Despite the uncertain future of comprehensive federal climate legislation, states continue to move forward with energy policies that reduce greenhouse gas emissions and save consumers money on their electricity bills. One policy in particular is quickly gaining traction in the states: Property Assessed Clean Energy, or PACE, programs. Twenty-three states plus Washington, DC, have PACE legislation, and 13 others have proposals on the table including Kentucky, South Carolina, Nebraska, and Pennsylvania.
PACE is an innovative funding mechanism that addresses many of the financial barriers to energy efficiency and renewable energy retrofits on residential, commercial, and industrial properties. In general through PACE states delegate authority to local governments to designate an improvement district and issue bonds, which provide low-interest, long-term loans to property owners for energy saving measures. The loans are paid back through an addition on the property tax bill and often over a 20-year period. If the property is sold, the debt transfers to the new owner. PACE programs usually create a lien on properties that is “senior” to (i.e., takes precedence over) other obligations on the property.
Because PACE is run by local governments, there are different styles of implementation for the various program elements including: program administration, underwriting criteria, source of funds, eligible measures, and quality control. For example, San Francisco uses a third party for administrative functions and issues “mini-bonds” to be purchased by a pre-determined investor, while Babylon County, in New York, uses in-house staff to administrate and has repurposed an existing solid waste fund for financing.
The White House strongly supports initiatives that make it easier for homeowners to get loans for energy efficiency and renewable energy improvements, and PACE programs have benefited from $150 million in stimulus funding. In an effort to standardize best practices and ensure that PACE is good policy for all stakeholders, the White House released a Policy Framework for PACE Financing Programs in October 2009. The measures initially accelerated the adoption of PACE and served as a guide for the second generation of PACE programs.
However, both existing and developing programs have been slowed or halted entirely due to opposition from Freddie Mac and Fannie Mae. In May, both agencies sent letters to mortgage lenders reminding them that an energy-related lien may not be senior to a federally backed mortgage. The letters place a burden on the lender to determine if they originate mortgages in any state or locality that permits a first lien priority on energy loans. Proponents of PACE and its senior lien provision say it is a necessary requirement for local governments to raise funds.
Following Freddie and Fannie, on July 14 the Federal Housing and Financing Agency (FHFA) released a statement of their opposition to PACE. As a result, the California attorney general’s office has sued the FHFA, Fannie Mae, and Freddie Mac for their actions and unwillingness to guarantee properties with PACE assessments. The July 14 lawsuit asks the court to declare that PACE does not violate the standards of Fannie and Freddie and also requests an injunction to prevent the agencies from taking action against home owners with PACE loans. Congress is also working on legislation that would require Freddie and Fannie to use underwriting standards that would facilitate the use of PACE programs. With a scarcity of financing options that overcome the high upfront cost of retrofits, this is an issue worth watching closely.
Olivia Nix is the Innovative Solutions intern
Less than a week after Senate Democrats decided that including cap and trade in an energy bill was too ambitious for this year, the Western Climate Initiative (WCI) forged ahead with a blueprint for its own such program. Seven U.S. states and four Canadian provinces, which together represent 13 percent of U.S. and 50 percent of Canadian greenhouse gas emissions, have compiled a detailed plan for implementing a market-based system to reduce greenhouse gas emissions in their region to 15 percent below 2005 levels by 2020. The plan is an elaboration on the design recommendations released by the same states and provinces in 2008.
As we enter the dog days of August in Washington, it’s become evident that states must continue to push forward with their own efforts to combat climate change. At the regional, state, and local level, public policy is being formed to reduce greenhouse gas (GHG) emissions while maintaining the right balance between protecting the environment and growing the economy. But many states are being forced to make tough decisions using limited resources, and for some, this November’s election could be pivotal for setting the future course of the effort.
If you’re concerned that climate change action ended with Senator Reid’s decision to exclude a cap on GHG emissions from energy legislation this summer, rest assured that action in the U.S. is ongoing and growing in many areas. While Senate inaction has caused the Washington policy community to turn greater attention to potential EPA climate action and the related legal ramifications, it’s important to recognize the valuable work in practice at the state level.
For instance, carbon dioxide (CO2) from electricity in ten Northeast and Mid-Atlantic states has been capped since January of 2009; the regional cap-and-trade initiative, known as the Regional Greenhouse Gas Initiative (RGGI), will reduce CO2 from electricity by 10 percent by 2018. Many believed that RGGI would be a model for a national cap on utilities with legislation, which may still be the case once climate legislation resurfaces.
