posted 12 years ago
Hi, Shazi. I'm a home energy auditor based in Kansas. Most of my knowledge is based in this climate (warmer than yours), and on synthetic building products rather than natural ones, but I'll answer as best I can to get the ball rolling...
The current wisdom in the building science world is that the best, most energy-efficient place for insulation -- both above and below ground -- is outside the thermal mass of walls and floor, not inside it. Since your basement is already built, you're already settling for second-best by putting the insulation inside. I don't mean to be discouraging, but it's important to know where you're starting from. Obviously any insulation outside the building would have to be non-biodegradable, i.e. not a natural product.
When considering insulating the inside, a lot depends on how reliably dry your basement is. If you can't count on it to be 100% dry all the time, then any kind of biodegradable insulation will create a terrible mold problem. Even if you build in drains and a moisture barrier on the wall side of your insulation, you're asking for trouble. My recommendation for a wet basement would be non-biodegradable foam insulation, either in panels or sprayed, down to the frost line, with no insulation below the frost line. You can then build a frame floor and walls to separate the living space from the cold, wet walls, being sure to isolate all biodegradable materials from any possibility of moisture.
If you know your basement to be 100% reliably dry, then you can consider putting biodegradable materials in (or preferably just near) contact with the walls. Light-clay-straw is an option, or straw bales, or recycled cotton batts. In any case, think seriously about the possibilities of rodent infestation and mold, and build your walls and floors in a modular way so that part can be removed without gutting the whole basement. That is, I would not recommend a seamless coat of plaster over the wall, because if anything goes wrong in there, you'll have to break the plaster.
Good luck! I look forward to seeing what else other people suggest.