There are two main, and sometimes conflicting, green building issues that your situation illustrates. The first is the energy efficiency of your home, and the second is the sustainability of the products used to create that energy efficiency.
First, let?s consider a potential easy way out. Depending upon your local climate conditions, your least-involved solution might be to paint the aluminum siding with a radiant barrier paint. If your main issue is repelling heat, an elastomeric paint with hollow ceramic microspheres will serve as a radiant barrier to reflect the radiant heat away from the house. It can be used on interior walls to reflect the home?s heat back into a room, as well. Radiant barriers work on radiant heat, not convected or conducted heat.
If you are in a climate where the primary need is heating, painting the aluminum siding is probably not going to satisfy your energy goals. This is where product sustainability becomes an issue. You can buy either aluminum or vinyl siding with foam insulation embedded to the interior side. Vinyl is more popular and can obtain R-values of 3.5 to 5.0. However, vinyl presents lifecycle issues during the manufacturing and at end-of-life. Also, with either aluminum or vinyl, recyclability is questionable when foam is adhered to the siding. Since we do not currently have a comprehensive green building product evaluation system, any discussion of the comparative lifecycle impacts in choices like this usually ends up in endless debate.
When you remove the existing siding, you can try to verify that the existing insulation is in good shape or is even existent by removing some of the sheathing. Start up high if you believe you have blown-in insulation to detect any settling. You can blow or inject insulation into the cavities to fill voids. You can also add foamboard and/or house wrap over the sheathing to reduce air infiltration and add a bit more insulation. The siding needs to be nailed through to the studs, however.
Bearing in mind the complexities of your exterior detailing, you could also add ?outsulation? by vertically furring out the exterior and adding more foam insulation before putting on the siding. Alternatively, you could wrap the house in a perforated radiant barrier and add furring strips to create an air gap (to allow the radiant barrier to function) before attaching the siding. If you have extensive overhangs and depending upon the style of your home, you could even do what David Eisenberg, an elder sage in the green building world, demonstrated in Tucson. He took what looked like a 1950s brick ranch-style house and added a complete straw bale second wall to the exterior, greatly increasing the energy efficiency while also completely changing the look and feel of the home.
You or a creative contractor may come up with additional, non-traditional solutions. Of course, you have budget, scheduling, aesthetics and experience that will define your scope. The key to keep in mind is how you are dealing with moisture so that it does not become trapped inside your wall structure and lead to mold or rot. Good luck!