE HOME ENERGY RATING SYSTEMS
It is not possible to offer precise prescriptions for a home energy
rating system. Just like a new technology, an energy rating system
requires research, development, and demonstration before an effective
model is widely accepted. Rating systems can be based on relevant
technical and behavioral knowledge and refined by testing successive
approaches in the physical and social reality in which they will
operate. This point was discussed generically in Chapter 2; this
section offers suggestions on which approaches are now ready for
testing and on how the testing might be conducted.
What to Test
Our suggestions are confined to issues of rating design and
implementation. In choosing this focus, however, we do not wish to
suggest that further technical research and development on ratings is
unnecessary nor to overlook the fact that design and implementation
issues are intertwined with the technical quality of ratings. Our
comments assume that rating procedures exist or will soon be developed
that can produce ratings accurate enough to justify a numerical rating
of considerably more detail than a five-point category system.
The five-star system developed by Western Resources Institute
deserves careful and quantitative evaluation as it is now operating and
as it might be adopted in additional communities. This system has been
among the most successful of existing rating systems and has already
had a measurable effect on the approval rates of mortgage loans by
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banks {Hoskin, 1983~. An evaluation should assess its effects on home
sales and home retrofits--even though the program is aimed only at the
former--in order to make comparisons possible with other rating systems.
Evaluation studies should also be conducted on programs modeled on
the Department of Energy's Massachusetts Home Energy Rating System
Project (Ackerman et al., 19837. Evaluation of the original program
was not carried far enough to assess the effects on retrofits or home
sales, and a thorough evaluation of such a project is needed. We
believe that the screening of design alternatives that was done in
Massachusetts, which selected a 0-10 scale anchored by "no energy
improvements" and "no energy bills," has enough validity to serve as a
basis for future pilot studies. It is also worth expressing ratings in
annual heating costs and these ratings should be tested both with and
without a 0-10 rating scale. It is worth testing both the dollar-based
scale and the arbitrary scale in home energy audits, with and without
estimates of the costs and savings from recommended retrofits. It is
advisable to begin with pilot studies in which householders are randomly
offered different packages of information from the above alternatives.
When the field of possible rating systems is narrowed, field tests
should use only one rating design per housing market because using
several designs at once will confuse real estate agents, lenders, and
others who will see ratings of many different homes.
In ratings delivered with energy audits, the sponsor of the audit
will make a difference. The choice of sponsor should be made to suit
the location of the study and should take into account the credibility,
motivation, resources, and expertise of candidate groups. Marketing of
rating systems is also critical to implementation. Thus, it is desir-
able to fit a rating process into the routine of a local organization
that already has a market for its services. Real estate appraisers are
one example; a successful energy auditing program is another.
How to Conduct a Test
One clear lesson from the experience with rating systems and other
energy programs to date is that all the relevant actors should be
involved from the start. For a home rating system, this may include
local officials, bankers, builders, appraisers, real estate agents,
utility companies, and home buyers, sellers, and occupants. Even if it
seems clear that a rating should have a particular design, it is
important to get the reactions of the target groups, which may bring to
light important local conditions that escaped the analysts who drafted
the project plan. For example, information in a rating system that is
valued by people in a cold climate may be seen as incomplete or mislead-
ing in a climate where cooling or water heating is the major household
energy use. Of course, the most important reason for involving target
groups is that the process makes them aware of and committed to the
rating system that is chosen. Such involvement is the first step in
marketing, which has so far been a serious problem for rating systems
(McCarty and Willner, 1985~.
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75
Tests of rating systems should be considered part of a learning
process. Thus, a rating project should be monitored from the start to
assess the reactions of users to the rating design, the conduct of the
rating, its marketing, and other details of program implementation.
This information can help rating system operators improve their programs
and inform the designers of future rating systems. Such process evalua-
tions focus on implementation issues and assess both quantitative and
qualitative factors. User surveys can determine whether users believe
the ratings are done professionally and reliably, whether raters are
available on short notice, and so forth. Information from the organiza-
tions that operate rating programs can quantify the training given to
raters, the amount of time they spend conducting ratings, and the
operator's level of marketing effort. Qualitative judgments must also
be made about the sponsor's commitment to the program, the rating
system's emerging reputation for reliability in the community, the kind
and degree of communication about the rating system between key
institutions, and so forth.
How to Assess Outcomes
A successful home energy rating system will take time to show
effects on energy use, and the effects will not all be of one kind.
Evaluation, therefore, should carefully look for effects that can be
expected at the time of assessment. Below we note three kinds of
effects to examine, and some examples of each.
Early Indicators
Initial outcome evaluations might look for such indicators as:
(1) Adoption of ratings by mortgage lenders as criteria to qualify
buyers for mortgages;
(2) Requests for ratings, including information as to whether the
requests are coming from developers of new buildings, homeowners
planning to sell or to retrofit, real estate agents, appraisers, or
others;
(3) Mention of ratings in advertising by real estate agents or
mortgage lenders;
(4) Appearance of ratings on real estate agents' summaries of
house characteristics;
(5) Reports from real estate agents that home buyers are asking
about ratings of homes on the market;
(6) Percentage of houses sold that have ratings.
Effects on the Sale of Energy-Efficient Homes
Once rated homes begin to sell, it becomes possible to assess
effects of the rating more directly. One possible effect is that
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highly rated homes sell sooner, reducing the costs to the seller.
