As primary season for state executives starts to heat up, would-be elected officials and policymakers are again focused on “creating jobs”. Democrats and some Republicans take this a step further and aim to create “Green Jobs”, generally defined as jobs that help the environment in some manner.
During President Obama’s first term, this was relatively easy. All you had to do was direct federal stimulus funding to cool-sounding projects that would create jobs by spending government money. Solar panels! Electric cars! Algae biofuels!
Unfortunately, now that the spigot of stimulus funding has stopped, politicians and other policymakers are faced with much tougher choices. Raising taxes and cutting spending are never popular, even if money from these activities goes towards programs that create Green Jobs.
Fortunately, there are a number of no-cost policy solutions that could provide big Green Job dividends in the realm of home energy efficiency improvements, which directly employs blue (er, green)-collar workers that cannot be outsourced.
The tradeoff is that these solutions require a re-thinking of existing (though often nonsensical) policy frameworks and diving into the weeds of implementation guidelines.
In no particular order, here are 5 things that enterprising politicians and policymakers should embrace:
1. Change the cost-benefit framework from Total Resource Cost (TRC) to Utility Cost Test (UCT)
As Matt Golden has eloquently opined at the Efficiency.org Negawatt Blog, the current framework for allocating ratepayer funding to energy efficiency is ridiculous. Basically, it says that the only benefits from home energy efficiency improvements are energy savings, whereas any home efficiency contractor will tell you that comfort, health and other non-energy benefits (NEBs in industry parlance) are the primary driver of sales, with energy savings serving as a way to justify the cost of the improvements.
In contract, the UCT is simple. Ratepayer funding should be invested in any project where ratepayer benefits (e.g. energy savings and associated demand reductions) exceed ratepayer costs (rebates, financing incentives, etc.). Some states like Massachusetts already have mandates that require utilities to capture all cost-effective energy efficiency, and this policy change would enable another step function in energy efficiency investment.
By switching to the UCT, ratepayer money can be invested on a massive scale within a policy framework that is easily defensible. This gets rid of the perverse incentive of many programs that don’t want to be “too successful” less they run out of money.
2. Mandate an even playing field for home efficiency contractors
This may seem obvious, but in many states there is a restriction on contractors who want to offer home efficiency services. These restrictions can take many forms, from a single company (Rise Engineering) with a monopoly on home energy assessments (Rhode Island) to an inability to offer rebates unless the home undergoes a $50-$100 home energy assessment (HES program in Connecticut).
More subtle, but pernicious restrictions also include an inability to sell anything not approved by the state (Massachusetts until recently) and subsidized financing that only covers measures approved as “cost-effective” (NYSERDA).
Boston-based Next Step Living represents a great case study of what is possible when restrictions are reduced. A few years ago, Massachusetts was similar to Rhode Island and only one company, Conservation Services Group (CSG), could offer ratepayer-subsidized home energy assessments. After industry lobbying, this restriction was eased, and Next Step Living and others could do what CSG could only do previously.
Since then, powered by private investment, Next Step Living has grown dramatically, directly creating over 700 jobs. And it didn’t cost the ratepayers or the state of Massachusetts anything.
3. Allow contractors to choose their own energy assessment software
Software restrictions may seem like small ball, but any home efficiency contractor will tell you the software they use has a significant impact on their sales process (e.g. 2 visit versus 1 visit sale) and administrative overhead (hours spent inputting data and filling out paperwork), which ultimately translates into reduced net margins and an inability to grow (and sometimes even survive).
Typically, the state Public Utility Commission (PUC) and/or energy department will require software to report certain pieces of data. That’s all fair enough in theory, but in practice this means that program administrators (usually utilities) choose a single software vendor that promises to integrate with all of the requirements.
The absurdity in this situation is that (a) that data is rarely sent in any usable form back to policymakers and (b) the energy savings estimates are not accurate. Much more sensible are states like Illinois that allow contractors to use whatever software they want as long as they fill out relatively simple rebate forms.
