Areas of Focus
Financing Energy Efficiency
Energy efficiency is the fastest, cheapest, and cleanest energy resource there is. Business leaders and building owners who adopt efficiency measures can realize significant gains. McKinsey & Company identified untapped, cost-effective efficiency improvements in the buildings sector that could save up to $33 billion per year by 2030.
Yet unreasonable regulatory systems and market failures have prevented Americans from unlocking efficiency's full potential. CMI works to remove those hurdles, with a particular focus on enabling financing for efficiency measures.
- A New Asset Class for Efficiency: Right now homeowners and building operators have few options for financing the upfront costs of efficiency retrofits, even though these measures quickly pay for themselves by generating savings on utility bills. CMI is helping create a new asset class -- similar to car loans or student loans -- that will establish efficiency as an asset that banks are able to analyze, price, aggregate, securitize, and trade in secondary markets. This will be a clean, transparent product backed by the real value of energy-cost savings.
- PACE Bonds for Efficiency: Property Assessed Clean Energy programs allow cities and counties to issue bonds to building owners to cover the upfront costs of efficiency retrofits. In return, owners agree to an incremental charge on their property taxes. The charges are smaller than the amount property owners will save on their energy bills -- leaving money in their pockets. CMI has helped roll out PACE bonds in more than 15 states and will continue to expand this financing tool.
- The Energy Efficiency Finance Administration: CMI believes that energy efficiency investments will accelerate when all the key players -- developers, building owners, financiers, and efficiency experts -- come together to share opportunities and clear roadblocks. CMI is working closely with New York City in establishing a formal body that would bring all the relevant stakeholders together and act as both an information clearing house as well as an implementation tool for energy efficiency retrofits. The aim is to create a replicable concept -- like the Small Business Administration -- that would provide information exchanges and other services in other regions as well.
- Real Estate: Retrofitting a building to reduce its energy consumption undoubtedly makes a building more valuable, however, quantifying the value that a retrofit adds can be challenging, and this gap in value data slows the pace of retrofit financing. To help market participants and building owners to quantify the value of energy efficiency, CMI is currently working with lenders and other property stakeholders to ensure that energy-related concepts are incorporated into existing real estate finance principles. Specifically, CMI is advancing research and implementation of energy efficiency mortgages and location-efficient mortgages, which incorporate energy costs and transport costs into default risk calculations, respectively.
- Location Efficiency and Foreclosure: NRDC released "Reducing Foreclosures and Environmental Impacts through Location-Efficient Neighborhood Design," which summarizes the results of looking at 40,000 mortgages in three metropolitan regions. We found that when other important factors are held constant, rates of foreclosure are lower in less car-dependent, more location-efficient areas. These results support strategies for transportation and land use policy that enable smart growth and location-efficient communities, as well as targeted outreach to the lending industry to communicate the benefits of incorporating transportation costs into their models and lending criteria.
- Quantifying the market opportunity for Energy Efficiency: In an analysis by McKinsey & Company, co-sponsored by NRDC, McKinsey estimates that a $50 billion per year investment in energy efficiency could result in $1.2 trillion in energy bill savings by 2020 while reducing end-use energy consumption by about 23 percent of projected demand. In addition to saving Americans money on their utility bills, investments in energy efficiency would put downward pressure on electricity, natural gas, and carbon allowance prices (when a carbon cap has been established), while creating 600,000 to 900,000 new jobs.
Promoting Clean Energy Technologies
In addition to being our best weapon for fighting climate change and improving our energy security, the clean energy sector can also be a powerful engine for economic growth. The clean energy market is projected to attract $230 billion in annual investment by 2020. If America steps to the forefront of clean energy, we can dominate this global market and generate millions of jobs here at home.
We believe that if we address important market failures and barriers and create a level playing field, clean energy can compete favorably with the fossil fuel technologies. Through policy, infrastructure support and financial community engagement, CMI is helping create the conditions for clean technologies to rapidly and sustainably deploy through capital markets and compete on an ongoing basis.
- A Modern Grid: CMI is helping develop the electrical grid infrastructure that will allow renewable energy to flourish and be fully integrated into our nation's electricity supply. We are involved in a new collaborative long-term analysis and planning effort for the nation's grid aimed at helping states, utilities, grid operators, and others prepare for future growth in energy demand, renewable energy sources, and Smart Grid technologies. By engaging with key stakeholders across the electric power sector, this work will define a new vision aimed at developing the infrastructure needed to catalyze major investments in renewable energy.
- Overcoming the "Valley of Death" for new clean technologies: CMI is developing financing mechanisms that will help emerging technologies move through the so-called Valley of Death -- the gap between the pilot phase and the fully scalable level. CMI is a leading proponent for clean energy bank legislation that would create a new federal entity to support financing of energy efficiency and emerging renewable energy technologies.
- Addressing Market Barriers: CMI engages with the private sector to address fundamental market barriers to clean energy, such as permitting and siting challenges, limited access to financing and high up-front capital costs. CMI collaborates with bankers, investors, project financiers and other industry representatives to surface alternative perspectives and build consensus on key siting principles, deployment mechanisms and manufacturing incentives. CMI also is working to develop and advocate for clean energy innovation policies that enhance collaboration between entrepreneurs, early-stage private capital providers and public programs to accelerate commercialization of next generation technologies.
Ensuring the Carbon Market Is Well Regulated
Lawmakers, scientists, and business leaders agree that to confront the climate crisis we must set a limit on carbon emissions. Not only will a cap cut our emissions to levels scientists say are necessary, but it will also drive investment and innovation toward low-carbon solutions. It will help bring technologies out of the lab and into the marketplace.
The U.S. has used a similar approach to curb the pollution that causes acid rain, remove lead from gasoline, and remove chemicals that deplete the ozone layer. We understand that a carbon cap must be more comprehensive and involve more sectors, and CMI is working to ensure that this new market is well regulated.
- A Transparent Carbon Market: CMI is helping shape legislation that will construct the carbon market. Our staff members, some of whom are experienced traders, offer unique expertise; many lawmakers have embraced our suggestions for firm rules that limit individual trading volumes, require each trade to be registered on an exchange, and other measures that will keep the carbon market clean, transparent, and free of abuses. CMI is also engaged with members of the World Bank and the Federal Bureau of Investigation to help ensure that the multi-billion dollar carbon offset markets being created under climate legislation will be free from fraudulent activities.
- Incentives for Uncapped Sectors: Some sectors, such as agriculture and forestry, will not be included in a carbon cap but have an important role to play in limiting global warming pollution, either by reducing direct emissions or sequestering carbon. CMI is helping to create a well-regulated market to finance emission-reducing projects in uncapped sectors. Ensuring that offsets represent real, additional, verifiable and permanent reductions is key to reducing emissions, so CMI is actively engaged in shaping standards for high-quality offsets, as well as an alternative performance-based incentives program for more uncertain projects.
- U.S. Climate Action Partnership: In January 2007, after many months of quiet, high-level talks, leading U.S. corporations and top environmental groups issued an astounding call to action. The coalition, the U.S. Climate Action Partnership (USCAP), asked the government to enact legislation to curb global warming pollution, and it put forth a detailed set of policy principles aimed at addressing the issue. The move represented a tipping point for the business community, which for the first time came out in public support of deep, long-term emission cuts of 60 percent to 80 percent by 2050. Read More >>
- Global Warming Economics: A study by leading consulting firm McKinsey & Company, co-sponsored by NRDC, finds that substantial reductions in global warming emissions can be achieved at little or no net cost to the economy. This interactive chart illustrates how U.S. technology and innovation can cool the climate and fuel new economic opportunities.
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