$100 bills
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The following commentary was written by Nik Sawe. Sawe is a policy analyst at Energy Innovation: Policy & Technology. See our commentary guidelines for more information.

In the last year, Congress has steered billions through infrastructure bills to help states like Michigan weatherize their housing stock. These weatherization projects help to reduce energy waste and improve energy efficiency by ensuring families can safely and efficiently heat and cool their homes. Michigan residents, in particular, need this kind of help because energy costs eat up a large portion of their incomes compared to the rest of the country. That energy burden places financial strain on low-income households, many of whom are people of color, families with children, and seniors.

But right now, an opportunity to make thousands of homes more comfortable and efficient, save on energy costs for Michigan families and make progress toward goals to reduce emissions, all at the same time, could be squandered. Michigan has millions of dollars for weatherization assistance that must be spent by a deadline of June 30 of this year. Red tape, made worse by the challenges of delayed projects due to COVID-19 and labor shortages, are also making it difficult for the state to deploy these dollars to hire contractors to perform the weatherization work. It is urgent that policymakers get together and figure out a way to overcome these challenges.

A failure to fix the program would be disastrous for Michigan residents. The median metro Detroit household pays 3.8% of its income on energy bills compared to 3.1% for the median American household, according to the American Council for an Energy-Efficient Economy. For low-income households, who have fewer opportunities and resources to keep their living spaces efficient, the problem is particularly stark. Homes with high energy burden can be found anywhere, but are disproportionately located in rural areas and historically disinvested cities like Detroit.

Weatherizing our homes is not just a huge affordability problem for vulnerable groups. It is also a climate issue. Homes and buildings that could benefit from energy efficiency improvements account for about a fifth of the state’s total energy-related direct carbon dioxide emissions, according to the recent draft of Gov. Whitmer’s MI Healthy Climate Plan.

The money that we could lose is from the federal government for one of the major programs to promote energy efficiency: the Weatherization Assistance Program (WAP). Under this program, states receive 5-year grants over which they have discretion in spending toward home weatherization. At the end of the 5-year period, any remaining funding expires. At the beginning of PY21, there was $26.7 million from the U.S Department of Energy in Michigan’s budget for WAP.

But there are restrictions on exactly how that money can be spent. Most severely, there is a fixed limit of about $8,000 on how much can be spent per household. That puts a tight cap on the budget for projects that constrains these programs in two important ways. First, as costs go up, contractors demand a higher market rate for their services, but the per-household cap makes it difficult for the state to offer a competitive rate. Unfortunately, many contractors have passed over energy efficiency work in favor of other projects that pay more.

Second, as the cost of the basic materials goes up, the closer a project is to hitting that $8,000 ceiling, so less work can be done. What was once a project to overhaul the energy profile and carbon footprint of a home — say, by adding weatherstripping to doors, replacing windows, putting insulation into the attic, and upgrading heating and cooling systems — must now settle for much more modest reductions in the energy consumed, like a project that only adds insulation. As a result, the energy and utility bill savings for the residents are also much smaller.

Those difficulties, especially when combined with the economy-wide labor shortage, have been paralyzing for the weatherization program. The Michigan Department of Health and Human Services (MDHHS) has had difficulty finding enough contractors to spend the money it already has.

But there are still things Michigan can do to save this situation. One idea is that the state government could use existing federal or state funds to offer more competitive rates to contractors. Doing so would tap federal funds made available through the American Rescue Plan to shore up Michigan’s WAP. In addition, the WAP funds can also be supplemented by the Low-Income Home Energy Assistance Program (LIHEAP), another federal program in which grants to the state allow it to fund efforts to help low-income households with their energy bills. Michigan currently allocates about 3% of its federal LIHEAP funds for weatherization purposes, a much lower percentage than other states allocate. If the legislature increased that amount, LIHEAP funds could better combine with WAP funds to complete more ambitious energy-saving projects at the households for whom energy costs are a large drain on their finances.

The benefits are not just to the homeowner. Energy efficiency jobs pay well, require sophisticated trades skills and are expected to be a fast-growing segment of the national economy as the U.S. tries to cut its carbon footprint. Using less energy by making homes and other buildings more efficient reduces the strain on the grid and enhances reliability. Let’s work together to ensure that we don’t let this opportunity go to waste.