Codifying Climate

The International Energy Conservation Code (IECC) is commonly used by state and municipal governments in the establishment of minimum design and construction requirements for energy efficiency.  The IECC divides the United States into 8 climate zones, which in addition to affecting building codes serve as a useful proxy for studying the impact of weather patterns on demand for building materials.

A Southern Surprise

An important question facing producers and distributors of insulation is how large of a role these climate zones and their impact on state and municipal regulations plays in driving demand for their products.  To help shed light on the issue, we looked at insulation factory gate revenue by state for new construction and reinsulation and found that contrary to conventional wisdom, demand for insulation is most robust in the warmer parts of the country.  As shown in the figure the top three states for insulation demand were Texas, Florida and California driven primarily by new construction.  New IECC 2015 codes calling for higher insulation R-values and the use of continuous insulation on exterior walls primarily impact Zones, 5, 6 and 7 in the North where new construction has rebounded more slowly.  An aggregated comparison across ICEE zones yields a similar result; overall demand is clearly strongest in Zone 2, primarily impacted of Florida and southern Texas, and the slightly mildly Zone 3 is solidly second.  There are a few clusters of high demand counties outside of the south, notably in the mountains of Colorado and the northern Great Lakes states, but the overall trend is clear: the hot market for insulation is in the Sunbelt.

As of October 2015, only Maryland, New Jersey and Vermont had adopted the 2015 IECC code and only 13 others had others had adopted the 2012 IECC code.  The remainder of the states are still on the 20019 codes or earlier.  The implication is clear that in the near term, a significant bump in insulation demand will be delayed due to the slow adoption rate of the new codes and the low build rate for new housing in the colder climate zones.  The industry will benefit from more rapid build rates in the South and West, increased awareness by builders and homeowners of the importance of insulation to drive energy savings, and the overall move to more “green” building practices.  In addition, when new construction in the colder climates does rebound, all insulation types will benefit, particularly foam and hybrid systems which can meet the new energy code requirements.