Economy posts from the Daily Score blog - Sightline Daily

"It's Too Expensive To Address Climate Change"

Eric de Place — Thu, 08 Jan 2009 10:39:36

That's always the mantra: serious climate policy is too pricey, especially in this economy.

To that I say: watch this excellent video from King 5 News. (It's almost 16 minutes long, but well worth it.) The impacts of climate change, such as flooding, carry a very steep cost. And judging by the video, the costs aren't mostly borne by the rich -- they're paid for by those who can least afford it.

I want to be perfectly clear. The floods in Western Washington -- this year and in several recent years -- are completely consistent with what the climate science has been predicting for the Northwest. It doesn't really matter whether or not these particular floods are the direct result of global warming (that's an untestable hypothesis), what matters is that this is exactly what we should expect in the future. If the scientists are right, get ready for more.

So if you think carbon pricing is too expensive, just wait until you see the bill for failing to put a price on carbon.

Photo is from Mike Kane in the Seattle Post-Intelligencer's stunning photo gallery.

We Must Never Tax Laser Interferometer Gravitational Wave Observatories

Eric de Place — Wed, 07 Jan 2009 15:08:50

Washington's finances are a mess. Very likely, the state needs both spending cuts and a revenue infusion. And we need to do something quick.

So I say, let's go ahead and eliminate tax credits for working families. Let's delete the paid family leave benefits. After all, those things don't affect the ordinary people of Washington. But whatever we do, we must never close the tax loophole on sales of tangible personal property related to a building or structure that is an integral part of a laser interferometer gravitational wave observatory. Not in these tough economic times.

I mean, I can see the merits of overriding a citizen's initiative to reduce classroom sizes. And I can see abrogating contracts with state employees. Anyway, those hardly have any meaning for working folks. But it is strictly off limits to consider eliminating the tax exemption on sales of carbon and similar substances that become an ingredient or component of anodes or cathodes used in producing aluminum for sale. That's unthinkable.

I hope you'll pardon my sarcasm. It's just a little galling to hear the state's leaders talk about slashing social services and backing off climate policy promises, but apparently refuse to consider tightening up the Swiss cheese of tax exemptions written into state law. (You can see the whole list here.)

We have sales tax exemptions for natural gas used by aluminum smelters and for semen used for artificial insemination, not to mention dietary supplements; to say nothing of the tax exemption for property and services that enable heavy duty diesel vehicles to operate with onboard electrification systems.

Look, some of these exemptions may be good ideas. Heck, they may be great ideas. But you know what else is a great idea? Here's one: not hacking away the safety net for the most vulnerable people in the state. It's also a good idea to honor employment contracts and give working families a break right now.

In that context, is it really critical that we continue to provide a tax loophole for sales of human blood, tissue, organs, bodies, or body parts for medical research and quality control testing?

So how much revenue are we leaving on the table? What's the worth of these loopholes?

We need these figures in the public discourse. We need them now. That means you, Olympia press corps.

A big tip of the hat to John DeVore at Horsesass. Again, you can see the full list of state tax exemptions here. I promise you, it's nothing short of fascinating.

It's Flue Season

Eric de Place — Mon, 05 Jan 2009 17:06:46

Here's your economic stimulus idea for today: condensing flue gas waste heat recovery.

With a name like that, it has to be good. And it is. It's precisely the sort of off-the-shelf technology that's ripe for stimulus investment. The investments could yield near-term jobs, as well as savings that would begin immediately and compound into the future.

But what is it? Good question. The folks at Sidel Systems are in the waste heat recovery business, and they've peppered me with fun facts. So while I don't fully understand the technology -- and I don't really know anything about engineering -- I'm going to write about it anyway!

(That means, for the rest of this post, caveat lector.)

Here's the low-down. It's not uncommon for large institutions -- universities, hospitals, schools, prisons, hotels, and certain manufacturers -- to use big and fairly inefficient natural gas-fired boilers. These are boilers that are rated at maybe 80 percent efficiency, but that probably don't hit even that modest mark on most days. And these are boilers that are consuming a huge amount of fuel.

