A carbon tax, zero interest loans, property assessed pay-as-you-save repayments, and a 6% investment for citizens all rolled in to one.
This proposal discusses a highly synergistic program to greatly facilitate energy conservation and renewable energy implementation.
An initial carbon tax of 8$/tonne CO2 would fund the 6% interest payments on a citizen invested PACE bond. The bond helps to leverage the carbon tax to provide more available capital. These bonds would be purchased each year for 10 years and mature after 10 years. Thus, the proposed program would run for at least 20 years, or for 10 years after the last bond offering.
Loan borrowers, such as homeowners, public service organizations, private businesses, and renewable energy developers, would have access to zero interest loans for cost-effective energy efficiency/conservation and renewable energy projects with a payback of 10-years or less.
PACE finance loans encourage energy efficiency/conservation through energy retrofits as the loan is attached to the property, rather than to the current owner. Thus, a key barrier of retrofitting is removed because the owner is free to move without the need to pay off the loan. As the loan is repaid through energy savings (called pay-as-you-save), owners and possible future owners will not notice the loan repayment in their finances.
Rather than energy rebates being paid to those who can afford the upfront capital of energy retrofits, the program is assistive and fair to all income levels through the zero interest loan. More importantly, free market energy retrofit companies and renewable energy developers would be facilitated to seek customers because of the readily available zero interest loans.
The ultimate benefit of this proposal is that people with high-efficiency homes or low energy consumption could use excess capital to invest in a stable predictable, socially and environmentally responsible bond with a fair return, while individuals and organizations with low efficiency buildings can benefit because of the zero interest loans. In all, everyone is facilitated and a fair carbon tax is applied.
Category of the action
Mitigation - Helping U.S. enact carbon price legislation
What actions do you propose?
The first action for this proposal would be the creation of an initial $8/tonne CO2 carbon tax and a State level bond offering with an interest rate of 6%. The funds collected from this carbon tax would be maintained within each state and used to pay for the bond interest. The next action would be a state level request for proposals calling for a non-government arms-length contractor to be placed in charge of the program administration. This business or organization contractor would receive applications for projects, and provided the proposed energy project is modeled/quantified for a loan return of less than 10 years, funding would be provided. As PACE finance legislation is rapidly spreading in the US a regionally specified program would be needed or added through legislation where not already existing. As loan repayments would be made by citizens, businesses, and government organizations, further funding would be provided to projects.
In subsequent years, incremental annual increases of the carbon tax at $2/tonne CO2 would be performed to drive investment in energy conservation and renewable energy development. This will set a clear and long-term direction for de-carbonization of our energy sources. It is acknowledged that the initial $8/tonne CO2 carbon tax is not sufficient to rapidly transition from fossil carbon based fuels, however, public and business acceptance is extremely important and must be approached with great consideration and sensitivity. The success of this program is designed to be in its implementation and chance of adoption. It is felt that the greatest chance of adoption would be with a low price carbon tax to start and subsequent stable and predictable increases, as were seen in the British Columbia, Canada carbon tax. Depending on the uptake and potential success of the program annual increases may be larger to further expedite energy de-carbonization.
An advertisement campaign would be needed in order to promote the energy reduction benefits of the program. These advertisements would need to focus on demonstrating the increased economic competitiveness and reduced costs of energy efficiency/conservation, local job creation that is greater per dollar spent than fossil fuels, and how it will work to facilitate all individuals, organizations, and businesses in America. As people are more accepting of tax systems where funds are directly allocated with full transparency, all funds collected from the carbon tax would be use to run the program and fund the 6% bond interest.
This full proposal was presented in Cheney and de Ruiter (2013) and was written for the market of British Columbia, Canada. The summary section of this proposal provides an adaptation for the US, however the full and original proposal may be followed and used as a guide for the creation of the MIT Climate CoLab proposed Carbon PACE Bond proposal.
Who will take these actions?
Local, State, and Federal Governments will initiate the proposal, while homeowners, businesses, public sectors, investors, and energy retrofit companies will engage in the program when established.
The proposal is designed to be administered by a non-government arms-length contractor found locally in each state through a competitive bid process. This company would have expertise in project financing and energy conservation modeling.
Where will these actions be taken?
To initiate the Carbon PACE Bond it would be started at the state level, most within ministries or departments of energy.
How much will emissions be reduced or sequestered vs. business as usual levels?
Estimating CO2 reductions per dollar spent or vs. business as usual is highly dependent on energy prices, scale of implementation (i.e. continued increases of carbon pricing), uptake, and the technology or technique employed, therefore, and unfortunately, estimations cannot be provided. Indications are showing that British Columbia's $30/tonne carbon tax is in fact helping to reduce carbon emissions through the reduced use of fossil fuels and therefore can be assumed that any carbon pricing will help de-carbonize our energy system.
Business as usual implies the lowest cost initial implementation and does not include the lifecycle costs of a system, especially including the environmental and social impacts of fossil fuel use. In the current state of business as usual no external cost of carbon are accounted for, and thus the need is present for any price on carbon regardless on it's initial price.
What are other key benefits?
•All parties including homeowners, businesses, investors, and energy retrofit companies are greatly facilitated to implement energy efficiency and energy retrofits and cost-effective renewable energy projects by removing significant social and economic barriers.
•This program maintains a revenue neutral carbon-tax for those citizens who engaging in the program and take action on reducing their carbon energy use. The is because all money collected is given back to those who invest in the program.
•Builds upon and expands pre-existing pilot programs such as “pay-as-you-save” and PACE financing.
•Unifies and supplants almost all current energy efficiency pilot programs.
•Creates a continuing economical incentive for energy efficiency across all sectors and improves in effectiveness with higher energy or carbon prices.
•Provides an equal opportunity incentive for everyone through zero interest loans to benefit from energy efficiency/conservation and renewable energy investment.
What are the proposal’s costs?
The proposal's costs would come from the government's funding of the arms-length non-government program contractor. This would would be a company with energy assessment experience, which would analyze home and building energy assessments to ensure that project returns would be within a 10 year timeframe. Other costs would be the payout of annual 6% interest rates for bond holder's and would be performed, again, through the program contractor.
A timeline is highly dependent on government initiative. Given the existing framework and proposal, this program could be implemented within a year to year and a half.
Increases in the carbon tax would take place in subsequent years through an annual increase of $2/tonne. This steady increase allows for a predictable and stable carbon price system that can be accounted for through business and personal finances. Therefore after the completion of the first phase of the carbon price a carbon tax of $48/tonne CO2 would be achieved (after 20 years, 2034). It was stated prior that the $2/tonne carbon price could be increased later on, however fair warning should be provided to allow for business and personal planning.
Each element to the Carbon PACE Bond Proposal is based upon existing and successful programs. Below is the list of ideas integrated into this proposal.
-Property assessed clean energy (PACE) financing
-Zero interest financing
Cheney, T, and de Ruiter, G. 2013. The BC Carbon PACE Bond. full proposal found at https://drive.google.com/file/d/0B_QPjRANidDpZHNxdEpYR2V6VXM/edit?usp=sharingg