Another regional effort, the Western Climate Initiative (WCI), recently released a comprehensive strategy to reduce GHG emissions by 15 percent below 2005 levels by 2020 at a net savings of $100 billion. Furthermore, states have repeatedly taken action that aims to reduce GHG emissions for many years. Below is a small sample of recent action from our website’s section on States News.
Figure 1: States have taken plenty of action over the past two years while Congress considered different climate-related bills.
It is not all good news, though. The ongoing economic recession has led some states to dial back their support for climate change action for the immediate future, while “climategate” has led others to openly question climate change science (all scientists involved in the controversy have been exonerated of any wrongdoing).
Arizona’s governor issued an Executive Order that put off indefinitely the state’s participation in the WCI’s cap-and-trade program set to begin in 2012, citing the recession. Utah’s legislature urged the U.S. EPA to “halt its carbon dioxide reduction policies and programs and withdraw its ‘Endangerment Finding’ and related regulations until a full and independent investigation of climate data and global warming science can be substantiated.” Lastly, a ballot initiative in California could permanently delay implementation of the state’s landmark global warming law (AB-32), citing the law’s effect on the economy despite the state’s own analysis that shows the bill will be a net benefit for jobs, personal income, and overall economic production. The fight over this ballot initiative will be significant and most expect a close vote in the fall. A recent poll has California voters rejecting the ballot initiative, but only by a small margin.
Despite these lapses, dozens of states spread across every region of the country remain leaders on climate change, energy independence, and clean energy economic policies. No matter what happens in Congress this year or after the election in November, action on climate change will continue throughout the United States. The states have long been known as incubators of public policy, and their efforts to reduce GHG emissions remain powerful examples of states taking the lead.
Nick Nigro is a Solutions Fellow
The Midwest Governors Association (MGA) recently held a briefing in Washington for congressional and federal agency staff to highlight key regional developments in clean energy job creation. As the Senate prepares to take up energy legislation this summer, state government officials and representatives from business groups and environmental organizations in the Midwest described the progress they have made promoting renewable energy in order to create jobs, benefit the environment, and increase energy security.
This post first appeared today in the National Journal Energy & Environment Experts blog.
As with many aspects of climate policy, there is some truth to the arguments on both sides of the debate over how federal legislation should treat state action and EPA Clean Air Act (CAA) authority. The answer is less about who is right or wrong and more about appropriately balancing the strengths and weaknesses brought to the table by states and the federal government. Both have important roles to play in a strong federal climate and clean energy program.
ANCHORAGE - "Hello. I'm a Republican, and I believe in climate change." These words opened a presentation at the Alaska Forum on the Environment and indicate that, here in Alaska, issues surrounding climate change have often transcended the partisanship that sometimes dominates the issue 3,000 miles away in Washington.
This bipartisanship has evolved because probably no place in America is the evidence of climate change more clearly on display than in Alaska. Climate change’s leading edge is in the Arctic, and temperatures in Alaska have risen 4 degrees or even more depending on location. With warming and its impacts visible to all and being increasingly analyzed on a local level, discussions of climate change, especially as it relates to adaptation, take on a tone all too unfamiliar inside the Beltway.
ANCHORAGE - Alaska is a big state, with big mountains, big wildlife, and big development projects. It’s also a place of big changes: the state has warmed more than 4 degrees, creating tremendous pressures on the natural environment and society. But in a place where the people are always looking for the next big economic driver, like a $40 billion Alaska natural gas pipeline, uncertainty about carbon regulation is an Alaska-sized problem.
COPENHAGEN - Governor Chris Gregoire made a presentation about the successes of Washington state in building a clean energy economy at an official COP 15 side event hosted by us and the World Business Council on Sustainable Development. A packed room listened to how the experience of the Washington out West should provide insight for national policymakers of the Washington in the East.
She detailed how, given an appropriate state policy framework, the private sector has made significant innovations in technology, making Washington a national leader in solar manufacturing and the state with the 5th most wind energy production. All of this development occurred despite the fact that the state does not have large wind or solar energy resources. The lesson here is that the innovativeness and drive of American business should never be underestimated, and there is nationwide potential for growth in a clean energy technology. New and existing American companies will find ways to flourish given the right incentives.
