Last week, Senate Majority Leader Harry Reid met with the chairs of six committees that might have some hand in developing the clean energy bill. The question at issue was whether the bill should be pushed back in favor of a short-term focus on finance reform, jobs, and the deficit. Though John Kerry argued vigorously that the clean energy is a jobs bill that won’t grow the deficit, it looks like he lost out and there will be some kind of standalone jobs bill in the interim.
Sen. Jeff Merkley (D-Ore.) is now advocating that any jobs bill include support for building retrofits to create jobs and reduce energy bills. What he’s got in mind is a variation on his S. 1574: Clean Energy for Homes and Buildings Act of 2009. It’s designed to overcome the main barrier to retrofits involving energy efficiency and small-scale renewables: financing. Most such investments are predictable and profitable over time, but they involve high upfront costs.
The “cash for caulkers” program the White House is floating would effectively dump a bunch of stimulus money on the retrofit market—which is good! it needs money—but Merkley has something more ambitious in mind. The idea would be to have the federal government offer loan guarantees or other credit assistance in order to leverage private investment far beyond what the feds can provide directly.
Here’s the background, from Merkley’s office:
In recent years, a number of innovative financing models have emerged to allow consumers access to loans that they can pay off using all or part of the energy bill savings they see as soon as the retrofit is completed. Some cities and states are encouraging property-tax-based financing, where the building owner gets a loan from the local government and repays it through a property tax surcharge. Some utilities (in some cases in partnership with cities or states) are offering on-bill-financing, where the loan is repaid through a surcharge on the utility bill. Some private companies can offer building owners performance savings contracts or, in the case of solar electric systems, leasing arrangements to that the cost is paid off in monthly payments, out of the savings on the utility bill.
The challenge with all these options is finding stable backing and/or collateral for the loans. That’s what Merkley wants the jobs bill to do:
By offering direct lending, loan guarantees, or other credit support, the federal government can leverage private capital and state and local investment. If, for example, $2 billion were restored to the loan guarantee program, between $20 and $40 billion in financing could be provided, which would leverage even more in state, local, and private funds.
This is a way of using the power of the feds as lever rather than a hammer.
There are devils in the details. Thanks to the money already going to efficiency from the American Recovery and Reinvestment Act (ARRA), potentially more if cash for caulkers is implemented, the existing retrofit supply pipeline is fairly jammed up. It’s a relatively immature market, populated with mom-and-pop outfits and eager startups. There’s only so much money it can effectively use.
And the money needs to get used immediately. For obvious reasons, Congressional Dems are very keen to creates jobs in the short-term, oh, say, before the 2010 midterms. Because of this time pressure much of the retrofit work—the financing, the loans, the contracting, the billing—will have to be done through utilities, which are already set up for this kind of thing and which reach virtually every American consumer. (Allowance value under the cap-and-trade system ought to be going to utility efficiency programs too, but that’s a separate issue for now.)
Over time, as the market matures and scales up, it would be better to shift the resources from utilities to private market actors, which tend to be more innovative and entrepreneurial. There are many market failures in efficiency and retrofits waiting to be solved, and stable federal backing will accelerate the process of overcoming them.
We need to start thinking of efficiency, in all its forms, as a clean, cheap, renewable, domestic source of energy. If we want to rapidly scale it up—and to hit ambitious emission targets, we’ll have to— it needs what other energy sources get: predictable, long-term government support. It’s an oil well that will never run dry. In fact, efficiency-oil gets cheaper the more we drill. So drill, baby, drill!
One last thought: Merkley’s idea would do real, positive work in the here-and-now. When voters see clean energy and efficiency working, they become more open to the grander initiatives: comprehensive climate bills and international treaties and such. Rather than forever raging against the dimming of those grand hopes, green groups should focus on making tangible, visible progress. Take the hill by inches. It wouldn’t take much for one of these big green groups or coalitions—Clean Energy Works? Apollo Alliance? 350?—to make a celebrity out of Merkley’s bill; make it a symbol of all the ways we can create jobs and save money by going green. In the end, caulk trumps rhetoric.