It is now widely accepted that the battle against climate change is the biggest challenge ever of our time. We need to simultaneously change both the way we produce energy and the way we use it on an unprecedented scale. Indeed, the amount of capital needed to finance the energy transition and the quick pace at which this has to be done pose tough challenges. But an even bigger challenge, we believe, is how to create the demand for such capital.
To complete the transition, every homeowner and business must first reduce their energy usage by making a series of investments and behavioural changes. “Energy efficiency first” is a common message chanted by various organizations and governments across the globe to encourage people and businesses to consume energy wisely before rushing to invest in any capital-intensive renewable-energy facilities. However, it has so far proven difficult to engage homeowners and smaller organizations in the energy transition effort for many reasons, including the following ones:
- They don’t know how much of their energy consumption that they can cost-effectively reduce.
- They don’t know how to design, procure or install cost-effective energy-efficiency measures.
- They perceive energy efficiency as a negative act of restriction meant to limit their capacity to act or lower their level of comfort.
- They don’t know who to trust and who to ask for support.
- They are unwilling to use their borrowing capacity for long-term future gains in a short-term competitive business environment.
- They are too busy to optimize their core business activities or enhance their competitiveness in a fiercely competitive marketplace.
Well, this is where municipalities can step in. Municipalities are already interacting with businesses and homeowners in their territories and have established a trust relationship. Moreover, municipalities own infrastructure that can be used to initiate the transition and demonstrate that it’s good not only for the natural environment, but also for businesses.
“To join the energy transition effort, municipalities can leverage their reputation, access to capital, and policies and institutional structure to facilitate the implementation of energy-efficiency and renewable-energy projects.”
What follows is a non-exhaustive list of options that municipalities can implement:
Lead By Example
Municipalities can demonstrate to homeowners and businesses the cost-effective benefits of energy-efficiency initiatives by upgrading its infrastructure and making sure that the transition efforts and impacts are well documented and publicized.
Implement Sustainable-Development Policies
Municipalities can develop, review and implement their policies to promote and undertake energy-efficiency-improving projects.
Modify Fiscal Policies
By changing the way in which energy-efficiency projects impact property value and taxes, municipalities can reduce the adverse effects of the investments made in energy efficiency.
Create a Green Bank
Municipalities can collaborate with private lenders to create a blended financing mechanism called “a green bank”. Green banks offer a variety of financing mechanisms tailored to the financing needs related to investments in energy efficiency and renewable energy.
Create Revolving Funds
A revolving fund is an account capitalized and made continuously available to fund specific projects. Since energy-efficiency projects create value or positive net present value, the financial gains from such projects are used to replenish the account, thereby allowing for an increased level of activity. Municipalities can use this model to finance energy-efficiency upgrades of their infrastructure and use the savings to finance future projects. Once capitalized, the revolving funds model can help reduce the complexity usually associated with securing new budgets needed to function on a project-by-project basis.
Create and Implement a PACE Program
Municipalities can create and implement a Property Assessed Clean Energy (PACE) program. Energy-efficiency projects are long-term-gain projects and, as such, they require long-term financing solutions, which financial institutions are usually unwilling to offer. Financial institutions are also reluctant to increase business or homeowner debts for fear of increasing their credit risks. With a PACE program, the debt is attached to the building and not the owner and the payment is made via a special item in the property tax form. Such a program provides two main advantages: (1) a lower default risk and (2) easier payment collection. So, if a business or a homeowner declares bankruptcy and the assets are liquidated, the project payments are carried on to the next owner.
It makes plenty of sense for municipalities to get involved in improving the energy efficiency of the building stock in its territory, including the municipal buildings, homes and private business facilities. Since energy efficiency creates value, it can decrease a municipality’s operating costs, improve the quality of life of its citizens and the sustainability of its businesses, and support local employment creation. The above-mentioned concepts can be used by municipalities to not only get on board with the energy transition effort but also attract and keep businesses and residents in their territories. Energy efficiency is a low-risk long-term gain that fits in perfectly well with municipalities’ goals to foster and maintain an attractive environment for the local businesses and residents.
The first step that municipalities should take to get involved in the transition is to find the right partners. Such partners should be able to support the municipalities in assessing their potential, developing concepts and implementing the various mechanisms. Municipalities should also look for opportunities to forge partnerships with private and public organizations. Remember that the days of working in silos are gone. To tackle climate change, we all need to get on board and work together.
It’s no longer a question of “should we” or “when”. It’s now a question of how we can deploy the right solutions quickly enough and get the transition going!
“All the municipalities that want to be part of the energy transition should think efficiency first, knowing that this is where they can make the greatest and the most meaningful impact.”
How do I learn more?
Check out the following resources and learning opportunities:
Register for the free Canadian Energy Efficiency Outlook Webinar, featuring Pierre Langlois, President, Econoler, on Wednesday, March 20
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