Should there be insulation inside the heating/cooling duct?
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No, insulation should never be in the ductwork. Not only could you be breathing it but it will block air flow also. As for the hanging insulation, you can either replace it or try stapling it to the rafters or straps to hold it up. You could make the straps with pieces of material (old sheets, towels, etc) cut into strips. Then staple the straps to the rafters to hold up the insulaion.
Many ducts have insulation on the inside to prevent sweating.
Check this out:
http://hvac-talk.com/vbb/showthread.php?172189-Insulation-INSIDE-supply-ductwork
https://www.thebuildingcodeforum.com/forum/threads/exterior-duct-insulation-on-the-inside.20284/
https://www.isover-technical-insulation.com/hvac/applications/internal-insulation-ducts
I have never worked with it so I have no opinion, and I can see pros and cons each way. I would contact your local permit office as they enforce building codes and see what they recommend. An inspection may be in order to make sure it is in good shape.
What you have is 1/2" to 1" black fibrous material glued to the inside called "duct liner". Some had a black mesh fabric covering some not. It still is in use. Basically used in commercial applications where ductwork could not be insulated on the outside and the need for soundproofing.
If you are concerned you can call a duct cleaning company and get a quote for removal or an HVAC company for duct replacement.
My HVAC company never used it due to concerns outline below.
http://fiberglassawareness.com/fiberglass/fiberglassductliners.htm
https://www.krueger-hvac.com/files/white%20papers/article_the_deal_about_duct_lining.pdf
http://www.vacsysint.com/air-duct-cleaning-blog/bid/88978/air-duct-cleaning-dealing-with-fiberglass-insulation
It sounds like the same thing I am seeing. Yes, I'll try to get up there and get a picture.
Ducts are made of sheet metals fiberglass and other materials. But, leakage in ducts your HVAC unit, it consumes more power than normal, which highly affect your energy bill and you may pay higher. But you can reduce it by sealing and insulating your ducts. Therefore duct work is very important in HVAC systems. So you should contact an experienced air duct cleaning service provider to resolve your issue soon.