Fortunately, the emergence of a new data standard, HPXML, has made software choice much more possible, while standardizing the data format for easier access by policymakers, researchers and others (I’ll spare you the #openenergydata rant today). Companies like EnergySavvy with new data management platforms are accelerating this shift to the HPXML standard.
States like New York and Arizona are embracing this new standard, enabling contractors to choose from any software they find the most useful, while California is even more ambitious, benchmarking the energy savings estimates from all the software vendors.
To accelerate this trend, policymakers should mandate that any HPXML-compliant software can be used by home efficiency contractors.
4. Get rid of credit checks on financing home efficiency improvements
Home efficiency improvements are not cheap (thousand of dollars) and many need to be financed by the vast majority of homeowners. The problem is that this is an annoying and anxiety-driven process that turns off many people. Filling out a credit check form, reporting income levels, and submitting copies of tax returns are slow, unpleasant and embarrassing experiences (I know my tax returns are these days!).
Banks by themselves won’t lend without a credit check without an exorbitant interest rate, of course, but there are already plenty of financing subsidies that can be repurposed without raising taxes or cutting teachers’ salaries.
Right now, however, these subsidies are geared towards the lowest possible interest rate at the longest possible term. These are good goals, of course, but not at the expense of making it easy to obtain financing. For example, New York offers 15-year, 3.49% interest rate loans to qualified homeowners and Massachusetts offers 7-year, 0% loans. Most contractors would rather sell a 7-year, 4% interest rate loan that did not mandate a credit check rather than a 0% loan with a credit check.
Sealed’s partner, Powersmith, provides a great case study of this dynamic. Powersmith has been working with the Town of Babylon Green Homes program for many years now. The Green Homes program invests in home efficiency improvements via a PACE-like mechanism. Because of this, there are no credit checks beyond a quick check to make sure they are current on their taxes.
In contrast, the rest of New York works under NYSERDA’s Home Performance with Energy Star (HPwES) program that does require a fairly significant credit procedure. Because of this, Powersmith has to significantly qualify any non-Babylon homes to make sure they have the right credit score, and even then unforeseen problems can come up, delaying and killing sales.
Supporting policies like on-bill financing and PACE can help this issue of credit checks, but at this point it also takes repurposing of state financing subsidies. Thanks to Fannie and Freddie PACE doesn’t give the credit protection it should so states are creating loan-loss reserve pools instead to enhance the credit. And no major banks have pledged to provide attractive interest rates without credit checks under existing on-bill programs.
5. Prompt payment of rebates and financing
Mike Rogers has already covered this issue extensively (and persuasively), so I’ll be brief. Home efficiency contractors live in a cashflow world. They have to meet real payrolls and pay for real materials in order to build their businesses.
Rebates usually represent a significant chunk of the work (15%-75%), and so any delays in payment following completion of work can severely slow growth by requiring high-interest credit lines and/or setting aside cashflow funds that could be better spent hiring more workers.
Similarly, where states or utilities are directly providing financing (e.g. New York), any delays in receiving the loan amount can cause significant cashflow issues.
Changing the game
All of these things require policymakers to change the game in some way as well as really understand the details of how Green Jobs are created in home energy efficiency. Policymakers need to understand that jobs are created when home efficiency contractors make a lot of money, and they should help them accomplish this goal. Unfortunately, many home efficiency contractors I speak to are fed up with the existing system, and are voting with their feet by leaving programs.
This is a shame because public policy should be supporting home efficiency contractors via ratepayer investment to reduce energy use. With the current system, however, we are close to a Kafka-esque situation where energy efficiency programs simply subsidize their own paperwork.
So if you are a politician or policymaker looking for “fresh new ideas” to create “Green Jobs”, take these recommendations to heart this election season. It is much easier than raising taxes or cutting spending, and much better than doing nothing, allowing our planet to burn and our working class destroyed.