Tuesday, 8 December 2009

Energy Efficiency: Loans First, Rebates Second

Obama is now looking at spending the unexpected TARP windfall on stimulus, including home energy efficiency. While I haven't studied any of the proposal specifics, I would like to discuss the difference between loans and rebates in the context of financing residential energy efficiency.

First, it's worth noting that lower income property owners will likely bear a disproportionate amount of the climate mitigation and adaptation burden. This is for a variety of reasons.

  1. Homeowners of lower incomes tend to live in older housing stock. At least in California, the pre mid 70's housing stock in relatively inefficient. These homes have less energy-efficient appliances, HVAC and lighting systems, and are less well insulated so require more use of this relatively inefficient equipment.
  2. Smart investments in energy efficiency are NPV-positive and have a relatively short payback period, but these investments require up-front financing. Lower income homeowners have less of an ability to finance energy efficiency projects than homeowners with higher incomes.
  3. The combination of energy prices increases and a warming climate will place a significant burden on households unable to adapt. As these factors increase the relative costs of inefficiency, homeowners that are able to weatherize and make their homes more energy efficient will do so.


Up-front rebates are a good economic stimulus policy, as they will, lower the direct private cost of an energy efficiency and weatherization retrofit. This will spur new demand, which will drive both construction and manufacturing job growth. The homeowner will benefit from lower energy bills, and more monthly free cashflow, which will further stimulate the economy (provided it is spent in a sector with a higher multiplier than energy, and most consumer sectors do).

However, unless they eliminate all financing needs, up-front rebates do not assist those who are least able to afford a home retrofit. To serve these households, a financing system is needed. The state of California allows a financing system that allows households to engage in NPV-positive investments that will decrease energy bills and increase free-cash-flows. California's AB 811 allows property tax financing of renewable energy and energy efficiency. Property tax financing has many advantages to a private loan.

  1. Debt is a tax lien and is senior to all other claims on the house (first mortgage, subsequent mortgages). Thus, it is very low-risk and the interest rate can be substantially lower than for a private loan.
  2. No money down. No credit check required. Because of the low risk, the loan can be provided at no up-front cost. This eliminates all financing barriers for homeowners.
  3. The loan term can be 5, 10, 15, or 20 years. The burden of higher property taxes is spread over a long time, and the homeowner can immediately reap the benefits of decreased energy costs. The homeowner is cash-flow positive from month 1, and provided the investment was smart, remains better off after the semi-annual payments.
  4. The cost of the improvements are passed to subsequent owners of the house, virtually eliminating the possibility that a homeowner's energy efficiency investment will be unrecouped on-sale. This removes a significant barrier: energy efficiency investments can be hard to value in residential real estate markets.
One of the biggest advantages of property-tax financing is that it comes from a revolving fund: that means money paid out is paid back - with interest. Rebates are not directly repaid, but do have a place in energy efficiency financing policy.

This policy sounds like a win-win, but California local governments have been slow to adopt such property-tax financing. Anecdotal evidence indicates that high financing costs in municipal bond markets may be to blame. If this is the case, making TARP funds available to local governments would greatly stimulate the establishment of revolving funds for property-tax financing of energy efficiency projects. While the policy could be structured in such a way that when municipal financial markets improve the TARP funds are eventually replaced by Municipal Bonds and repaid to the federal government, I think that the idea that these funds be permanent should be explored. There is a huge need for energy efficiency financing in this country, and I believe that the initial success of a large-scale ($25B or more) property-tax financing program will open municipal bond markets up to finance program expansion.

There are some further policy challenges: ensuring that low income homeowners only engage in NPV-positive investments, eliminating potential for fraud and abuse that comes with free-money programs. Further study is needed into the administrative effectiveness of local programs, which currently exist in Palm Desert, Sonoma County, and Berkeley and are expanding to other areas of the state. Also needed is evaluation of individual projects (analysis of NPV of various projects will allow policymakers to better understand how to affect consumer choice toward NPV-positive projects).

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For more information about the distributional effects of climate change, see The Climate Gap, a USC report on the distribution of climate change impacts in California.

Friday, 11 September 2009

UCLA Speaker Series: Perspectives on Local Climate Planning

The UCLA Program on Local Government Climate Action Policies and Lewis Center for Regional Policy Studies proudly present the fall speaker series: Perspectives on Local Climate Planning. In this series leading academics, policymakers, and practitioners discuss how cities, counties, and regions can meet the challenges of mitigating and adapting to climate change. While much attention is focused on the federal American Clean Energy and Security Act and the international UNFCCC meeting in Copenhagen, we will examine what can be done at the local level to reduce emissions and adapt to climate change.

Mondays at 2pm in the UCLA School of Public Affairs Room 1246. (directions: driving, bus)

Free and open to the public. Please RSVP.

