Update the Residential Energy Conservation Ordinance (RECO)

Assumptions

• Time of sale spending cap of $1,300 is invested in energy efficiency improvement at every property transfer
• RECO-compliant homes are 10 percent more efficient than an average San Francisco home
• life cycle of energy efficiency improvements is 10 years

Analysis

This option would tighten up the energy efficiency standards covering single-family and two-unit buildings when they are sold, under San Francisco’s existing Residential Energy Conservation Ordinance. It is cost-effective, but for the same price a similar option with an added requirement of a home performance test would cover the same properties and reduce emissions more. Because emissions are permanently lower for each year of the life of energy efficiency improvements, emissions savings accumulate and become a substantial annual reduction after only a few years. By the 10th year, this policy accounts for significant reductions of a steady 61,820 tons per year. Additional savings potentially could be achieved if RECO were expanded to cover renovations. The annual cost borne by home buyers, meanwhile, ends up being repaid in saved energy bills by the seventh year and saves the city $2.3 million in energy costs per year.

Relative Impact
Energy used in buildings accounts for 45 percent of San Francisco’s annual greenhouse gas emissions, or the equivalent of 4.4 million tons of CO2. The City’s Climate Action Plan estimates that energy efficiency in residential and commercial buildings can reduce greenhouse gas emissions by 655,000 tons annually by 2012, a 15 percent reduction from present day levels.

In 1990, residential emissions accounted for 19 percent of San Francisco’s total emissions, and represented 38 percent of building emissions.

What we do now
San Francisco has a Residential Energy Conservation Ordinance, established in 1989. RECO requires property owners to conduct an energy inspection and install certain energy and water conservation features before selling their home. To meet these requirements, property owners may spend up to 1 percent of the purchase price, or 1 percent of the assessed value, whichever is greater. For the smallest developments (one or two units), a cap of $1,300 applies. Once an inspection report has been certified at the Department of Building Inspection, the property is considered to be compliant with RECO and no further action is needed at future title transfers. RECO applies only to homes built before 1978. The onus to meet RECO requirements may be transferred to the buyer if compliance will be certified within 180 days.

The list of conservation-related features includes ceiling insulation, weather stripping, water heater insulation, low flow devices, duct insulation – and for multi-unit buildings, boiler tuning. The list was last amended in 1995.

What we could do
To further promote energy efficiency in residential buildings, San Francisco could update both the RECO price cap and the list of required conservation features. On the water side, the list could include low flow toilets, irrigation schedules, leak repair and stormwater detention. On the energy side, RECO could require wall insulation, heating equipment maintenance, lighting retrofits, a home energy rating, solar water heating, and efficient appliances. Potentially, RECO could be amended to a tiered system with required, cost-effective measures that must be installed — weatherstripping, a programmable thermostat, sealing ducts and air leaks — before more optional, less cost-effective measures such as installing renewable energy systems or replacing window glazing with Energy Star equipment. The price cap of $1,300 could also be eliminated, requiring the full 1 percent of sale price to be spent. RECO could be triggered by major renovations, which already require the homeowner to obtain a remodeling permit from the DBI. It also could be triggered upon every property resale, not just once. The 1978 date could be updated to more recent versions of California’s Title 24, such as the 2005 revision. Performance measures could even be pegged to the most recent version of Title 24 at the time of sale.

Cost
The cost to update the list of RECO requirements is negligible. The cost to DBI to more closely monitor and enforce the ordinance is estimated at $200,000 per year.

The private costs to update RECO are more substantial because they require homeowners to invest a percentage of the price of their home into energy conservation features. To the extent that homeowners make this investment before they sell their home, however, they can reap the benefits of having a lower energy bill. We model spending the full existing RECO cap of $1,300 at the time of sale, for every sale. We also include a private utility bill savings of 10 percent per year for 10 years that could occur as a result of RECO upgrades.

The annual cost of RECO, assuming a 10-year life of energy savings, is $16.9 million, of which the government share of $200,000 is 1.2 percent. But the annual energy savings from the measure, about $2.3 million, begins to exceed the annual investment in about seven years because the savings are cumulative.

Carbon savings potential
The annual turnover rate in residential housing units means roughly 12,880 homes would be subject to new RECO requirements. If an updated RECO could improve the average home’s efficiency by 10 percent¹, through leveraging the private investment of $1,300 per home, an average home could save about 1,000 pounds or 0.48 metric tons of carbon per year. Citywide, this is an annual savings of 6,182 tons. Because these tons remain “abated” in subsequent years, the savings are cumulative. After 10 years, the program would reach a steady level of abatement of 61,820 tons annually.

The cost to reduce one ton of carbon through RECO, assuming a 10-year life of energy improvements, is about $274. The government cost is about $3 per ton saved.

Endnotes:
¹ A study of RECO-type ordinances nationwide conducted by the City of Boulder, Colo., found that the average energy savings per home attributable to a RECO ordinance was 10 percent. Using LBNL’s Home Energy Saver Web site, we modeled several energy upgrade packages for an average home in San Francisco (using the model’s assumptions and PG&E’s current tariffs) with an average cost of $1,300. We believe 10 percent annually for 10 years is a conservative energy savings assumption from this level of investment.