The result of inefficiency is that these huge boilers are expelling hot exhaust tbetween 300 and 700 degrees, a gigantic waste of energy. Now back in the day, when natural gas was cheap and climate change was just a twinkle in Roger Revelle's eye, no one really cared much. But now that gas can be expensive, money is tight, and emissions matter, it's starting to seem like a pretty stupid idea to vent off 700 degree waste heat.

That's where the condensing flue business comes in.

The older and inefficient boilers can be retrofitted with stainless steel and aluminum systems that can capture most of the waste heat, boosting the system efficiency to as much as 97 percent. Basically, the system works by transferring the waste energy into water, which can then be used for hot water (duh), space heating, or manufacturing processes. That means, for example, that a public school might be able to heat its swimming pool with the energy currently being wasted and still have energy left over for other purposes. Or a beverage manufacturer -- a common home for huge boilers -- might find all kinds of big monetary savings by employing what amounts to free hot water.

As with most efficiency investments, there's an upfront capital cost that's paid back over time. A government stimulus investment could front the initial money for building and installing the condensing flues. Right away, that would put technicians, engineers, and installers to work. (And, of course, that there would upstream benefits to the supply chain and downstream benefits when the workers spend money.)

If the condensing flue systems went into public institutions -- schools, universities, and so on -- the increased energy efficiency would save money right away, a big boon during a time of constricted budgets. If the flues were installed in private businesses, they would cut operating costs during a rocky time, and might even help keep struggling companies afloat. In either case, the systems would mean more than monetary relief: they would mean significant environmental benefit too. We're talking about real emissions reductions.

Roughly speaking, for every 17,000 cubic feet of natural gas saved, the climate will be spared one ton of carbon-dioxide. (One ton of CO-2 is roughly the emissions of that an average American car produces over a two month period.) Since it's common for institutions to burn through that much natural gas every hour, boosting the efficiency of just a single boiler from 10 percent -- say from 80 to 90 percent -- would be on the order of taking 100 cars off the road every year. And since some installations burn through 10 times that much natural gas, upgrading one of those big boilers could be the climate equivalent of getting 1,000 or more cars off the road.

Ballpark figures here, but you get my drift. We're talking about a real climate benefit -- and we're talking about doing it by saving money and creating jobs now. In my book, that's a great buy for an economic stimulus investment.

Now that's condensing flue gas waste heat recovery we can believe in.

Todd Myers Is Right, Sort Of

Eric de Place — Wed, 17 Dec 2008 16:43:40

Over at Washington Policy Center, Todd Myers had a post a couple of weeks ago that gets something importantly right. Free allocation of carbon permits in a cap and trade system is a bad idea. Take it away, Todd:

This system was used in Europe and led to some companies being given large excesses of carbon credits which they then sold on the market. In short, government gave something of value (carbon credits) to companies who then profited from them. Worse, a recent report by the Government Accounting Office found that politicians handed out presents, choosing winners and losers when it came to handing out allocations, leaving some industries short and others long.

That's a good point. Not only is it free allocation inefficient, but it's ripe for abuse and favortism. Forget about fairness for consumers for a moment -- a subject we've written a lot about -- free allocation is not even fair for the firms that will be regulated under cap and trade. It's very difficult, and perhaps impossible, to develop a principled, rational, and fair way to hand out permits for free.

The most popular scheme for free allocation gives out permits based on historical emissions. This is sometimes called "grandfathering". The European cap and trade program took this approach (albeit in some peculiar ways) and it's possible that Washington may head down the same path. Unfortunately, grandfathering can cause some very problematic inequities.

Consider how this might work in practice.

Imagine that there are two steel firms in your state: Green Steel and Brown Steel. Let's say that in 2005, Green Steel decided to radically upgrade its efficiency. Maybe Green Steel was getting hassled by air quality regulators, or maybe its existing equipment was nearing the end of its lifespan, or maybe it saw change coming and wanted to get ahead of its competitors. The reason doesn't much matter, just the result: that Green Steel spent a lot of its own money (or, more likely, borrowed money) to upgrade its equipment and operations. After making the investments, by 2006 Green Steel became the cleanest and most efficient steel operation in the region.

By contrast, Brown Steel has done nothing. They operate a heavily polluting plant and they're happy just they way they are.

