Federal Agencies Derail Program That Finances Home Energy Retrofits

This week, the Federal Housing Finance Agency and U.S. Treasury Department took actions that call into question the future of Property Assessed Clean Energy (PACE) programs. PACE programs have been authorized in 22 states as a means to help residential and commercial property owners make energy-efficiency and renewable-energy improvements to their properties.

Through PACE programs, local governments issue bonds to help finance renewable energy and energy efficiency projects by property owners. Property owners apply for loans for their projects, which they can pay off over a long period of time (usually 20 years) through a surcharge on their property tax bill. There are no up-front costs whatsoever, and property owners can expect to save as much money on their energy bills as they will have to pay in increased property taxes. If the property changes hands, the cost of the upgrades is passed on to the next property owner.

Clean energy advocates have lauded PACE as a way to address two important barriers that have prevented property owners from making energy upgrades: 1) the up-front costs, and 2) the question of who pays for ongoing costs for upgrades when properties are sold. PACE programs can reduce greenhouse gas emissions from buildings and also create jobs in home weatherization and renewable energy installation.

But the FHFA and Treasury Department are not convinced. They object to the fact that under most PACE programs, a lien is placed on the property that will take priority over the mortgage if the homeowner defaults. “They [PACE programs] present significant risk to lenders and secondary market entities, may alter valuations for mortgage-backed securities and are not essential for successful programs to spur energy conversation,” the FHFA said in a statement it released on Tuesday.

The FHFA’s announcement, coupled with an earlier letter of concern about PACE from mortgage giants Fannie Mae and Freddie Mac, point to at least a freeze in the use of PACE programs and potentially their ultimate demise. The FHFA and Treasury Department have both instructed banks to place additional restrictions on home loans to borrowers in jurisdictions that have PACE programs, among other directives.

It’s hard to believe that just eight months ago, the Obama administration was advocating for widespread adoption of PACE programs. According to a report on PACE released by the White House in October 2009, “If only 15 percent of residential property owners nationwide took advantage of clean energy community financing, the resulting emissions reductions would contribute 4 percent of the savings needed for the U.S. to reach 1990 emissions levels by 2020.” Meanwhile, the Department of Energy has allocated $150 million in Recovery Act funding toward PACE.

It’s also hard to believe that the housing finance industry, which up until recently has been so freewheeling in its approach to creative forms of financing, has decided to draw a line in the sand when it comes to financing things like upgrades to aging hot water heaters and the installation of rooftop solar panels.

State and local policymakers strongly criticized the FHFA action this week and spoke out in support of PACE. The president of the board of ICLEI-Local Governments for Sustainability USA, Mayor Patrick Hays (mayor of North Little Rock, AR), said, “Before this latest FHFA action, PACE was poised to weatherize millions of homes and place tens of millions of solar panels on residences across the nation. Thousands of non-exportable jobs in the crucial residential construction industry have been jeopardized.”

California Governor Arnold Schwarzenegger said, “I am deeply disappointed that the Federal Housing Finance Agency has chosen not to support a federal stimulus program that would make it cheaper for Californians to invest in energy efficiency. This decision not only puts at risk millions of dollars of Recovery Act funds but sends a message to local governments and private businesses that energy independence is not a priority.”

One of the only ways to rescue PACE will be for Congress to pass legislation that extends government loan guarantees to PACE programs. Representative Steve Israel (D-NY) said he soon plans to introduce legislation along these lines.

In the meantime, other creative financing mechanisms still exist to support homeowners who are seeking an affordable way to finance energy improvements to their homes. One example is on-bill financing, which is being tested out in Portland, Oregon. This type of financing provides homeowners with low-interest, long-term loans for home energy improvements that they pay off via their monthly utility bills. Click here to learn more about the program, Clean Energy Works Portland.

Photo credit: solares

In other news …

*International Energy Agency says a global energy technology revolution is underway. According to a new report by the International Energy Agency, global investment in renewable electricity generation, led by wind and solar, reached an all-time high of $112 billion in 2008 and remained broadly stable in 2009 despite the economic recession. In OECD countries, the rate of energy efficiency improvement has increased to almost two percent per year, more than double the rate seen in the 1990s. And funding for low-carbon research, development and deployment has increased by one third between 2005 and 2008. However, the report, Energy Technology Perspectives 2010, also finds that without new policies to rapidly deploy low-carbon technologies on a large scale, energy-related CO2 emissions will almost double by 2050.

*Congressional Budget office finds that the American Power Act would reduce the federal deficit. Good news for those suffering from deficit hysteria! This week the CBO released its analysis of the American Power Act, the clean energy and climate bill that was introduced by Senators John Kerry (D-MA) and Joe Lieberman (I-CT). The CBO found that the American Power Act would reduce future deficits by about $19 billion over the 2011 to 2020 time period and would not add to the deficit in any way during future decades. Click here to read the CBO’s findings.

*Read the new issue of the Green Labor Journal. The Apollo Alliance is proud to be affiliated with the Green Labor Journal, a website that showcases labor unions’ green initiatives. The July issue of Green Labor Journal includes several articles about the Gulf of Mexico oil spill; a piece by Bob Baugh of the AFL-CIO and Jeff Rickert of Green for All about the labor movement’s struggle for good, green jobs; and a transcript of Philadelphia Mayor Michael Nutter’s speech at the Good Jobs Green Jobs convention; among other articles. Click here to learn more.

*Join the Apollo Alliance team! The Apollo Alliance is seeking an energetic and experienced organizer with strong management skills and some background in energy and economic development policy to lead our national network of state and local Apollo affiliates. The Director of State and Local Initiatives will be responsible for the nation-wide promotion of clean energy, good jobs initiatives, consistent with organizational and programmatic priorities. For more information, check out the job announcement.