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Cap and Trade: An Example of Real Cost

I thought that after a week of digesting HR 2454 and it’s devastating consequences to this country should it become law, it might be good to provide a real world scenario of how this bill would devastate our residential and construction industries and consequently, our economy.

First of all, I’m an architect of 18 years, most of which have been in the K-12 education market, a market almost completely dependent on a robust housing market to create the need and demand for school construction and renovation. I’m also LEED accredited so I have a pretty good idea of what the federal government has in mind for new national energy standards.

There are many downright sinister provisions in HR 2454 but the provisions related to retrofitting existing homes before an individual is able to sell their house are especially troubling. To think the federal government can force an individual to meet a new residential energy standard retroactively is almost beyond comprehension. I am assuming that since the USGBC (US Green Building Council) has a close relationship with local and state governments and the federal government, that LEED standards, especially related to energy would likely be the model for new national residential energy standards. And if that’s the case, a vast majority of homes in this country would require substantial renovation to meet these energy standards. This could require upgrades to wall insulation, windows, doors, and even roof, depending on if heat-island effect is factored into the new energy standards. In fact, many homes built out of solid masonry construction before WWII may not ever be able to meet these standards.

I’ll use my own house as an example of the real cost of cap and trade. My wife and I bought our house in the summer of 2002. It’s two story and was built in 1984 in a very typical suburban subdivision out of very typical wood stud and masonite siding. Since we’ve had the house, we’ve replaced both heat pumps, upgrading from 8 SEER units to 11 and 13 SEER units depending on when we did the replacement. Keep this SEER rating in mind as we go forward. We’ve also replaced the roof, replacing a cedar shingle roof with dimensional asphalt shingles. Between these three improvements, we’ve spent about $17,000. Our house, depending on what day of the week it is is worth in the mid-300s and we have about 40% equity in the house so maybe $140,000. Maybe or maybe not a typical housing situation in this country but I’ll show below how HR 2454 would impact us.

In 2006 the EPA mandated the minimum SEER rating for residential units to be 13 SEER. So virtually every house in this country has 13 SEER equipment or less heating and cooling their house. Assuming we use LEED guidelines for energy efficiency standards for renovation, I’m also assuming that somewhere around a 7% increase in energy efficiency would be required. That’s the minimum improvement over baseline ASHRAE standards for existing construction to even pursue LEED certification. I would bet that it may end up being more than 7% which it’s all said and done. That means virtually every house in this country before it’s sold would have to have it’s HVAC equipment replaced. Fathom that for a minute:

Every.Single.House.

So figure replacing both heat pumps, AHUs and piping: $6,500 per floor or $13,000.

This is only part of the equation. The government will require you to perform an energy audit to determine the baseline performance of your existing house to determine how much improvement you need. This will factor in roof insulation, roof material, wall construction and existing R-value and window and door performance. Since our house has the original windows and doors, I’m sure these would have to replaced.

Figure 20 windows, replaced with an insulated low-E windows at $500/window. We have 20 windows so another $10,000.

Three existing exterior doors replaced at $800 each so another $2,400.

So we’re up to $25,400 already and have not even dealt with the roof or wall construction. You could conceivably double this number if you had to replace the roof and retrofit exterior walls with improved insulation.

So unless I had $25,000 lying around, I’d have to take this out of my $140,000 of equity reducing my once reasonably healthy equity down to less than $115,000. And for what? Maybe a 20% decrease in our monthly power bill? Our yearly power bill is about $2,500 a year so a 20% decrease would be $500 a year in savings. At that rate, it would be a 50 year payback of these improvements. 50 years.

The average American has no idea what this bill would do to the economy of this country. I would say that’s its impact would be more devastating than health care reform. People simply wouldn’t move. Businesses wouldn’t grow. Companies would have to bear the cost of relocating key employees since they’d end up having to purchase these homes and retrofit them before they were put back on the market. We would see almost unimaginable stagnation.

And this is only one small part of this Orwellian nightmare passed by the House last week.

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