The Energy Efficiency Imperative: Not Just for Buildings

Government policies and programs must also aim for more-efficient, low-cost, and high-impact energy efficiency options. 

This is Sam Rashkin’s latest in a series of articles based on his second book, “Housing 2.0: A Disruption Survival Guide.” It is intended as a roadmap for high-performance builders to become the most successful in the industry.

This article is based on more than 25 years of directing national housing programs that have led to more than 2.5 million certified homes, including extensive engagement with industry and government leaders.


Energy efficiency programs have varying effectiveness, with high-cost strategies typically less efficient than low-cost versions.

While this article is focused on a specific policy proposal for transforming the housing sector, the larger takeaway is that government policies and programs must be held accountable to far greater efficiency, just as we expect from buildings. This is because personal observations suggest that energy efficiency programs focus on high-cost strategies that have historically yielded incremental results when substantially more efficient, low-cost, high-impact options are available.

Missing these program opportunities will not get the job done. The planetary imperative to deliver zero carbon buildings by 2030 can’t wait for incremental. Virtually every part of our ecosystem is approaching or exceeding planetary boundary conditions that threaten its collapse: 

  • climate
  • biodiversity
  • nitrogen/phosphorus interference
  • stratospheric ozone
  • ocean acidification
  • global fresh-water supply
  • land-use change
  • chemical pollution
  • atmospheric aerosol loading. 

Think of it as the planetary canary in the coal mine revealing that the planet is at DEFCON level 1. The only path aligned with this urgency employs policies and programs that mandate zero or zero ready buildings at transaction. 

This article will address one such policy option that has zero cost to the federal government, and would transform the housing sector to zero energy ready performance by 2030. The approximate bottom-line benefits include¹: 

  • $1 trillion of homeowner utility savings
  • $0.27 trillion of annual construction revenue
  • $4.5 trillion of additional tax revenue to the U.S. Treasury
  • 360,000 persistent new jobs providing 9 million job-years of work that cannot be outsourced
  • 8,400 million metric tons of carbon equivalent (MMTCe) reduced emissions
  • Transformation to zero energy-ready housing stock by 2030² 

The mortgage interest deduction, the government’s second largest expense, can be retooled to deliver numerous economic, employment, clean air, national security, and market transformation benefits. 

A Mortgage Interest Proposal

The mortgage interest deduction has long been a “sacred cow” entitlement attached to homeownership. In past years, it was considered for termination or restructuring in response to the historically unprecedented national debt crisis facing the country. This is because the mortgage interest deduction is the second highest government tax expenditure ($104.5 billion), only exceeded by the exclusion of employer contributions for health care ($177 billion).³  

However, rather than looking at this tax policy as a liability, there is a unique opportunity to look at the mortgage interest deduction as a powerful asset that can be retooled to deliver the profound economic, employment, clean air, national security, and market transformation benefits cited above. Consider saving the planet a nice bonus.

All it entails is a simple policy that would change the mortgage interest deduction from an automatic entitlement when financing the purchase of any home, to an earned benefit rewarding good behavior when purchasing a new home that is certified to the U.S. Department of Energy (DOE) Zero Energy Ready Home (ZERH) program or an existing home that achieves a DOE Home Energy Score (HES) of 7.5 or higher. This level of efficiency for existing homes provides a critical foundation for achieving zero energy ready performance. 

This would effectively convert the huge federal government liability into a valuable asset that efficiently leverages existing federal government programs. Of course, it will be critical to ensure adequate lead time to develop the substantial design, construction, manufacturing, and verification infrastructure needed to serve the substantial growth in demand for peak performance new and existing homes. That is because the mortgage interest tax deduction is a deal too good to refuse, providing more than $6,000 per year in reduced tax payments or $60,000 over the average 10-year term of homeownership. This value is based on an annual mortgage interest expense of $12,000 that would provide a married couple in the 24 percent tax bracket a $25,100 standard deduction in 2021.⁴

Note that this policy would also require working with the nation’s key underwriters (Fannie Mae, Freddie Mac, FHA, VA) to reinstate or ensure availability of energy efficiency mortgages (EEMs) for new homes and energy improvement mortgages (EIMs) for existing homes. EEMs would provide additional 30-year financing for the incremental cost required to achieve ZERH certification in new homes, and EIMs would provide the incremental funds held in escrow to upgrade existing homes to an HES score of 7.5 if not already at that performance level. 

In both cases, no additional down payment or income qualifications are required, which prevents any extra financial burden for the borrower. And most importantly, these loans help ensure lower cost of homeownership for higher value homes where the monthly utility savings easily exceed the incremental increase in the monthly mortgage payment to achieve the ZERH or HES threshold.

