Frantic, John G. Holt, an insulation salesman, burst into his boss's office one day last week and exclaimed: "Hey! Remember that guy who called back yesterday? He's getting the job done for 30 cents a square foot compared to [our] 53 cents."

The boss, Joe Carbonaro, looked at Holt in disbelief. "Son of a gun," he said. "How can they do it for that? I couldn't afford to do it for that."

Carbonaro, a lean man who seems to be a perpetually worried, operates Better Home Insulators Inc. out of a small office in a Price George's County industrial park.

The costomer in question was Victor Carromba, who lives in a comfortable brick split-level in Clinton. Carromba had been meaning to insulate for a long time, had been putting it off, but decided to go ahead after receiving a flyer in the mail from Better Homes.

Holt, the salesman, visited Carromba and tried to talk him into $1,200 worth of urea formaldehyde foam in his walls and $700 worth of cellulose -- ground-up newspapers treated with boric acid to add fire resistance -- in his attic.

Carromba resisted the idea of using foam because he didn't think it would be cost-effective and tentatively agreed to insulate his attic. But then he got to thinking about that $700 and wondered if he couldn't find something cheaper. "I felt it was too much money," he said.

So he called another insulation company, G&B Enterprises Inc. -- the first name he saw in the Yellow Pages -- and asked their price for six inches of insulation in his attic, which was what Better Homes was going to provide.

"They said, '$360' and I said, 'When can you do it?' and we set an appointment. . . It took them an hour [to do the job] and that was it."

Carromba didn't realize until later that what he got from G&B was six inches of blown fiberglass instead of cellulose. Fiberglass has less insulating capability per inch than cellulose -- hence the lower price.

But Carromba doesn't care. For one thing, he doesn't have to worry about insulation anymore. It's done. "I felt I got a better deal all the way around."

Next door to Carromba, Dolores Foley said she and her husband Jack have been thinking about getting more insulation for a long time. They've lived there nine years and have "never done a thing" to increase their attic or other insulation, she said. It hasn't seemed to matter too much, because like Carromba they have gas heat, which is relatively inexpensive.

One reason they haven't insulated, Foley said, is that some concerns about insulation lurk in the back of her head.

"I would be concerned as far as that asbestos stuff goes," she said. "There was a stink about it -- cancer-causing fibers and all that."

But asbestos is used only as insulation in industrial applications, not in homes. Like many people, Foley seems to have a general impression that insulation could be dangerous.

These stories indicate the kinds of problems that insulation industry is having these days. The business is in chaos. People are confused about insulation. They aren't buying insulation the way they would be, energy experts say, if they realized how much money it would save on heating and cooling bills. Many small installers like Carbonaro are near going out of business or already have. Even some big manufacturers are having trouble.

Housing starts around the nation are way down, for one thing, and that's a big blow to the insulation industry. But industry spokesmen also say that federal regulatory problems and what they call federal scare tactics are to blame. They say that people are scared of insulation in general, that federal agencies like the U.S. Consumer Product Safety Commission have planted the fear that insulation causes fire, cancer and other ills.

Of course, Carbonaro and other industry spokesmen acknowledge that there wre plenty of shoddy and even dangerous insulating products on the market when entrepreneurs scrambled in 1976-77 to get in on a big insulation buying surge that followed the sharp increase of international oil prices and other energy costs. But now, they say, the industry is regulated, watched closely and the products are safe.

"Insulation is kinda like an intangible," said Gerald L. McDonald, director of the National Association of Home Insulation Contractors and owner of a small insulation firm here. "You're selling savings and comfort. It's not esthetic. You've got to sell it like an insurance policy, so if [government] creates in the minds of people doubts and concerns, [that's where] government has greatly overreacted."

According to the U.S. Department of Energy, inadequate insulation is the greatest cause of energy waste in most American homes, and the savings from proper insulation can be enormous -- 25 percent of the energy used to heat homes and 10 percent of that used to cool them.

With roughly 67 million U.S. homes, that amounts to potential savings of $11 billion annually -- enough to eliminate, or pay for, all the oil imported by the United States for 70 days.

According to DOE figures, an average saving of $167 annually for each house in the country could be achieved by proper insulation, although the actual savings would vary sharply from house to house and according to the type of fuel used for heating.

"Business has been lousy, people are just not reinsulating and adding to their insulation as they should," said Sheldon Cady, executive vice president of the Mineral Insulation Manufacturers Association. Cady said the number of people claiming federal tax credits of up to $300 for insulation is disappointing.