Now fast-forward to 2012 when carbon permits are given away on the basis of historical pollution. Assuming that the historical reference period is sometime after 2006, Brown Steel will get a truckload of free permits (enough to cover, or nearly cover, its large emissions profile) while Green Steel will get a comparative pittance (because its emissions are smaller). And remember: these permits are worth something. They can be sold for cash.

Brown Steel can cash in. They can sell a portion of their permits and then use the proceeds to upgrade their equipment. (More precisely, they'll use some financing arrangement.) The result is that by 2013 or so, Brown Steel will be just as clean and efficient as Green Steel. That's good news for the environment, but it's hardly fair. Green Steel had to pay out of its own pocket to act responsibly (and Green Steel's early action was a particular benefit to the climate), while Brown Steel did nothing and essentially used public funds to become just as competitive.

How do we fix the problem? By auctioning. If we sell the permits at a public auction, Green Steel will reap the rewards of its responsible action because they'll have to spend less to purchase permits than will their main competitor. In fact, all across the economy, cleaner firms will have a leg up on dirtier ones. Then, Brown Steel will want to do what Green Steel did years ago: upgrade their systems and get clean. The result for the environment is just the same in either scenario, but the fairness implications are much different.

Plus, if we've auctioned the permits, we may even choose to use a portion of the revenue to help Brown Steel do the right thing. With a transparent strings-attached loan, for example, we might give Brown Steel a helping hand in a way that would be much harder to accomplish with a big grant of free tradeable permits.

Auctioning is just better. So it should come as no surprise that the European system is transitioning toward an auction. And that most federal cap and trade proposals have intended to auction a large share of their permits. And that the RGGI system in the northeast is auctioning almost all permits. And that Governor Schwarzenegger has said that he intends for California to eventually auction all of its permits.

So Todd Myers is right. Sort of.

Unfortunately, Todd's solution to the problem of free allocation isn't the obvious one -- auctioning -- but rather to toss out cap and trade entirely. That's a bummer because the fix is really pretty do-able. It's got big benefits. And it's a fix that progressives are working hard to make a reality.

Update, 2:30: In an email, Todd says:

I toss out cap-and-trade but offer another alternative and one you even like. You make it sound like I have contrived a complaint about cap-and-trade to do nothing, which is not my position as you know. At least give me some love for that.

Sure, sure. I was trying to limit the topic to cap and trade, but Todd does deserve a little love here. He's proposed a revenue-nuetral carbon tax for Washington state. (We even wrote a favorable blog post about it.) The proposal is similar, in fact, to British Columbia's carbon tax, about which we're on record as big supporters.

For too many reasons to include in this post, we prefer cap and trade to taxes. Not that we're opposed to taxes, mind you -- we like them quite a bit actually -- just that we believe cap and trade to be the better tool for addressing climate emissions. So I hate to see cap and trade rejected over something that can be so easily fixed.

Step Right Up! Fossil Fuel Roller Coaster

Anna Fahey — Tue, 23 Dec 2008 12:34:21

The cost of oil has been a rollercoaster ride since the 1970s. Thankfully, we've hit a low in this season of recession, foreclosures, and a major Wall Street meltdown. But nobody expects the ride to be over -- and the only way to go now is up.

Just ask oil industry insiders. A recent survey of senior oil and gas professionals by (auditing and consulting firm) Deloitte revealed growing concern among the top brass of the fossil fuel industry about the affordability and sustainability of oil and gas in the near future, along with a surprisingly strong belief in the viability of renewable energy.

Most participants in Deloitte's assessment group expressed a belief that oil and gas will no longer remain the world's cheapest energy source in the next few decades: 71 percent said that oil and gas is today's most affordable energy source, but only 23 percent feel it will still be the cheapest source 25 years from now -- a 48 percentage point drop.

Three-quarters considered it a good idea for the US to phase out fossil fuels for transportation.

Over half believe that transitioning away from fossil fuels is a reasonable goal for oil and gas companies.

When fuel prices are down, the inclination is to back away from energy policy that would get us off this scary ride. But even as we catch our breath (and our knuckles aren't white for the moment), the ride remains dangerous and unpredictable -- and it's likely not getting any better. I shudder to think what lies around the corner (a loop-de-loop perhaps?).

