A. Moncef Krarti, professor of architectural engineering at the University of Colorado in Boulder, replies: I suggest that you insulate the exterior surface of the foundation wall using extruded polystyrene foam boards. You can place R-5 rigid insulation (1-inch board) to the full 4-foot depth, or use R-10 rigid insulation (2-inch board) to a depth of 2 feet. These two options have almost the same thermal performance. One advantage of the full-depth treatment is that the insulation board will be supported by the footing. Insulating under the floor is not really necessary.
Either choice will save energy and cut heating bills. For a small building in New England, for example, a simple calculation (using various assumptions about energy costs and heating system performance) shows that you can expect savings ranging from $50 to $100 per year from that level of insulation, compared with an uninsulated foundation.
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