California’s PACE Financing Is Key to Tackling Housing Affordability and Climate Risk

Recently, the Paris-based International Energy Agency (IEA) delivered a wake-up call when it announced that global greenhouse-gas emissions reached a record high of 32.5 billion metric tons in 2017. The silver lining in the IEA’s announcement was that emissions from the United States actually dropped in 2017 – in part thanks to the deployment of more renewable energy like rooftop solar systems.
Many of these systems have been installed by American homeowners who, in addition to trying to lower their utility bills, are doing their part to reduce the emissions that scientists tell us are causing the climate to change. These Americans are quite literally addressing the climate threat on the home front. It’s a good place to start: More than half of the nation’s housing stock was built before 1980 and is rife with inefficiencies.
Experts tell us that we’ve already invented most of the clean energy technologies that we need to make the transition to a low-carbon economy. The real key, they say, is coming up with the innovative forms of finance and supportive public policy to get these technologies deployed at scale.
In the absence of federal leadership on climate change mitigation, state and local governments are spurring solutions. One of the most successful forms of clean energy financing in history is a model born right here in California: Property Assessed Clean Energy, or PACE. It empowers property owners to make renewable energy and energy-efficiency improvements and then pay for them over time at a competitive, fixed interest rate through a voluntary new line item on their property tax bill.
Since its introduction a decade ago, PACE financing has used only private capital to improve more than 200,000 homes while creating tens of thousands of jobs. While it has been widely successful, it experienced some growing pains, like any maturing industry. Last year, California lawmakers acted to strengthen PACE by overwhelmingly approving two bills that create a landmark regulatory and consumer protection framework for PACE. Governor Brown signed both bills, which among other things enhance disclosures and require income verification and underwriting based on ability to repay, and they began taking effect earlier this year.
One of the major challenges facing PACE has been resistance from bankers and federal housing finance authorities. In the same way that bankers don’t consider the utility bill that comes with a house when deciding whether the purchaser can, or cannot, afford the monthly mortgage, they also don’t accept the idea that programs that reduce utility bills make homeowners better credit risks. Since we know that homeowners actually pay their utility bills first — even before the mortgage, because they have to — this makes no sense. Lower utility bills mean better credit risks for lenders. 
California has found ways to work around bankers’ challenges and has just embraced the principle that what matters for housing affordability is the combination of mortgage and utilities, not mortgage alone. The state’s new requirement that all new subdivisions be equipped with rooftop solar is based on evidence showing that while the upfront cost might go up, the utility bill savings over time will be twice as big. Given that eligible products for PACE financing include not just rooftop solar systems but also many energy-efficiency improvements — such as reflective roofs, replacement windows and doors, and high-efficiency air-conditioning units — the possibilities for return on investment grow.
PACE is playing an important role in California’s plan to meet its greenhouse-gas reduction goals by promoting greater adoption of energy-efficient and renewable-energy technologies in the residential sector. Strengthened by new consumer-protection laws, PACE is now key to keeping California’s housing costs and climate risk down at the same time.
Carl Pope is former Executive Director of the Sierra Club and current vice-chair of America’s Pledge


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A veteran leader in the environmental movement, Carl Pope is the former executive director and chairman of the Sierra Club. He's now the principal advisor at Inside Straight Strategies, looking for the underlying economics that link sustainability and economic development and serves as a Senior Climate Advisor to former NYC Mayor Michael Bloomberg. He has served on the Boards of the California League of Conservation Voters, Public Voice, National Clean Air Coalition, California Common Cause, Public Interest Economics Inc, and Zero Population Growth. Mr. Pope is also the author of the books: Sahib, An American Misadventure in India and Hazardous Waste In America. Carl Pope is the co-author with Michael Bloomberg of Climate of Hope: How Cities, Businesses, and Citizens Can Save the Planet. How to attack climate change as a series of manageable challenges, each with a solution that can make our society healthier and our economy stronger.

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