If oil execs -- of all people (!) -- are thinking about bailing off, shouldn't the rest of us?

As Senator Barbara Boxer head of the Environment and Public Works Committee (D-Calif) puts it: "At the end of the day, gas prices go up and they go down. In the long run, we need to find alternative clean-energy sources to protect our nation from hikes in gas prices and from the ravages of global warming."

The good news: Unlike past oil crises and their aftermaths, president-elect Obama doubled down instead of backing off his alternative-energy push. He promises to make green projects a cornerstone of the economic stimulus plan.

The work now is to put the brakes on political backsliding when it comes to important energy, climate, and green stimulus commitments at both the federal and state level.

Methodology: Deloitte conducted the sampling between November 5, 2008 and November 7, 2008, following the presidential election. It worked with the survey firm Penn, Schoen & Berland Associates to complete 52 phone interviews with director- and higher-level professionals at oil and gas companies with annual revenues of $100 million or more -- more than half of the interviews, 33, were with C-Suite executives.

Image courtesy: jcoleman, Flickr

Financing Retrofits for All, II

Alan Durning — Wed, 17 Dec 2008 17:04:30

Last time, I described a non-profit bank’s program for financing building energy retrofits, as a way to speed the green-collar recovery. Here, I describe two new, innovative approaches to financing efficiency upgrades in buildings—meter loans and local improvement districts—and one old-school, utility-run approach that may be the best bet of all.

First, though, a couple more points about the challenges of financing energy efficiency improvements in buildings.

One big challenge is to guarantee that retrofits will save enough money to repay the loans, not only on average across all buildings but also in each individual building. Guarantees are hard to come by, because building energy systems are complicated and buildings’ occupants may have other goals beyond energy savings. For example, if before a retrofit tenants were keeping their thermostat low to save money, they may turn up the heat after a retrofit. In effect, they’ll decide to take some of the benefit of efficiency in increased comfort. (As I noted before, low-income families are especially likely to turn up the heat. Who can blame them?)

A related challenge is to harvest all of the efficiency potential in each building. Owners and loan makers are commonly tempted to skim the cream, investing only a modest amount of money and making only the cheap, high-return retrofits—changing light bulbs, installing shower aerators, and upping insulation in easy-to-reach attics. To put ourselves on a clean-energy path, we need to do deep, comprehensive retrofits—retrofits that double building energy efficiency, for example, by changing heating systems, insulating walls as well as ceilings, replacing windows and doors, and installing appropriate renewable technologies such as ground-source heat pumps and solar water heaters.

Deep retrofits are expensive, even if they save the most money over the life of a building. They are less sure to generate monthly energy savings during the term of the loan that pay for their loan servicing costs. Deep retrofits may pay for themselves over 20 years, rather than the six years or so that’s typical for existing conservation loans. When a loan term is as long as 20 years, many property owners will wonder whether they’ll ever see the financial benefit. Will they still own the building in 20 years?

This concern in particular is what inspired the creation of meter loans and local improvement districts, both of which allow conservation loan debt to transfer from one building owner to the next.

Meter loans (sometimes called “tarriffed improvement programs”) are retrofit loans collected by a gas or electric utility on its monthly bills. The loans themselves can come from the utility or from a bank, public agency, or nonprofit such as ShoreBank Enterprise Cascadia. They obligate the current and any future owners of the electric or natural gas meter to pay for energy improvements made to the building.

Oregon utilities are already authorized to serve as intermediaries for such loans, but meter loans are rare in that state, as elsewhere. Also, they haven’t been any more successful than other conservation loan programs, according to this study. In fact, as I mentioned, two Cascadian utilities years ago discontinued their once-large meter-loan programs, preferring to pursue other efficiency strategies.