Monday, October 5 - Katherine Trisolini, Professor, Loyola Law School, and local government climate change response legal scholar will discuss the legal and political context for local climate action
Monday, October 12 –
J.R. DeShazo, Director of the Lewis Center for Regional Policy Studies, will discuss his recent study of California Climate Action Policies.
Monday, October 19 -
Richard Katz, Member, CARB SB 375 Regional Targets Advisory Committee, Metro Board Member, and 16-year California Assembly veteran, will talk about SB 375 regional targets.
Monday, October 26 -
Michael Woo, Member, CARB SB 375 Regional Targets Advisory Committee and Los Angeles City Planning Commissioner will talk about the future of development.

Monday, November 2nd - Tim Kohut, AIA and LEED AP, Vice President and Director of Architecture of Abode Communities speaks about challenges to building green affordable housing.
Monday, November 9th –
Juan Matute, Director of the UCLA Program on Local Government Climate Action Policies will speak about measuring greenhouse gas emissions from the transportation sector.
Monday, November 16th -
Kathryn Phillips, Environmental Defense Fund Director, will talk about "10 Ways Local governments Can and Have Reduced their Transportation GHG Footprint"
Monday, November 23rd -
Matthew Kahn, UCLA Professor and author of Green Cities will share his research on residential energy use.

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feel free to distribute widely, we have secured a large capacity room for the speaker series
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See the Program on Local Government Climate Action Policies Web site for more information.

Monday, 24 August 2009

UK High Speed Rail CO2 Study Flawed

Because I was unsure of the findings, I spent some time looking at the Booz Allen Hamilton/Department for Transport High Speed Rail Study (Estimated Carbon Impact of a New North-South Line) mentioned in a Freakonomics Blog Post.


First, I went to look at the source documents. This was a bit difficult, because footnote xii is actually a link to the AEA study source document. None of the links on footnote x, which is supposedly the AEA study, lead to any usable data for this study.


Looking at the AEA study for DfT, I'm able to see how they got the AEA figures. 49 for average passenger rail, 109 for all cars, 76 for bus, 180 for plane. However, they leave out the Class 373 EMU (high speed rail train).



I was unsuccessful in searching for the June 2007 DEFRA statistics released in the study, but I did find the updated 2009 statistics. Each year, DEFRA (UK's EPA) publishes statistics that they have businesses use to calculate their scope 3 (indirect) emissions from rail travel. This study shows a figure of 17 g/pkm for Eurostar, specifically the high speed rail route between London and Paris. This figure could be a bit low, because France derives a high proportion of their energy from a non-ghg-emitting source (nuclear).


Taxi, Bus, Rail and Ferry Passenger Transport Conversion Factors

CO2

Method of travel

Vehicle kms travelled (vkm)

x

kg CO2 per vkm

Total kg CO2

Taxi 1

Regular taxi

x

0.2217

Black cab

x

0.2558

Method of travel

Passenger kms travelled (pkm)

x

kg CO2 per pkm

Total kg CO2

Taxi 1

Regular taxi

x

0.1583

Black cab

x

0.1705

Bus

Local bus 2

x

0.1104

London bus 3

x

0.0830

Average bus

x

0.1035

Coach 4

x

0.0300

Average bus and coach

x

0.0682

Rail

National rail 5

x

0.0577

International rail (Eurostar) 6

x

0.0177

Light rail and tram 7

x

0.0834

London Underground 8

x

0.0780

Ferry (Large RoPax) 9

Foot passengers

x

0.0191

Car passengers

x

0.1322

Average (all passengers)

x

0.1152

Total

0


Looking at the Center for Neighborhood Technology study's figure for the Danish IC3 Diesel Multiple-Train Unit and converting lb/pmi to g/pkm, I get 72.71, which is the same (73 g/pkm) as the study. However, the IC3 is diesel-powered conventional rail train capable of a top service speed of 112 mph, not a high speed rail train. Better comparables would be the ICE line 6 in Germany or the TGV in France, which have lower g/pkm emissions.



At this point I was left wondering if the report's authors meant to analyze the impact of a mid-speed diesel powered train line instead of a high speed line. Although the report was light on specifics, the authors did mention that they meant to analyze the effects of efficiency gains in "traction electricity," although this may refer to maglev. They could have also assumed much lower load factors for these routes, although they did not state this in their assumptions.


Needless to say, I'm convinced that the study is flawed.


However, assuming it is not flawed, the energy mix still differs from region to region (different power pools have different generation and emissions profiles). I found the UK-wide electricity emissions-factor on DEFRA's site, which is 546.67 kG of CO2 per mWh. Using the EPA's eGRID data for the California region, I converted lbs/kWh to 398.57 kG of CO2 per mWh. So, California's electricity results in about 73% of the emissions in the UK, per unit of delivered electricity.


raw

convert

UK, From DEFRA

0.54667

546.67

California, from eGRID

878.71

398.5766

So, even if the report was correct, and high speed rail emissions in the UK would emit 88 g/pkm (which I highly doubt), the equivalent technology would only emit 64 g/pkm operating in California.