According to the U.S. Treasury Department, 3.3 million homeowners claimed insulation tax credits for 1977 and 1978, and it appears the number of claims may be about 20 percent higher for 1979. Most of those claiming the credit were in middle- and upper-middle-income brackets, and the amounts spent for insulation ranged from $260 to $323 per household.

"You can't sell insulation, I can't sell it, the salesmen can't sell it, the hell with it," said Richard E. Sebastian, who is in the process of closing the doors at his Town & Country Insulators Inc. in Landover.

Sebastian and Carbonaro said many small local insulation businesses are going broke. Industry spokesmen said this is happening across the country.

Spokesmen for local chain stores said that do-it-yourselfers are still buying insulation. "For Sears the installed end of [the insulation business] is slightly down, the do-it-yourself is up," a Sears spokesman said. A Hechinger's spokesman said there is "still a good bit of interest [in insulation], but not near as much as before."

Carbonaro, the Better Homes boss, remembered how he put a $15,000 second trust on his house in 1977 to get started in the insulation business. "The business did do well for a couple of months. Then one morning I woke up and a newspaper article said that cellulose would burn your house down."

Carbonaro's business started a downhill slide and it has been a struggle ever since.

There are many different kinds of insulation, and it's difficult to decide which kind to use and how to have it installed.

"When people call and ask what to install, I can't answer easily," said Shelly Launey, an insulation specialist in the conservation office of DOE. "Every product has its disadvantages and advantages. It's hard for the homeowner to make tradeoffs and make a decision, and he becomes frustrated and gives up on it."

Interviews with industry executives, businessmen and federal officials indicated that the insulation industry is dominated by several big manufacturers producing fiberglass and rockwool, products that are mechanically spun from glass and rock. Most new homes in America are insulated during construction, and fiberglass or rockwool is used in the vast majority of these.

These products are also sold in rolls and bags that homeowners can install themselves in attics, crawl spaces and even some walls.

Celulose, the insluation made from ground newspapers, is used in only about 10 percent of new insulated houses, and in perhaps half the existing houses that are "retrofitted" -- an industry word -- with insulation. Usually it is blown into attics and walls with an air hose.

The smallest share of the insulation market belongs to urea formaldehyde foam -- known in the industry as "U.H. foam" -- one of the only kinds of insulation that can be put in the walls of an existing masonry house. Holes are drilled in the exterior brick and the foam pumped behind the brick, where it spreads out and dries in the small space between the brick and structural cinderblock.

Other types of insulating plastics and fiberboard are bing developed, but they are not widely in use.

U.H. foam has been under attack for years by the Consumer Product Safety Commission, and Massachussetts has banned it. "This product may release formaldehyde gas into your home over a long period of time," says a CPSC statement. "Formaldehyde gas may cause eye, nose and throat irritation, coughing, shortness of breath, skin irritation, nausea, headaches and dizziness . . . The symptoms may appear immediately, or not until months after installation."

The CPSC commissioners are scheduled to meet today to decide on labeling requirements for U.H. foam, to hear a report on whether it tends to cause cancer and to set standards for it or to ban it.

All this drives Carbonaro, Sebastian and others who install the U.H. foam wild with frustration. They believe that the CPSC has purposely dragged its feet for years on setting standards for U.H. foam while issuing scary news releases about it in order to kill it.

Said Sebastian: "This is wonderful stuff.We've got some nice letters from people we did it for. Nobody we ever did it for had any trouble. Not one person we installed it for has had a complaint . . . I just can't understand why some congressmen or Consumer Product people have got on the case of this stuff so bad."

R. Hartley Edes, executive director of the Insulation Contractors Association of America, said, "The real problem with it is it's a product that's mixed by the installer on the job, and unless it's a really qualified [installer] then it has a chemical breakdown and that's where you get your formaldehyde emanations."

Carbonaro said the U.H. foam industry has been trying for years to force the CPSC to issue regulations on foam so public confidence could be established in the product -- but so far to no avail. Even without regulations, he said, the industry has organized itself so that the foam now produced has very little formaldehyde in it and most installers are qualified to mix and install it.

"They came out with a claim that formaldehyde causes cancer and my business dropped 80 percent," Carbonaro said. "In the past 3 1/2 years we've insulated thousands of homes and I've had no problems."