Local improvement districts are even more innovative. In July, California granted authority to its cities to loan money to building owners to pay for energy upgrades and solar panel installation and to collect loan payments on property tax statements. Because local improvement districts loans are structured as public spending projects for which the property owner is levied a special assessment (a type of property tax), the assessment – like other property tax obligations – transfers with the title deed on resale. Consequently, deep retrofits with long-payback periods are no longer risky investments for property owners. What’s more, such loans are less likely to suffer defaults than other conservation loans because, legally, even in bankruptcy proceedings, special assessments get paid before private loans such as mortgages. Other loans, such as meter loans, line up after mortgages.

In Washington and Oregon, local improvement districts are legally reserved for projects that provide a public benefit—typically the construction of public infrastructure such as a new transit or sewer systems. Furthermore, the normal rules require that local improvement district dollars go into projects on public property that remain in public ownership. So deploying local improvement districts to finance retrofits for all will require a slate of legal reforms: defining energy conservation or climate protection as a public benefit and waiving requirements concerning public ownership.

Oregon Governor Ted Kulongoski may introduce legislation soon to allow localities to create such districts for building retrofits. In Washington, the Priorities for a Healthy Washington project may do the same. In one scenario under consideration, the state would authorize local governments to create Climate Benefit Districts. These districts could then sell public bonds on private capital markets to raise money, and they could invest the funds in local building retrofits. (Of course, as I noted, conservation loan programs never pay for themselves entirely. They require public subsidy—a good use for economic stimulus dollars.)

Like meter loans, local improvement districts would seem to resolve some of the challenges of financing deep retrofits for huge numbers of building owners, as part of an economic turnaround. But they are also new and untested. So far, the city of Berkeley, California, has launched a pilot project to implement this new authority. It expects to install 40 rooftop solar energy systems through the pilot. Boulder, Colorado, meanwhile, has created a local taxing district to finance building energy upgrades. It’s hardly a track record that inspires confidence. It’s more a worthy experiment at this stage. The City of Seattle is eager to create such a district itself, after winning legislative approval. The City might engage ShoreBank to execute the lending portion of the program.

Still, the legal and legislative hurdles to local improvement districts are formidable, and an older approach may be a safer bet. Or, at least, this older approach might form the best backbone for large-scale investments in the short term.

As I mentioned last time, more than 150 programs make loans to finance building energy upgrades in North America. The overwhelming majority of these programs have lackluster records, but two stand out. The biggest in the United States is that of the Sacramento Municipal Utility District, which made 3,200 loans in 2007 and has served about a quarter of all households in its service area since the program’s launch 30 years ago. The biggest program on the continent is that of Manitoba Hydro, which made about 8,100 loans in 2007. The success of Manitoba’s program despite the utility’s low electricity prices is something close to astounding. It suggests similar success may be possible in Cascadia, where electric rates are also low.

Interestingly, both programs are run directly by public utilities—by government-owned utilities. They’re not run by third party nonprofits like ShoreBank Enterprise Cascadia nor by municipalities’ local improvement districts. Instead, the utilities built themselves specialized departments to do conservation lending, staffed by loan officers with banking experience. (Side note: an awful lot of financial professionals with real estate expertise are looking for work these days. WaMu is laying off more than 3,000 people from its Seattle headquarters this winter.) In addition, these utilities offer a bundle of additional incentives, beyond the loans, such as large cash rebates for energy-smart appliances.

The lesson of Sacramento and Manitoba is that how payments are collected—on the bill, on the property tax, or on a separate bill (which is what these programs do)—matters less than how the loans are marketed. Because of humans’ innate aversion to making complicated choices (which, I’ve argued, also causes default driving), among the most important ingredients of success in Manitoba and Sacramento is the deep and thoroughgoing involvement of those places’ contractors—the people that building owners already trust to help them improve their properties. In both places, contractors are the most important sales force and intermediary for the utility lending programs. Plus, these programs are efficient, well staffed and well organized. In Sacramento, once a contractor and building owner have submitted a loan application, the utility approves or declines within 24 hours. Manitoba is almost as fast, and it has a colossal network of engaged tradespeople: 1,100 contractors and 200 retailers are enrolled in its program. Manitoba has essentially deputized its building tradespeople as loan officers and conservation evangelists. In fact, Manitoba’s program reminds me of SustainableWorks, which I described here. It’s a whole-systems approach that provides financing as one part of the package.

