By Thomas Cheney and Geoff de Ruiter
We are on the precipice of a carbon revolution! We will finally get our act together and decarbonize our energy systems, or we will blow past all carbon targets and completely destabilize our climate. So, how do we ensure the former? And more importantly, how do we crush the latter? The answer is we design broadly acceptable approaches to energy efficiency and renewable energy, and we get on the path to action.
Carbon taxes are considered to be a great way to adopt full cost accounting for the environmental and human costs of greenhouse gas emissions, even China thinks so! One drawback, however, is that they are also criticized for raising the price of energy on people and households who can scarcely afford it. To counter this, the way carbon-pricing revenues are distributed cannot only reduce the impact of carbon taxes, but also encourage the adoption of renewable energy and energy efficiency. This is the premise behind the Carbon PACE Bond.
In British Columbia we currently enjoy a $30/tonne carbon tax on all internal combustion of fossil fuels. Ironically our right leaning government introduced the carbon tax, but they made it with one special circumstance; it was revenue neutral. Meaning, that every dollar collected was returned through reduced income taxes. The premise, tax the bad and reward the good. And it worked. Now, five years in, support for the tax is still well above 50%, but the direction of the tax is losing support. In fact, 67% now want the tax to fund green energy or retrofit projects.
The Carbon PACE Bond works like a typical PACE bond but offers a greater incentive to invest in clean energy and energy efficiency. This is because the interest for PACE bonds is funded by a modest $8/tonne carbon tax (at least to start). As a side note, this is the exact mechanism used for any government infrastructure bond. Taxes are collected and those who choose to invest and support the infrastructure project benefit from a stable and guaranteed interest rate. In this case the carbon tax funds a stable and respectable 6% return on the citizen-invested PACE Bond opportunity (Who wouldn’t invest in that?!). With the interest paid by the carbon tax, zero interest loans would be issued to borrowers, such as homeowners and property developers, public service organizations, businesses and renewable energy developers. Borrowers would be greatly facilitated to implement cost-effective energy efficiency and green energy projects that hold a payback of 10-years or less. Completing the cycle for borrowers is a pay-as-you-save mechanism that removes any differential long-term cost burden.
A visual representation of the Carbon PACE Bond can be seen below
Benefits to stakeholders
The stakeholders in this proposal would receive key benefits that overcome current barriers seen in the energy efficiency industry. Overall, the benefits associated with each stakeholder below will help to increase acceptance for the program.
Many citizens want the option to invest in green energy; however, there are very few opportunities available. The PACE bond investment option would provide this opportunity along with a respectable, and more importantly, stable annual rate of return of 6%. This investment would also be seen as highly progressive and a socially valued investment.
The PACE bond would make capital affordable to borrowers to perform energy retrofits, regardless of income or available capital. Borrowers would also be more likely to implement energy efficiency measures or renewable energy because the PACE loan would stay with the property, and not with the individual or business. Together, the zero interest loans and PACE bond mechanism removes current key barriers in energy efficiency and renewable energy implementation.
Green energy and energy retrofit companies
With zero interest loans, green energy and energy retrofit companies would be greatly facilitated because they would be able to promote and provide services at no added cost to the homeowner.
The carbon tax revenue is more effectively used to support the interest on the PACE bonds rather than directly funding energy efficiency projects. In fact, with the proposed $8/tonne carbon taxes, the 10-year payback stipulation, and 6% PACE bond interest rate, governments are able to amplify the effective use of taxpayer dollars by 1.67. Some projects will payback even faster thus increasing the leveraging power of the carbon tax revenue. Overall, the benefit to the government is a more effective use of taxpayer dollars.
Overall Key Benefits
- The Carbon PACE Bond synergizes 4 key ideas for encouraging energy efficiency and renewable energy implementation:
- An $8/tonne carbon tax (or more)
- PACE Bond zero interest loans
- Pay-as-you save loan repayments
- A stable PACE Bond investment opportunity with a 6% interest rate
- All parties including borrowers, investors, and energy retrofit companies are greatly facilitated to implement energy efficiency and cost-effective renewable energy projects through the removal of significant social and economic barriers.
- This program maintains a revenue neutral carbon-tax for citizens because all tax revenues are returned to bond purchasers.
- Sets a stable, predictable, and continued path for energy efficiency and renewable energy implementation.
- Unifies and supplants almost all current energy efficiency programs.
- Creates a continuing economic incentive for energy efficiency and renewable energy implementation across all sectors, and improves in effectiveness with higher energy or carbon pricing.
The Carbon PACE Bond is an integrated approach to removing barriers seen in the clean energy industry. It facilitates all stakeholders with respectable benefits while maintaining a politically favourable revenue neutral carbon tax. Given these benefits the Carbon PACE Bond presents a seemingly irresistible incentive for clean energy adoption.
As the authors of this proposal, if you would like a copy of the original and full “BC Carbon PACE Bond” proposal, please click this link. We highly encourage the sharing and distribution of this proposal to government agencies, such as local or state/provincial energy departments because we feel it is a solution that must be implemented.
Thomas Cheney is completing his master’s degree in Environmental Studies at the University of Northern British Columbia on bioenergy and district heating systems.
Geoff de Ruiter is a PhD candidate at the University of Northern British Columbia working in bioenergy and carbon management. Professionally he works on renewable energy implementation, and is a multiple contest and award winner in the field of renewable energy and energy conservation.