Except when they don’t.
A glaring example of market failure in the U.S. economy is the energy wasted in buildings. When the Empire State Building renovated its heating and cooling system, upgraded its lighting and installed new windows, the owners cut their energy bills by 40%. Think about it—a 40% cost savings. That’s big.
Today, at an event called Business Climate 2011 in New York, a group of cities and companies and a nonprofit called the Carbon War Room announced a plan to curb wasted energy and unecessary pollution—importantly, at no taxpayer cost.
Jigar Shah of the Carbon War Room, which put the group together, said this is a very big deal. “I think this is the most important climate announcement in the last five years,” he said.
“Building retrofits have been a colossal failure,” Jigar said, and that’s about to change.
Energy waste in buildings persists for a bunch of reasons. Surprisingly, many building owners don’t know, specifically, what’s driving their energy consumption. Often there are split incentives–tenants pay electricity bills but owners have to pay the capital costs of retrofits. Simple inertia comes into play. (I’ve been meaning to patch up leaks around the windows in my house for years.) Perhaps most important, it’s hard to borrow money for retrofits that may take years to pay off, or for efficiency projects with uncertain returns.
To attack those problem, Carbon War Room brought together a bank, a defense contractor, an insurance company, an energy firm and two local governments, Miami-Dade County, FL, and Sacramento, CA.
Barclay’s Capital will invest up to $650 million in retrofits. Lockheed Martin will lend its engineering expertise. Energi, an innovative insuror backed by a bigger firm called HanoverRe, will guarantee the cost savings. A new company called Ygrene Energy will manage the process for cities, and vet the contractors.
“The new idea here is in the way in which these companies are working together, and how they’re addressing the market,” said Murat Ambruster, a senior advisor to the Carbon War Room.
The Carbon War Room, by the way, was started by Sir Richard Branson; its aim is to bring together entrepreneurs and companies to unlock gigaton-scale, market-drive solutions to climate change. In a statement, Branson said the mechanism announced today “will unlock a trillion-dollar market for green retrofits.”
If all goes according to plan, green retrofits will become a no-brainer for owners of commercial buildings. Owners will sign up, through their local governments, for a renovation. Engineers will recommend work that needs to be done and estimate the cost savings. Those projected savings will be analyzed and guaranteed by the insurers. Owners will then take on the loans and agree to pay higher property taxes, which will be used to repay the lenders.
This is made possible by an idea known as PACE (Property Assessed Clean Energy), invented some years ago in Berkeley so that energy retrofits and renewable energy projects could be financed through property tax surcharges. Justin Gillis of The New York Times wrote a long story and a blogpost today about PACE, Branson and the war room.
The Carbon War Room estimates that energy retrofits will create about 60 jobs for each $1 million invested. That seems like a stretch. ($1 million divided by 60 is $16,666.) But unlike the usual claims that clean energy will create green jobs–which tend to ignore the fact that higher energy costs are a drag on productivity–energy efficiency projects are by definition money savers that free up cash for other job-creating investments.
“We think this is going to spread across the country quickly,” said Dennis Hunter, chairman of Ygrene Energy.
“650 million is just the beginning,” Jigar said.
Let’s hope he’s right.
[Disclosure: I was paid to moderate panels at the Business Climate event earlier today and at a Carbon War Room meeting in Washington last May.]
Photo credit: Wallyg on flickr http://bit.ly/pdqH0W