In British Columbia, Oregon, and Washington, both public and private utilities already have the legal authority to run programs like Sacramento and Manitoba’s. In fact, Washington amended its state constitution in 1979 specifically to authorize government-owned utilities to offer conservation loans as freely as private utilities companies can. This amendment lifted the constitution’s usual prohibition against giving public dollars or credit to private parties. The state’s Attorney General Rob McKenna could strengthen this amendment by revising a too-restrictive interpretation of it issued by his predecessor in 2001.

Cascadia’s utilities do not lack authority; they do lack will. As creations of the state, they would get a will transfusion in a hurry, if legislators and regulators made successful energy conservation the principal factor in calculating their rates and returns on investment. Decoupling would be a good start.

Meter loans, local improvement districts, and ShoreBank’s conservation loans are all promising paths to financing retrofits for all. All of these contenders, furthermore, complement each other. But replicating Sacramento and Manitoba’s programs in Cascadia—massively, under government directive, and likely with an infusion of federal stimulus dollars—seems like the main route from where we are to where we want to be: a green-collar recovery, a revitalized construction industry, increased energy independence, waning greenhouse-gas emissions, and cozier buildings with lower operating costs. It’s a welcome opportunity in the midst of this economic storm.

Financing Retrofits for All

Alan Durning — Tue, 16 Dec 2008 10:58:29

In Retrofits for All, I described an ingenious plan for extending retrofits to whole neighborhoods of energy-wasting buildings. Today, I want to take another look at one piece of that puzzle: financing.

Energy conservation loans sound eminently reasonable: the loans pay for energy upgrades and, as long as the energy savings are bigger than the loan payments, property owners come out ahead (as do the climate and the local job market). In principle, this model could invest federal, state, or local stimulus dollars well; generate green-collar jobs in the construction trades; trim energy bills for property owners and renters; buttress sagging real-estate values; slash greenhouse gas emissions; and unlock a critical door to economic recovery.

But the challenges to successful conservation loans are daunting.

Yes, potential energy savings in buildings are enormous, but so are the obstacles to seizing them. For starters, lack of upfront capital is only one of several barriers to action: building owners also lack knowledge of efficiency potential and techniques. They don’t know how big the savings will be, so there’s investment risk. They can’t predict future energy prices (auctioned cap and trade with a reserve price would help). To some owners, the savings in absolute dollar terms may not be worth the effort and risk, even if they’re large in percentage terms. In many buildings, owners must pay for building upgrades, while tenants pay energy bills, which erases the incentive for efficiency retrofits.

Still, access to upfront capital is a substantial barrier. Removing it alone would accelerate efficiency. Unfortunately, private sector financing for energy-efficiency investments in buildings is hard to get. Most banks lack the expertise even in good times to predict energy savings. In the midst of the worst credit crunch since 1929—a crunch triggered by the excesses of creative real estate financing—the chances of a revolution of free-enterprise retrofits sweeping the continent are about as good as, well, the chances of Dow 36,000.

What about utilities and the public sector? A recent study scoured the continent for conservation loan programs run by such institutions. It makes sobering reading.

More than 150 public and utility-sponsored residential conservation loan programs operate in the United States, but they serve a relative handful of households. Overall, they reach fewer than 0.1 percent of their potential market each year. In Cascadia, the two largest and most successful such programs—run by electric utility BC Hydro and the Oregon natural gas company NW Natural—no longer operate. Their sponsors cancelled them early this decade, in BC Hydro’s case, because other efficiency programs were more cost effective. What’s more, no retrofit loan programs anywhere pay for themselves fully; all require subsidy.

A new generation of such programs may address some of these challenges, but certain older approaches hold equal promise. In this and my next post, I explore these models.

A Seattle-based nonprofit bank has devised a lending model—originally for replacement of leaking septic systems along Hood Canal, of all things—that could finance retrofits for all.

An affiliate of the Chicago institution ShoreBank, ShoreBank Enterprise Cascadia is legally a community development financial institution – a sort of not-for-profit bank. Eighteen months ago, it began making loans to property owners around Hood Canal to repair or replace faulty septic systems, which are one cause of the canal’s periodic oxygen starvation. Capitalized with $3.5 million from the Bill & Melinda Gates Foundation and $3.5 million from the state of Washington, the septic loan program has now written more than 100 loans.