 Underwriters should be excited to provide these loans, since they provide lower risk financing homes with lower cost of ownership, less maintenance burden, and future-readiness that can increase appreciation.

Scaling Opportunity in Housing Sector

Housing in the United States accounts for approximately 20 percent of total U.S. energy consumption. The ENERGY STAR Certified Home program has made significant inroads influencing mainstream home builders to construct homes at least 20 percent better than code. But, it still accounts for less than 10 percent of all new homes each year. ZERH accounts for less than one percent of all new homes. Market penetration is much worse for national programs supporting whole-house existing home upgrades. 

Over the past two decades only 330,000 homes have been improved with whole-house energy retrofits through sponsors of the Home Performance with ENERGY STAR program.⁵  In addition, substantial stimulus funding was provided to 41 communities across the U.S. by DOE’s Better Buildings Neighborhood Program to promulgate innovative home energy retrofit programs, but there is little evidence of any significant persistent impacts. 

This painfully slow incremental approach barely represents a ripple in more than 100 million units of existing housing stock. This suggests there is a tremendous opportunity to accelerate transformation of the housing sector much more efficiently.

Innovative Building Challenges

Home builders are reluctant to construct homes that meet rigorous energy efficiency criteria because it entails a higher first cost, along with problematic recognition of this added value in the appraisal process. Even though new home construction represents less than one percent of the total housing stock, establishing innovations with them is an important first step. 


The ENERGY STAR Certified Home program has builders constructing houses that are at least 20 percent better than code, but only account for less than 10 percent of all new dwellings each year.

It is easier to scale in new construction with large projects, rather than upgrading existing homes one at a time. Moreover, once innovations are established in new homes, it is significantly easier to gain their acceptance in existing homes. 

But transformation of the residential sector is not possible without motivating millions of existing homeowners to invest in whole-house energy efficiency upgrades, since the nation’s existing housing stock is woefully inefficient. Scaling has proven elusive due to a lack of financing, supply infrastructure and awareness, along with competing interests for cosmetic improvements. 

In this context, a major initiative is needed that will effectively encourage our nation’s home builders, contractors, manufacturers, suppliers, and homeowners to invest in energy efficiency.

Why This Initiative Will Work

Fear of loss is a powerful behavior change motivator, especially when the personal financial benefit is substantial. Such is the case with missing out on the mortgage interest deduction. As a result, this policy can be expected to succeed where past programs have failed. The compelling benefits include:

Assured market transformation. Meaningful tax benefits have proven effective at transforming markets when executed well, and failing when not. For instance, the mortgage interest tax deduction has been widely recognized as a major stimulus for home ownership and the solar electric tax credit has been a catalyst for the emergence of a nationwide solar electric industry. 

In contrast, hundreds of millions of dollars were wasted on a solar domestic hot water tax credit that left the nation with no meaningful solar thermal industry when it abruptly ended without an effective transition strategy to a reduced- or no-tax subsidy. The significant value of the mortgage interest deduction will immediately drive consumer demand to qualifying homes. In turn, it will motivate builders to provide peak performance new homes, homeowners to invest in upgrading the energy efficiency of their existing homes, and contractors to offer home performance upgrades. 

Substantial green jobs. Unlike a rebate or short-term tax incentive that goes away in a few years, a new tax policy can create reliable long-term demand for high-performance new and existing homes. Energy efficient building product manufacturers, builders, contractors, and verifiers (e.g., HERS raters and certified HES professionals) can invest in their businesses knowing they have a compelling market opportunity that doesn’t depend on temporary government or utility funding. This in turn will create jobs to manufacture products and provide services needed to ensure high-performance. And the resulting “green” jobs cannot be outsourced overseas.

Persistence in construction high-performance homes. Savings and benefits from homes constructed new or renovated to achieve exemplary levels of energy efficiency are reliable. Further, a national infrastructure for constructing and maintaining high-performance homes will be developed to help ensure qualified homes deliver expected savings.

Energy supply reliability. This initiative would have a profound impact on the total housing stock that would continually reduce total electricity demand and peak demand. This would result in much greater system reliability by removing a substantial burden from the existing transmission and distribution infrastructure. 

Greater housing equity. The current mortgage interest deduction is income regressive, with more than 80 percent of the tax benefit going to households with earnings greater than $100,000.  Thus, a key recommendation would be to reallocate the billions of dollars spent each year on tax rebates, cash incentives, and credits no longer needed with this policy change, to whole-house energy efficiency upgrade programs for low-income housing.

Rewarding good behavior.  This tax initiative will provide an example of good government that substantially rewards good behavior rather than providing entitlements disproportionately to wealthy households. Typical incentives or rebates primarily reward consumers that “sat on the fence” and did not take prudent actions to improve the efficiency of their existing homes. This policy rewards those that took action before the policy change because their homes at resale will automatically qualify for the mortgage interest deduction. 