The CPSC has set flammability and corrosion standards for cellulose insulation, much to the relief of its major producers. In past years when there was no regulation, there were nearly 1,000 manufacturers of cellulose, some so small that they operated out of garages and mixed chemicals into the ground newspaper with a shovel. Now there are about 100 manufacturers of cellulose, and officials say most products on the market are safe.

The Federal Trade Commission set labeling standards in September for all types of insulation designed to enable consumers to compare the insulating powers of various types and thicknesses.

The standard of comparison is called "R-value," with R standing for resistance to heat loss. The higher the R-value, the higher the resistance. In the Washington area, for example, R-30 is recommeded for attics by officials as being just the right amount of insulation to save energy costs but without expensive and wasteful over-insulating.

Carromba, the Clinton man, for example, had several inches of insulation in his attic which the Better Homes salesman guessed provided him with R-11. iSo the salesman suggested adding R-19 more insulation -- six inches of cellulose -- to reach the R-30 total.

The price of insulation has risen along with everything else in recent years, but energy experts say the right kind and amount of insulation properly installed can be cost-effective.

"You can put in one thousand square feet of R-19 blown or batts for $200 or $225, and that's pretty damn cheap," said Stanley L. Matthews, vice president of technical services for Rockwell Industries Inc. "People have the impression that insulation is expensive, but it isn't."

The costs of insulation, like everything else, have risen steadily. At Sears, for example, a roll of fiberglass insulation six inches thick and covering 120 square feet cost $28.99 in 1976; today that roll costs $37.99.

Experts also say that over-insulating can be a waste of money -- at least until home heating costs rise further.

Washington Gas Light Co., the utility that sells natural gas throughout the Washington area, is also in the inusulation business. It owns Davenport Insulation Inc., which is perhaps the largest installer of insulation in the Washington area. Daveport, in turn, owns Cellin Manufacturing, a large cellulose producer in Lorton and the only insulation manufacturing company in the Washington area.

Little installers like Carbonaro think that regulated monopolies like WGL have no business in the insulation business, and the U.S. Small Business Administration tends to agree. In dealings with the energy department, the SBA is seeking to limit the role of WGL and other utilities in the soon-to-be implemented DOE home energy audit program, in which utilty companies will perform free or low-cost audits for all homeowners.

SBA officials would like to make sure utilities don't have too much influence over the financing and installation of insulation and other energy-saving equipment.

"It's an all-encompassing monopoly, and the typical home insulation or home improvement contractor is out-classed," said J.A. (Jeff) Davis, president of Surfa-Shield, an insulation company in northern Virginia. "The crazy thing is the consumer is being deprived of a competitive situation."

According to McDonald, the National Association of Home Insulation Contractors man, WGL dominates the insulation and storm window market in Washington in what he termed a "grossly unfair" way that has driven many small contractors out of business.

"That's ridiculous," said Richard C. Vierbuchen, the new president of Davenport and a long-time executive vice president of WGL. "I'd be surprised if we had 25 percent [of the insulation business] in the Washington metropolitan area."

Vierbuchen called statements by McDonald "outlandish and false." He said business has been slow because homebuilding has slowed in the area, and also because people aren't retrofitting their homes at a fast pace. He said that Congress took so long to pass the Carter administration's energy legislation that, "The public isn't convinced there's an energy problem."

You might call Laurence F. Gilchrist of Prince George's County an insulation buff. He had U.H. foam pumped into his walls years ago, and of course his attic is insulated to R-30 and beyond. He has a special computerized thermostat.

Using a chapter called "Design Heat Transmission Coefficients" in the handbook of the American Society of Heating, Refrigeration and Air Condition Engineers, Gilchrist, who is an electrical engineer, has figured the R-values of his walls and ceilings very closely.

He has adjusted all his calculations for "degree days," which measure temperature variations day-by-day so that year-to-year comparisons of heating needs can be made on a comparable basis.

The foam insulation especially intrigued him. "You'd be surprised the places it came through," he said. "It came out the electrical outlets. I'm not convinced it's all that dangerous." Gilchrist said he and his wife have never smelled formaldehyde or had any symptoms that they could attribute to the foam. They are happy with it.

But with all his interest in insulation and careful caculations, Gilchrist is unable to calculate his energy savings exactly. He knows so much detail that the problem becomes infinitely complex from an engineering point of view.

From a practical point of view, however, he figures that the insulation will pay for itself much more quickly than in the seven years he was promised when it was installed.

"The insulation is working great as far as I can tell," he said. "As far as I can tell I've saved between a third and a half on my fuel bills."