We have written before about incentive programs to promote energy efficiency in Portland and Vancouver, including a post that featured the race to find programs that also create jobs and reduce greenhouse gas emissions. That post mentioned Seattle’s new program—the Green Building Capital Initiative—which was announced on Earth Day. Now, a closer look at that program, some of its key elements and how it compares others in the region.
Like Portland’s program the Seattle Green Building Capital Initiative focuses on upgrades for single-family residential homes. Like Vancouver’s program, One Day, there is also a broader focus on efficiencies in commercial properties and multifamily homes, something Portland’s program currently lacks. Seattle’s program mirrors recently passed Washington State legislation that would require energy ratings for commercial properties but it doesn’t do much in the way of innovations to crack the split incentives problem. Split incentives happen when owners of multi-unit housing have no interest in energy improvements because they don’t pay energy bills and tenants don’t have an interest improvements because they don’t own the property.
All the programs have an audit component. Vancouver’s program has a CAN$150 charge for an initial audit to determine which improvements will save the most money and a second one after improvements to measure savings. Portland’s program has the same before and after requirement but there isn’t any charge for the audits. Seattle’s cost for the audit is $95, but unlike the other two programs it isn’t clear that there is an audit required after the improvements are made to secure financing.
Seattle’s program has two parts.. The first is completing 5000 audits in 18 months and the second is loaning $1.2 million, $8000-$20,000 at a time with reasonable interest rates. These funds come from the Federal Energy Efficiency and Conservation Block Grant. Portland is also using these funds but is adding $2.5 million from its stimulus dollars. Vancouver’s program is using City dollars to help homeowners qualify for Provincial or Federal grants. And participants in the Seattle and Portland programs could also claim state and federal level tax credits or exemptions for the costs of the improvements.
Seattle is also wisely providing what Portland’s programs refers to as “hand holding,” providing an interested homeowner a lot of information, options and walking her through the many different available options. All three efforts have a focus on outreach and education to promote the audits and the loans. But in spite of these more focused efforts and outreach it is still going to be a challenge to find people to sign up for the audits and the loans to finance the efficiencies. Each of these programs is complex and can be a challenge to explain to a homeowner considering participation. Here is a diagram that outlines Seattle’s program:
Seattle’s program is definitely reflective of the region’s interest in catalyzing energy efficiency through innovative financing models. For example, using revolving funds—pools of money used for loans that are recapitalized by the payback from earlier loans—is a great way to recycle financing dollars rather than simply subsidizing or paying for improvements outright. Portland’s Clean Energy Fund aims to create this kind of revolving fund which would make money more accessible to lower income people who need smaller loans than banks are interested in making.
But none of these programs does much to address the nettlesome split incentive problems of multi-unit housing or to ensure that there is a good mix of low- and middle-income families participating. With conscientious marketing, however, this mix could be achieved. And Seattle does have a tiered payment structure based on income built into its financing. Additionally, there are stated intentions, especially in Portland and Seattle, to spread the dollars out equitably.
Seattle’s program could also benefit from a clearly defined evaluation plan for the audits. Currently there is a great deal of debate in the field about what audits should look for and how they should be used to help make decisions about investments. Asking the right questions at the beginning could help other cities learn about how to create a useful auditing strategy. And the program might also more clearly connect financing and the audits by requiring a follow up audit after the improvements are complete.
Taken together these three programs and others at the state level should reveal a great deal about the kind of outreach, education and financing that will incentivize energy efficiency. The larger question of whether these programs are reaching the sectors with the greatest potential energy savings remains. Gaining a footing among those with the greatest barriers to participating in the program is going to be the biggest challenge. We’ll keep you posted.
Paul Birkeland
One way to fix the “split incentives” problem is with an Energy Performance Score (EPS). EPS is a sort of “miles per gallon” sticker for a house. Both Germany and the UK have EPS programs that require that any property going on the market must have an EPS evaluation done, and a sticker posted at the electrical service box. No upgrades were required. Just the score. This led to an interesting development.As one might expect, homes with a higher score sold for higher prices. But, interestingly, rental homes with higher scores rented out faster, saving the owner money.The reason seemed to be that renters, who are generally stuck with the home’s energy bill and are not in a position to invest in any upgrades, prefer finding a home that had a higher score (lower energy bill). Since they were generally more mobile and less attached to any particular neighborhood, they could work large portions of town to seek out the higher EPS rentals. And they did!This will not totally solve the problem, of course. But it is perhaps one piece of the puzzle. And certainly an unexpected dynamic. Just having a mandatory EPS – not even requiring the upgrades – gave an advantage to energy efficient properties. There’s a lesson there for those who want to hear it.