Use the least permeable, most efficient foam panel insulation. Molded expanded polystyrene, also called Styrofoam, is the least expensive board and has an R-value of 3.8 to 4.4 per inch. It is also permeable, meaning that moisture can work through the spaces between the beads of polystyrene. MEPS is, however, molded into concrete to create insulating concrete forms. Extruded expanded polystyrene, a more expensive alternative, has an R-value of up to 5 per inch. Polystyrene beads, chemically dissolved and mechanically extruded, form less permeable boards appropriate for use on concrete blocks. Polyisocyanurate and polyurethane foam board are the most impermeable -- and most expensive -- option for use on concrete. It is also the most efficient, with an R-rating of up to 8.
Concrete blocks in walls and foundations allow both air and moisture to penetrate, making exterior installation with a vapor barrier on the exterior the most efficient configuration, according to the U.S. Department of Energy. Above ground, boards are attached with construction adhesive -- nails would pierce the insulating membrane -- and taped with aluminum or moisture membrane tape. Below grade, a gravel bed must extend under the boards to provide drainage. Exterior installation below grade also uses construction adhesive. Careful backfilling provides additional holding power. Panels mounted below grade on exterior walls should be treated with an insecticide because insect damage can compromise the insulating value of the panels.
Where exterior excavation is impractical, foam panels can be fastened to dry interior walls. Unlike exterior installations where foil-lined boards are placed foil-out, panels on the interior sides of cement blocks should have foil facing in. Construct framing against the wall, placing the studs far enough apart to allow insertion of panels between them. Use construction adhesive to fasten the panels between each stud. Tape cracks or spaces around plumbing and duct work. Some states might require vapor barriers in the interior side of the foam panels.
Cement blocks used in foundations below grade allow seepage and in areas where water is a problem. In these cases, exterior installation is mandatory. Exterior installation is easily accomplished with new construction. Interior installation might be more convenient but the cost of curing leaks or seepage could require outside excavation. Waterproof construction adhesive is recommended for all foam boards, but seepage or moisture problems that threaten cement blocks or the mortar between them will make adhesion difficult, so fix water problems before beginning your project.