January 12, 2021

Guest post by Brennan Vogel and Michael Courey

In London, Ontario, nearly half of the city’s greenhouse gas footprint is associated with natural gas use in existing buildings. This presents a key opportunity for integrated policy designs to support job creation and emissions reductions through building retrofits. London also has deep social and economic challenges with precarious employment, lagging labor market participation rates and slow job growth. With one of the highest overall poverty rates in the country, London also includes a high concentration of neighbourhoods experiencing energy poverty.  While a monumental task, an inclusive and green recovery should be undertaken to help address these social and economic challenges.

In our research, we are investigating key program and policy design features that can support effective, inclusive and green building retrofit recovery activities.  Specifically, we are looking at the integration of green finance building retrofit programs, energy poverty reduction, and community wealth building strategies (See Figure One).

Figure One: Conceptualizing Inclusive Green Recovery through PACE Financing to Build Community Wealth and Reduce Energy Poverty

What is a PACE Program?

Originating in Berkeley, California in the late 2000s, Property Assessed Clean Energy (PACE programs, also known as Local Improvement Charges in Ontario) provide a secured means for delivering upfront capital to municipal property taxpayers and homeowners for green retrofitting, by fixing long-term loan repayment to the municipal property tax bill. PACE programs can be delivered by third-party agencies or municipalities to provide a low-interest, guaranteed loan for upfront financing of improvements that can benefit a wide range of property owners, including low-income homeowners, as well as renters in multi-unit dwellings.

PACE programs provide an opt-in, accessible, inclusive green financing incentive to support retrofitting for energy efficiency, renewable energy, and other environmental sustainability measures that property owners can undertake to improve their properties. PACE loan repayments are unique in that repayment is tied to the property tax, and thus the loan can be transferred to a new owner when the home is sold. Municipalities or third parties can administer PACE programs, providing logistical operations for retrofit financing and a guarantee against loan defaults through reserve funding or general coffers, depending on the program scale and design.

PACE programs are capable of supporting efforts by other levels of government and private sector investors seeking to achieve greenhouse gas emission reductions in the residential building sector. PACE programs also provide a stable approach and a proven bond and loan repayment financing mechanism for enhancing investments and job creation opportunities through widespread building retrofitting efforts.

Energy Poverty Reduction

A key feature of some PACE programs is their aim to address energy poverty.  Energy poverty reduction efforts using PACE aim to reduce the overall energy expenses incurred by low-income households, by reducing energy consumption through green retrofit installations. For instance, PACE programs can target low-income households and affordable and social housing projects to improve energy efficiency and lower energy costs. Ensuring accessibility in PACE program design is also an important equity aspect for consideration in higher government stimulus spending efforts.

While a focus on addressing energy poverty is an essential part of inclusive and green PACE programs, truly activating inclusive economic growth requires a critical eye to the flow of stimulus and investment dollars. It is possible that PACE programs intended to address energy poverty could exacerbate economic inequalities, depending on who delivers the program for whom, what companies are involved, and where profits are circulated.  It is here that the community wealth building approach is particularly important, with a focus on community-based ownership structures, living wage/decent work commitments, intentional supply chain developments, and targeted training programs for worker entry into the green sectors.

Activating the Community Wealth Building Approach

The community wealth building approach is designed to ensure an equitable distribution of economic benefits as stimulus dollars flow into communities. This approach was developed through the Democracy Collaborative and its use has grown across North America and Europe.

The approach focuses on place-based economic development, community and worker ownership, and regional supply chain development. Each of these approaches has been shown to create more resilient local economies while contributing to poverty reduction; and to equitably distribute economic benefits across communities. The Evergreen Cooperative model is particularly instructive for how to effectively integrate green enterprise development and employee ownership opportunities for targeted, equity-seeking groups.

The community wealth building approach is not without its challenges. International trade agreements and provincial public procurement policies have historically hindered social procurement and regional economic development initiatives favouring local production.  The point of identifying these challenges is not to be confused with an unthoughtful localization, but rather to envision constructing the foundations required for an inclusive and green recovery in 2021, through major shifts in economic and social innovation.

There has been progress on this front, as displayed in the Federal government’s Community Employment Benefits program which directs infrastructure spending to targeted community-based employment and social procurement requirements. Similar types of community benefits arrangements could be tied to energy retrofit programs.

Through our research, we are exploring how green energy retrofit models that bring together PACE, energy poverty reduction, and community wealth building can be leveraged to support strategic, integrated community-level actions on climate change and poverty issues. Next, we will conduct interviews with experts and practitioners across Canada and North America to better understand the opportunities and challenges for inclusively shaping PACE program designs. Through our work, we aim to contribute policy insights related to the roles that strategic and integrated green financial incentives for building retrofits can play for supporting inclusive and green recoveries in Canadian cities and towns like London, Ontario. 

This project, titled “Developing Inclusive Green Economies through Property Assessed Clean Energy Incentives” was funded through Smart Prosperity Institute’s 2020 Call for Research Proposals. Further details of this and other funded projects are available here.

For more research on green retrofits, also check out this recent blog on “Lessons for Canada’s next residential energy efficiency retrofit program”.