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I have access to a large amount of EPS in the form of used multi-cubic-foot blocks (I believe they used to be boat dock floats).

Because of the high R value of EPS, I am thinking about slicing them down to use to insulate the exterior walls of the house I'm renovating. The house is located just southwest of Ft Worth, Texas. This would not be outside the sheathing to prevent thermal bridging, but between the studs, instead of fibreglass or sprayed in foam.

Can I use EPS insulation to insulate inside the exterior walls? If so, what else would I need to consider that more traditional insulation methods already include (e.g. the paper facing on batts)?

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You can do this, especially for rim joists if the house has a basement or crawlspace. In fact, that's the perfect application for this "cut & cobble" approach. For walls it can still work too, and can be especially cost-effective in a situation like yours where you have access to a lot of cheap or free material that's not in board form. You can either cut the pieces loose and seal them to the framing with spray foam, or cut them tight and seal them to the framing with caulk. Your choice. Not a big deal wither way.

There's not much else you'd need to consider. You don't need a vapor retarder like the kraft facer on fiberglass batts. Just make sure you cover it up with drywall on the interior side and that the sheathing on the exterior side is intact and covered with a water-resistive barrier like Tyvek or tar paper. Ideally there would be more rigid foam outboard of the sheathing to cut down on the thermal bridging through the studs, but that's another matter.

Here are some more details on how to do it right: http://www.greenbuildingadvisor.com/blogs/dept/musings/cut-and-cobble-insulation

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