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We live in Oakland, California. We have an unfinished basement that we would like to finish up and insulation is on our list. The house was built in 1920. The basement is rimmed with a knee-wall foundation and the top half is framed out with studs that sits on top of the knee wall. We want to level out the wall and get rid of the "shelf" that the knee wall creates. Do we have to insulate the bottom half? Or is insulating the top half so it juts out and evens out with the knee wall enough to keep warmth in the basement?
 

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Welcome to the forums!

R-5 foam or R-13 cavity insulation is required for your location, per Code. Though I'd take that with a grain of salt... your coldest 3 months average temp is 52*F above-grade. 6' below-grade the earth is warmer at 62*F. depends on inspection or not... . Could just add some builders paper and fiberglass batt on the lower 1/2;http://www.diychatroom.com/f103/using-fiberglass-batts-basement-362354/index2/

Fix any visible water signs/problems first.

Gary
 
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