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I want to cover the interior walls of a shiplap wooden shed with plywood to hang tools and put up shelves on a flat wall. Do I need to insulate the gap between the plywood and the wooden planks of the exterior of the shed? The floor of the shed has plenty of gaps and the door isn't tight. Moisture will get in regardless. It is going to remain a toolshed.

I have read that it is needed only if you plan on heating or cooling the shed to keep the temperature consistent. I do not plan on this.

I feel like any moisture that got into the cavity would dry up as the shiplap planks on the outside are not airtight so a moisture build up shouldn't happen but maybe I am wrong. Would a cheap win win, be to put a water-resistant barrier in the cavity so the moisture will never hit the plywood if it does get through the shiplap?

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Without sealing it pretty well (and it sounds like it's not right now), I don't think you'd gain any benefit from insulation. To be truly effective, you need to seal up air gaps, holes, etc. You'd also need to then consider insulating not only the walls, but the ceiling as well.

For an unconditioned space, sealing things up may just lead to other problems. If it's humid out and you're going in and out, you're letting the moist air in. Close it up, you seal it in next to your tools. Not great. Putting in something like fiberglass insulation in the walls would also make the drying of any moisture that got in the wall cavities take even longer, which is exactly what you don't want.

If you have no plans of heating/cooling this shed, and it's just an outbuilding for storage, I don't see why you'd bother with the expense and effort of insulating it.

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Condensation occurs where warm moist air meets a cold surface. In a home that's where the warm moist inside air meets the cold from outside, at the insulation. A vapour barrier is applied to keep the inside moisture away from the insulation, to prevent mold etc..

You do not need to insulate the walls. It would do nothing for moisture control, just maybe heat control on the sunny side. And if your shed is not insulated you have little to worry about, since the inside temperature and humidity will usually follow the outside temperature and humidity. Only rapid changes, say during dusk and dawn, can cause condensation on an outside surface.

If you have sufficient ventilation through the roof and the floor, the inside can follow the outside, even if you panel the interior of the walls.

Since you are not insulating, your main concern is to avoid cavities that do not ventilate. Make sure your wall space between the plywood and cladding ventilate outwards or inwards. For this you can simply leave a 1/4in gap when installing the plywood, at the top and bottom. Or leave a butt gap in the middle if that's where to horizontal sheets meet.

Also, any cubbies/pockets should be meshed off or capped off while keeping a venting gap, so that it can ventilate but remain inaccessible to rodents.

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