Another is the debt/income ratios that banks use to qualify purchasers
for mortgage loans. A more important effect, though it is harder to
measure, is on sale prices of homes. One way to estimate this effect
is to match recently sold rated homes with nearby unrated homes that
were also sold recently. This method should include comparisons of
house size and other factors affecting value and control these statis-
tically through regression or other techniques, matching should be used
to control directly for the value of location. Another method for
estimating the price effect is econometric modeling of sale prices in a
housing market, with the presence of a rating treated as a dummy
variable in regression analysis. These methods would not Yield
definitive results because they do not assess the possibility that
ratings might encourage retrofits or energy-efficient building practices
in homes that are not rated. We have discussed the evaluation of this
contagion effect in Chapter 4. Time-series data on a given housing
market and a comparison market are needed to evaluate that possibility.
The most definitive research design is experimental: ratings would be
included in an RCS audit or an appraisal process, but would be made
available to only a randomly selected half of the relevant homeowners
and 1enderse This approach to analysis was tried (but not completed)
in the Massachusetts pilot project.
Effects on the Energy Efficiency of Homes
The new home market may be more easily influenced by ratings
because it is easier to achieve impressive savings for new homes than
for older homes that are retrofitted and because very simple rating
systems can be effective in setting goals for home construction. To
assess effects in either the new or existing housing market requires a
full energy audit of a sample of rated and unrated homes. To assess
contagion to builders and homeowners who do not use ratings, it would
be useful to evaluate improvements in energy efficiency in comparison
with another area.
The creative experimental design tried in the Massachusetts project
is especially appropriate for assessing effects on home retrofits.
Retrofit activity after the RCS audits in the two sets of homes would
give a good index of the effect of the rating on retrofits. It would
be a stringent test, since both groups received detailed retrofit
recommendations and the only difference was the addition of a rating.
A comparison of rated and unrated homes in the absence of the
information from a RCS audit would probably show a greater effect.
It is also possible to assess the effects of ratings on home energy
use by collecting energy bills rather than measuring retrofit activity.
The two variables, energy use and energy efficiency, have quite differ-
ent meanings for policy. If ratings cause builders to produce more
enerav-efficient homes and lead buvers to pay a higher price for them,
this may increase or decrease energy use within a housing market. If
people purchase energy-efficient homes that are larger or more
appliance-intensive than they could otherwise afford, a rating system
_ ~ ~ _ ~
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that is a success in terms of efficiency may not produce any net energy
savings. If some people purchase detached houses, which most people
prefer, rather than less energy-intensive and less costly attached
houses, there might be the same effect. If some people move from older
rental units to new energy-efficient homes, there may be either an
increase or a decrease in their energy use. Although some of these
outcomes do not save energy, all of them represent an increased standard
of living for the purchasers of new energy-efficient homes. Thus, the
choice of a measure of effect depends on whether the policy goal is to
reduce energy consumption, to improve energy efficiency, or some
combination of the two.
CONCLUSIONS AND RECOMMENDATIONS
Research on home energy rating systems has focused mainly on
improving their accuracy. Relatively less attention has been given to
the design and implementation of ratings, and it is in these areas that
rating systems have hit their most stubborn barriers (McCarty and
Willner, 1985~. Experience and behavioral research show that implemen-
tation is the first consideration. The best strategy for implementation
is to gain the cooperation of the range of actors that will be affected
with a rating system: mortgage lenders, builders, real estate agents,
appraisers, homeowners and buyers, retrofit contractors, and the
sponsors of home energy audit programs. Which of these groups is most
critical depends on who will be conducting ratings and on whether the
primary target of the system is the new home market, the home resale
market, or home retrofits. In ratings intended to affect home sales,
the participation of mortgage lenders has been essential.
We offer four recommendations for implementing home energy rating
systems and for research to identify effective rating systems and
improve their delivery.
1. Advice and cooperation should be solicited from all interested
groups in a housing market well before a rating system is put into
place.
2. Several rating designs should be evaluated in experimental
field trials. Three ways of presenting ratings have so far shown
promise in pilot programs: a five-star rating derived from a heat loss
methodology, a 0-10 rating with anchor points at "no energy-saving
features" and "no energy bills," and an annual cost estimate derived
from an RCS energy audit. The first two of these should be given
experimental field trials alone and in combination with cost
estimates. Before using other possible formats under field conditions,
potential users should be asked for their reactions.
3. Experimental tests of ratings should be conducted only in the
context of ongoing activities within which ratings might become routine,
_
such as energy audits, appraisals, or the approval of building permits.
Only in such settings are energy ratings likely to be funded and
institutionalized.
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4. Resources should be made available for controlled, quantitative
evaluation of the effect of energy ratings on rated homes and housing
... ..
marketse To date, no home energy rating system has been carefully
evaluated to determine whether it produces the results it is designed
for: increasing the salability and market price of energy-efficient
homes and increasing the energy efficiency of new and existing housing
stock. The ideal research design for assessing effects on retrofits
and sale prices is an experiment in which a number of homes are rated
but the ratings are made available for only a random sample of those
homes. Whole housing markets should also be studied to see if a rating
system affects the energy efficiency of the population of homes offered
for sale; econometric approaches are useful for this purpose . Studies
shout d assess both effects on energy eff i ciency and on measured energy
use.
i
Representative terms from entire chapter:
energy rating