The Governor also spoke about states leading the way in implementing cap-and-trade programs to reduce greenhouse gas emissions. She pointed out that a multistate and multi-Canadian province effort, the Western Climate Initiative, is underway to enact a cap-and-trade program covering 20% of the US economy - despite the delays in development of a national program. The WCI is the not the only state-level effort underway, with the Midwestern Greenhouse Reduction Accord signed in 2007. Both of these efforts follow on the heels of an ongoing cap-and-trade program in the Northeast, which, as Gregoire pointed out, has proven that cap-and-trade programs can tackle greenhouse gas emissions without damaging the American economy – an important piece of empirical evidence as the nation and the world look towards developing emissions-reduction policy.
Of course, the government cannot do it alone. The people in Washington state have a commitment to technology, whether it’s aerospace, software, clean energy, or coffee. Now its time for legislators in Washington, DC to show the same commitment to technology promotion and emission reduction.
Michael Tubman is the Congressional Affairs Fellow
On Monday, members of the three North American regional greenhouse gas reduction programs met in Washington D.C. to discuss potential areas for collaboration, and to send a clear signal to Congress as it debates climate legislation: these regional initiatives – and state leadership in general – are not going away. Representatives from the various U.S. states and Canadian provinces participating in the northeastern Regional Greenhouse Gas Initiative, the Western Climate Initiative, and the Midwestern Greenhouse Gas Reduction Accord traded information with one another and with representatives from federal agencies on the status of their respective programs, and explored paths for working together on carbon offset design, complementary GHG reduction policies such as energy efficiency measures, and possible linkages among their existing and developing carbon markets. Members of the regional initiatives also took their message to Capitol Hill, where they briefed press and Congressional staff on their initiatives, their intention to continue developing these programs, and their strong preference for federal cap and trade policy.
It was clear from these discussions that the states are moving ahead regardless of what happens at the federal level. All of the states represented support a strong, rigorous federal cap-and-trade program to reduce greenhouse gases (GHGs), but should such a program fail to materialize, the states and the regional initiatives will continue to move ahead with the development and implementation of their own trading programs, and potentially move to link these programs. When 23 states – representing 48 percent of the U.S. population, over half of U.S. GDP, and 37 percent of U.S. GHG emissions – and their partners in Canada sit down to talk about uniting their efforts to reduce emissions, it is clear that the choice is no longer between having a federal climate program or not; it is between having comprehensive climate legislation designed and negotiated in Congress, or having a de facto national North American carbon market driven by these state efforts, working in concert with regulations issued by federal agencies. States strongly prefer a federal trading system, but as far as they’re concerned, the foundation for a national cap-and-trade program has already been laid.
The states and regions also made clear that as they move ahead, they want to form a strong partnership with the U.S. EPA and other federal agencies, regardless of what happens with federal legislation. EPA is already moving to regulate greenhouse gases (as evidenced by the recently announced endangerment finding, and the tailoring rule and vehicle standards released earlier this year) and the states will play a key role in the implementation and enforcement of these new regulations. Even with federal climate legislation, states will play a key role in its implementation.
In addition, the states made clear that any federal plan needs to allow them the flexibility to continue crafting effective greenhouse gas reduction policies that can complement cap and trade, such as energy efficiency and renewable energy standards. For many at Monday’s meeting, preserving states’ ability to achieve emissions reductions beyond what is mandated at the federal level is an imperative; it is not clear to them that pending federal legislation and the tools currently available to the U.S. EPA under the Clean Air Act can achieve the levels of GHG reductions required, and that it may fall upon the states to make up the difference through policy innovation.
Earlier this week, the Midwestern Governors Association (MGA) convened key regional stakeholders and leaders from around the world for its Jobs and Energy Forum and announced a hopeful, forward-looking economic and environmental vision. The setting could not have been better suited to highlight the urgency with which these new initiatives are needed by both the Midwest and the nation as a whole. Detroit has been hit as hard as anywhere by the economic slump; according to the U.S. Bureau of Labor Statistics, unemployment in the greater Detroit metropolitan area hit 17 percent in August, and Michigan Governor Jennifer Granholm, in her remarks, noted that Michigan has lost close to a million jobs in a little less than a decade. Against this backdrop, many of the participants discussed the need for a new energy paradigm that addresses our economic, security, and environmental concerns. Even as the U.S. Senate prepares to tackle energy and climate legislation this fall, the Midwest made clear this week that it intends to move forward regardless of what happens in D.C.