Leveraging existing federal government programs. DOE provides impressive but underutilized tools for the new home and home performance industries, including ZERH and HES. However, for the past decade, the U.S. Treasury has implemented the 45L energy efficiency tax credit pegged to its own metric: a home that reduced energy use 50 percent over code. This is incredibly inefficient. ZERH is readily available to deliver the same performance, along with critical assurances of moisture, comfort, and indoor air quality protection missing a narrow energy efficiency target. 


A new tax policy can create long-term demand for high-performance homes, and create jobs to manufacture products to ensure such high performance.

Further, the qualifying methods to calculate the 50 percent threshold had huge loopholes that undermined the assurance-targeted program goals. Even if there were no loopholes, the IRS did not have the competency to ensure proper compliance, whereas rigorous oversight could have been leveraged at no cost by using ZERH and HES and the verification oversight provided by those programs. 

This is most egregious. For many years, 45L was approved too late in the year to influence builder decisions, and as a result, was just a free giveaway for homes that were already going to be built to the targeted performance.

Moving forward. This policy change requires a collective impact process to herd concomitant interests on a common agenda and action plan. The goal would be to educate government, industry, and the public about the impressive benefits of this no-cost retooling of the mortgage interest tax deduction policy, and coordinate a lobbying effort to motivate change. This includes the following actions:

  • Develop a draft report on the opportunities to create millions of jobs, cleaner air, and improved national security with a retooled Mortgage Interest Deduction policy.
  • Vet the draft report with a broad stakeholder group including:
    • NGOs (e.g., ACEEE, ASE, NRDC, etc.)
    • Home Builder associations (e.g., NAHB, LBA)
    • Home builders
    • Manufacturer associations (e.g., NAIMA, PIMA, CIMA, Energy Efficient Windows Collaborative, ACCA, HARDI, AAMA, etc.) 
    • Manufacturers of products for high-performance homes (e.g., insulation, windows, heating and cooling equipment, sealants, ventilation systems, lighting, appliances, etc.)
    • The building science community (e.g., consultants, EEBA, ACI, BETEC, NIST)
    • Financial institutions (e.g., Fannie-Mae, Freddie Mac, FHA, VA, MBA, etc.)
    • Federal Government Programs (e.g., EPA, HUD, GSA, etc.)
  • Convene meetings to develop input for a final report.
  • Complete the final report, disseminate it to the stakeholder group, and secure sign-off by all of them on the document.
  • Use this report to facilitate a coordinated lobbying effort targeting legislation that instructs the Department of the Treasury to implement a new tax policy for the Mortgage Interest Deduction. The policy is pegged to a minimum HES score for existing homes and ZERH certification for new homes. It also requires underwriters to provide EEMs and EIMs for these homes. 
  • Initiate a coordination lobbying effort by all the stakeholders for this new policy, including allocating U.S. Treasury savings from new and existing home energy efficiency rebates that are no longer needed, to programs providing whole-house energy efficiency upgrades for low-income homes.

A Final Thought

Now that we have come full circle on a specific tax policy change proposal, I hope the elegance of its simplicity, impact, and cost savings are evident. That said, I’m not delusional. I know it takes an act of God to change institutional policy. But if the prize is virtually assured market transformation to a zero energy-ready residential sector at no cost to the U.S. Treasury, I say it’s incumbent for all stakeholders to work together to solve the problem. There has to be a solution for a policy where every stakeholder’s and the planet’s self-interest are better served. 

However, as the saying goes, “when you have a hammer, you see every problem as a nail.” Too often we rely on policies and programs that keep hammering the same nails that have not gotten the job done. I’ve had a front-row seat watching this process for too long a career in the federal government. 

Now our planet is at grave risk, and it is time to hold all institutions accountable to optimizing efficiency and minimizing waste. This includes the disproportionate government program priority of continually increasing budgets and staffing, assuming more can be accomplished with more resources. 

Beware of too much of a good thing. Consider the massive inefficiency of the trillions of dollars spent on the great recession stimulus programs and COVID relief. This level of inefficiency and waste is not sustainable. The reputation and confidence in our governmental institutions is too important. They provide critical expertise and wisdom that can uniquely address our nation’s greatest challenges. However, I continually observe too many missed opportunities to accomplish more with less resources. The efficiency imperative is not just for buildings. 

Click here to buy a copy of Housing 2.0: A Disruption Survival Guide.” If you are ready to join the ranks of high-performance builders who are staying ahead of the building curve, sign up for my next Housing 2.0 workshop.

This Housing 2.0 presentation is sponsored by: Mitsubishi Electric Westlake Royal Building Products, Schneider Electric  and Panasonic