President Obama today announced several initiatives to promote energy efficiency in buildings. This announcement is welcome news. Many building owners want to invest in improving the energy efficiency of their buildings, reducing monthly energy bills and increasing the value of the building. But building owners have been slow to make these invesments, held back by many market barriers and uncertainty in the market today. There are wide-spread benefits that result from this private investment, and it makes a ton of sense for government to take the lead to reduce the barriers holding back this investment.
In a recent letter with others, NRDC asked the Administration to pursue three priorities, and the President announced today they will pursue two of the three we proposed: i) correcting and extending the commercial buildings tax credit, and ii) implementing a loan guarantee program to support projects to make commercial buildings more efficient.
The Administration is right to embrace these two initiatives. For more detail on correcting the commerical building tax credit, please see our letter and Meg's blog.
The second initiative, a loan guarantee for efficiency retrofits, is exactly the kind of effective, market-based initiative that is needed. Even if an efficiency project, such as replacing windows or installing a new boiler with modern controls, makes economic sense, the owner might be unable to invest due to very expensive financing. Many buildings are owned by partnerships or LLCs that have difficulty obtaining conventional loans, and -- this is the critical point -- lenders today are unwilling to rely upon the cash flow produced from the energy savings that will be produced by the project. A loan guarantee can lower the cost of financing and enable an efficiency project to occur. Moreover, loans made under such a program can prove the viability of the key concept I described -- that the new cash flow produced by the lower energy bills will make the owner a better borrower. Incidentally, reducing energy use also can make the building perform better, increase rents, and increase occupancy,
The President also mentioned HomeStar in his announcement today. HomeStar is the proposal to support homeowner investment in efficiency. Investments in efficiency often make sense on their own terms, but other problems often hold the investment back -- financing is difficult to get or expensive, the savings in the form of lower monthly utility bills is not made clear, or the homeowner doesn't shop for energy savings. On these fronts, rebates and well-designed loan programs - as proposed in HomeStar - can help consumers to invest in efficiency, which will pay dividends for many years.
I hope the President's reference to HomeStar means the Administration will follow this good announcement with a similar effort focused on residential properties and homeowners. There is much we can do: extending tax credits based on improving the energy performance of the house, correcting the conventional mortgage lending process to account for the real costs faced by homeowners and the savings produced by efficiency, plus empowering homeowners and service providers with good information abiout energy use to make decisions and guide solutions.