United States government putting clean energy program at risk

July 20, 2010

What is PACE?

Property Assessed Clean Energy (PACE) is a local government program, operating in the United States since 2008, which issues low-interest bonds -- established through tax asessments -- to property owners who choose to retrofit their homes with renewable and efficient energy technology.

For more details about how the PACE program works, visit www.pacenow.org.

The United States' Federal Housing Finance Agency (also known as Fannie May and Freddie Mac) is attempting to block local governments' ability to implement PACE, saying it is a 'credit risk' and a 'loan' program. The FHFA's full statement is available here.

"Mortgage holders should not be forced to absorb new credit risks after they have already purchased or guaranteed a mortgage," Acting FHFA Director, Edward J. DeMarco, said in a statement.

PACE programs do not operate using traditional loan mechanisms. Local governments instead finance the upfront costs through tax assessments, which are paid incrementally in small amounts through a homeowner’s annual property tax bills.

Similar assessment mechanisms, known as a 'land-secured financing disctricts,' are used by local governments and municipalities to fund sewers, sidewalks, schools, hospitals and other public projects. The United States has an over 100-year history of using this financing model.

Martin Chavez, ICLEI USA Executive Director, released this statement about the FHFA's movement to block PACE:

Acting Director DeMarco should take a deep breath, apologize to the American people for distorting the record on PACE, and reverse course. If he's not willing to restore PACE funding as requested by Congress, he should follow their suggestion and resign.

Added Patrick Hays, President of ICLEI USA and Mayor of North Little Rock, Arkansas, United States:

We should not allow Acting Director DeMarco to destroy one of the most innovative and energy efficient tools available to homeowners and local governments today. As a mayor, I am reminded every day of the realities of persistently high unemployment, a fragile economy and the impact that climate change is having on our communities. Sadly, it appears that Mr. DeMarco is putting Freddie and Fannie’s interests first on his list, leaving the American taxpayer behind.

PACE bonds provide up to 20 years' worth of financing for energy-saving improvements. The financing is subsequently repaid through the home or business owner's property taxes. If a property is sold, the tax surcharges are tansfered to the next owner.

The aim of PACE is to spread the cost of energy efficiency upgrades. Domestic upgrades often include:

energy-efficient boilers
upgraded insulation
new windows
solar installations

Why is PACE an effective program?

There are two main reasons why property and business owners avoid installing energy efficient technologies:

The initial costs are perceived as too high
Uncertainty about whether property buyers will pay more for energy-efficient homes

PACE addresses these two barriers by issuing initial funding and by transfering the tax surcharges to the property's next owner.

What are the benefits of PACE?

National Level:

Significant job creation
Accelerates movement toward energy independence & reduces GHG emissions
Very low fiscal cost & high probability of success

Property Owner:

Lower energy bills and substantially reduced upfront costs for energy retrofits
Improved return on investment/positive cash flow on retrofits (annual savings > cost)

States, Cities & Municipalities:

Immediate job creation
No credit or general obligation risk
Obligation is liability of property owner
Greenhouse gas reductions and increased energy independence
Opt in: PACE is a voluntary program

Articles and resources connected to the federal blocking of PACE: