In 1978, California adopted building codes designed to reduce the energy used for heating, cooling, and water heating in buildings. Using a rich dataset of hourly electricity consumption for 158,112 California houses during 2012-13, this paper estimates that single-family homes built from 1980 through 1982 consumed on average 13% less electricity for cooling than premises constructed between 1975 through 1977. This estimate is similar to projected cooling-energy savings made using engineering models at the time the codes were enacted. The authors argue that the 1978 building codes easily pass a cost-benefit test.
There are reasons to believe that putting a price on carbon through a tax or CAT may not improve building energy efficiency. In particular, there is an agency problem because the builder of the house is a different person than the consumer of the heating and cooling services. Moreover, the purchaser of a house may not observe the energy efficiency of the house and therefore energy efficiency may not be priced into the house. As a result, there is little incentive for the builder to incur extra costs to improve energy efficiency.
In sum, Title 24 building codes proved to be an inexpensive policy with substantial benefits. Given the potential ineffectiveness of price-based policies, the authors conclude that building efficiency standards can be an effective policy.