Despite federal subsidies, the cost of weatherizing homes to improve energy efficiency is roughly double the sum of any utility-bill savings resulting from the upgrades, a new report finds.

The federal government’s pitch sounded good: Consumers participating in subsidy programs would not only improve the environment but also save money on their utility bills. But this study undermines that assumption, suggesting energy consumption decreases only slightly, while the upfront investments to weatherize, insulate or upgrade homes are huge.

“Even when accounting for the broader societal benefits of energy efficiency investments, the costs still substantially outweigh the benefits; the average rate of return is approximately -9.5% annually,” the study concludes.

The report is groundbreaking, in part because of the presumably leftward lean of its authors. Michael Greenston was once a chief economist for the Obama Administration’s Council of Economic Advisers, and the other two authors teach at Berkeley.

Their research was pretty comprehensive, too, as the Wall Street Journal notes:

The authors focused on a sample of more than 30,000 [Weatherization Assistance Program]-eligible households in Michigan. Of these, a quarter were encouraged to apply for the program via home visits by field workers hired for the study, and via phone calls. Households were reluctant to sign up, though it cost them nothing.

The authors then compared the energy consumption and thermostat settings of households who signed up for the program with those who didn’t. The energy consumption of program participants dropped by 10% to 20%, barely 40% of what engineering models predicted. The savings equated to $2,400, less than half the $5,000 spent on the energy efficiency investments. The authors put the annual return on the investment at minus 2.2% over 16 years, much worse than the historical returns on bonds or stocks.

… The study’s authors reckon that WAP spent a whopping $329 to eliminate one metric ton of carbon emissions. That’s 10 times the $38 that the White House reckons is the all-in cost to society of a ton of carbon, meaning WAP flunks the cost-benefit test by a wide margin.

In fact, in some ways the program left others worse off. Natural-gas and electricity distribution entail high fixed costs, which are shared among all customers. When some customers consume less, others must shoulder more of those fixed costs. Incorporating all social costs and benefits dropped the program’s return to minus 9.5%.

These findings illustrate a vast waste of taxpayer dollars. The stimulus package alone included $5 billion for energy-efficiency upgrades and weatherization for low-income families. Federal auditors later found that program had been rife with waste, fraud and abuse.  

And as we recently reported, an additional $4.28 million in stimulus money went to green upgrades for public buildings—but several years in, it’s unclear whether those facilities are actually more energy efficient.

In the end, it’s little surprise that consumers have proven better than bureaucrats at evaluating whether investments in energy efficiency would pay off. Yet misguided subsidies based on a faulty premise continue to push consumers toward a choice that doesn’t make financial sense, and the taxpayer money flows.