Why exterior insulation?
Many cities and states are adopting energy codes which require buildings to have an inch or two of exterior insulation. Most people are aware that putting more or better insulation in the cavity space of the exterior walls of a house or building can reduce the cost to heat and cool the building, thus saving costs while saving the planet. But fewer people are aware of exterior insulation that is added directly to the outside of the building walls, sandwiched between the sheathing and the exterior cladding (siding, stucco, brick, etc) of the building.
Exterior insulation provides insulation at thermal breaks. Thermal breaks are locations where a specific material – such as a wood or metal studs – spans the space between the exterior sheathing and the interior wall board – creating an easy path for cold air to transfer across the space. Cavity insulation slows the transfer of cold air between the studs, but not at the studs themselves. Metal studs transfer cold air much more efficiently than wood studs. Exterior insulation specifically addresses the thermal breaks by putting a layer of insulation between the stud and the exterior side of the wall.
Most exterior insulation is made from foamed plastic and is produced as rigid sheets 4 ft x 8 ft that can be nailed or screwed to the studs of the building, or anchored to concrete & masonry surfaces. Unfortunately most of this foamed plastic is combustible. When a building is constructed with multiple stories, normally, the floor construction is built like a table top on legs (columns, walls) and repeats as the building goes up. By building this way, you form a fire-stop at each floor, thereby preventing a fire from easily climbing up the exterior of the building. But by putting continuous sheets of flammable foamed plastic on the exterior of the building, you enable fires to quickly and easily climb up the exterior of the building.
Exterior insulation is also available is non-combustible materials, but these sheets cost a lot more money. Some of them do provide higher R-value per inch, though. If you are trying to keep your walls thinner, that might make them more worth the extra cost. In general, unfortunately, most contractors choose exterior insulation that is the minimum R-value required to meet the code at the lowest price, which means that they buy and install combustible foamed plastic sheets and give no thought to the potential danger should it catch fire.