As California presses forward to reduce pollution and build a clean energy future, one of the most vexing challenges has been upgrading existing buildings so that they use less energy.
While buildings in California represent 70 percent of our electricity consumption and 55 percent of our natural gas consumption, until recently, few policies have had broad success in motivating private property owners to make energy efficiency improvements to their buildings.
However, over the last two years, one local policy has quietly emerged as the single most successful tool in promoting these types of energy upgrades: Property Assessed Clean Energy (PACE).
PACE allows homeowners to voluntarily make improvements to their homes that reduce their gas, electric and water bills. Instead of requiring homeowners to pay for these upgrades up front, PACE allows the upgrades to be paid for through property taxes over 20 years.
If a homeowner moves, the obligation to pay for the project typically stays with the home and is assumed by the new buyer � unlike any other form of financing.
This policy is simple, low-risk and market-based.
And it is getting results.
So far, more than $2 billion has been spent on more than 70,000 home energy upgrades through PACE financing in California, enabling homeowners to install solar panels, efficient heating and cooling systems, energy-efficient roofs, windows and lights.
PACE also supports measures to reduce water use, which is particularly important given California�s drought.
An estimated 9 billion kilowatts of energy and 3.4 billion gallons of water will be saved from the PACE projects completed in California, representing $2.5 billion in utility bill savings.
Unfortunately, despite this progress, critics of PACE have been fighting this policy. The Federal Housing and Finance Agency (FHFA) has taken the position, supported by the big banks, that PACE financing poses an excessive risk to mortgage lenders and raises the risk of default.
They argue that it is a mistake to allow the policy to continue as is.
But this view misses the most critical feature of the program: PACE financing is exclusively for upgrades that reduce utility bills, leaving homeowners in a better, rather than worse, position to afford a mortgage payment and avoid defaulting. The state�s largest residential PACE provider publicly reports a default rate half that of California homeowners as a whole. And a national study from the Institute for Market Transformation found that defaults were 32 percent less likely to occur on energy efficient homes.
Research also shows PACE homes have higher property values, even in the case of foreclosure, implicitly giving banks an extra layer of protection on their investment.
California has worked hard to address the banking industry�s concerns about the perceived risk of default on homes with PACE financing.
In 2013, Gov. Jerry Brown worked together with the state treasurer to create a $10 million loan-loss reserve fund to cover any costs in the event there were defaults resulting from PACE projects. Despite over $2 billion in PACE projects completed in California across 400 local governments in every region of the state, the loan-loss reserve has not been called on to spend a dime.
PACE is a California success story in an area where we urgently need to make progress. The program works because it helps transform the right choice into the easy choice. Californians may not necessarily think about energy savings or environmental impacts when picking a new air conditioning system.
But with PACE they now have the option to select the most efficient product even if it costs more initially, helping California to meet its clean energy targets. And in the process, PACE is creating thousands of new, local jobs as these energy upgrades are made to buildings throughout the state.
As the PACE program expands, it is important to build on the consumer protections already in place and ensure that property owners receive comprehensive, accurate information about the costs and benefits of their upgrades.
Appropriate vigilance on behalf of consumers must be maintained. Local jurisdictions and the Contractors State License Board must continue to work to prevent bad contractors from getting into the PACE marketplace. On these points, there is broad agreement.
The energy and water challenges facing California in the years ahead are substantial. We are fortunate to have a policy such as PACE that has succeeded so quickly and broadly. We can�t let one of our state�s most promising energy policies be undone by big banks and their allies and expect to succeed in meeting the challenge of building a clean energy future.
Protecting and expanding the PACE program must be a top priority for California.
Hochschild is a commissioner on the California Energy Commission.
This commentary was originally published in the San Diego Union-Tribute on June 23, 2016.
