In his much-anticipated jobs speech last week, Obama introduced a program meant to encourage energy efficiency retrofits for residential housing; it has since become known as “cash for caulkers.” On Tuesday, Obama will host a discussion at a Washington-area Home Depot focusing on the economic benefits of retrofits and soliciting ideas for how such a program should work.

The attention to retrofits is welcome — making buildings more energy efficient reduces climate pollution, creates jobs, and saves consumers money all at once. — but there’s reason to believe that “cash for caulkers” is limited in ways that will sharply curtail its environmental and job-creating potential.

The details of the program haven’t been revealed, but public statements from the administration have focused almost entirely on cash rebates, which would pay back homeowners up to half the cost of various retrofit investments. There’s a way to get far more bang for federal bucks, though, and it has to do with financing. Sen. Jeff Merkley (D-Ore.), the Senate’s leading champion on retrofits, sent Obama a letter (PDF) on Friday, describing how the retrofit program could be improved:

I strongly believe that to achieve these [energy saving and job creating] goals, the program must include financing assistance for residential and commercial building owners who cannot afford the upfront cost of a home renovation but who could pay for it out of the savings they will see on their energy bill. Financing assistance can allow federal dollars to be leveraged substantially farther than a rebate program. For example, appropriating $2 billion for loan guarantees could allow $20-$40 billion in financing.

A variety of financing mechanisms are available, and many are being tested in innovative city and state programs. They include the PACE model, whereby governments offer tax-based financing repaid through a surcharge on property taxes, and on-bill financing, whereby governments or utilities offer financing that’s repaid through a surcharge on electricity bills.

What these efforts have in common is a) they are hassle-free for consumers, which efficiency advocates have learned through hard experience is absolutely necessary, and b) they eliminate the high upfront cost barrier that prevents so many retrofit investments.

Again, where cash-for-caulkers would overcome only half of the upfront cost barrier, the loans described above completely eliminate it — and they’re paid back, unlike cash rebates. In short, the same amount of federal revenue goes much farther when used for financing.

Obama’s urgent priority is short-term jobs, but there’s no reason loan guarantees couldn’t be rolled out just as fast as cash rebates and have effects on the same time scale. And there are other ways to supplement the program to maximize its environmental and jobs effects. Merkley writes:

An energy efficiency retrofits program should make sure that building owners have a basic energy review done to help guide their choices. It should also make sure that entities administering the program offer information and guidance to homeowners on what combinations of measures make the most sense. For example, it may often be a savings multiplier to seal ductwork at the same time a new furnace is installed. My concern is that without such support, property owners may opt for quicker and cheaper strategies that have less impact on jobs or energy efficiency and are poorer investments.

As it happens, Merkley has introduced legislation with Sen. Dick Lugar (R-Ind.) that takes such a comprehensive approach. It’s called Clean Energy for Homes and Buildings, and I wrote about it last month. He suggests that Obama modify it for use in the jobs program “by directing loan guarantees or other federal support to programs already set up to offer financing or, in areas where no such programs have been created, by having community banks or others with financing capability partner with local companies or programs that can provide the energy efficiency services.”

With his jobs effort, Obama is pushing energy efficiency retrofits into the national spotlight for the first time. It’s incredibly important, now that the public is watching, that retrofit programs work as well as they possibly can. Kudos to Merkley for offering Obama such great advice on how to make that happen.