The loans amount to 15-year second or third mortgages, and Shorebank Entperprise Cascadia writes the loans on favorable terms to all borrowers. It subsidizes them for low-income families. Because it’s not a bank, it can waive some normal restrictions: for example, if a homeowner’s first mortgage is for 80 percent of the home’s value, and her second mortgage is worth another 10 percent of the house’s value, the septic loan program can still finance a septic replacement. In fact, homeowners can sometimes take septic loans that bring their total debt up to 120 percent of their home’s appraised value.

The version for the lowest income households carries an interest rate of just 2 percent. What’s more, this interest accrues indefinitely. It only has to be paid when the house is refinanced or sold. For families less strapped for cash, there is a 4 percent interest rate, with 2 percent of the interest deferred until sale or refinance; a straight 4 percent rate; and a straight 6 percent rate.

The loans terms are generous, because ShoreBank Enterprise Cascadia’s mission—and that of its benefactors—is to replace as many faulty septic systems as it can with the same pool of money, by reloaning the same capital each time a loan is repaid.

The same loan design, ShoreBank Enterprise Cascadia argues, can apply to energy retrofits as well as to septic upgrades. In fact, it may work better: retrofits generate monthly bill savings that can repay the loan. The nonprofit hopes to launch a $20 million capital pool to fund loans in greater Seattle soon—an ambitious figure for a modestly sized nonprofit but a thimbleful of ocean compared to the need and to the potential scale of a green stimulus.

Two innovations practiced elsewhere could complement ShoreBank’s. I’ll write about them next time.

Climate Change Economics

Eric de Place — Wed, 17 Dec 2008 16:02:21

Alright, this website -- Climate Change Economics -- is basically my dream come true. (Sad, isn't it?) It's a growing collection of resources on, er, the economics of climate change, and specifically on climate policy. Even better, the site is explicitly designed for state legislators, state agencies, and governor's staff.

Timely, no?

I haven't waded through even a small fraction of the material yet, but it looks to be a handy tool. Enjoy.

Oh, I do have one criticism. The website's tagline -- "lowering carbon intensities, not standards of living" -- has got to be eligible for a prize of some kind. Now we need another website called "Climate Change Framing and Messaging."

Credit to Ross MacFarlane, Climate Solutions.

It's Cozier Together in Portland

Eric de Place — Tue, 09 Dec 2008 12:34:41

Here's a neat idea from Portland: Sunnyside Neighborhood Energy. It's a district thermal-energy plan being shopped around by some folks who think they've solved several problems at once.

The problem? The neighborhood's old elementary school with oil-fueled boilers from 1917. Also, that climate thing that Al Gore keeps going on about. Plus, low income families often struggle to pay their utility bills.

The solution?

SunNE, would be centered at Sunnyside Environmental School, where a central plant would replace the school's 1917 oil-burning boiler with a solar-powered geothermal heat pump. The plant would then connect to a network of underground pipes circulating through the surrounding 38 blocks. The system wouldn't supply electricity to the neighborhood but would supplant the electricity and natural gas used to power hot water heaters and air conditioners.

Okay, I'm in love.

As you may know, I loooove heat pumps, especially those of the ground source variety. In a residential setting, a small electric motor comparable to the one in your fridge can extract enough heat from underground beneath your yard to provide you with unlimited carbon-free heating and cooling. All you pay for is the installation, a little periodic upkeep (like you would for a furnace anyway), and the power to run the motor. That's seriously awesome. If you run the motor with solar then you're really cooking.

SunNE is taking that basic idea and multiplying it. By installing a network of pipes they can essentially put everyone in the neighborhood on the same carbon-free grid. It's not that SunNE can magically make everything better, it's just that...

Well actually, it really can make a bunch of important stuff better.

In any case, it's a great example of a locally-scaled idea that can yield benefits both now and in the future. This is exactly the kind of thing that a smart economic stimulus package would target. It would create green jobs now -- designing the system and performing the installation -- and it would make energy more affordable for the neighborhood while doing a reasonable bit to reduce climate emissions. For an estimated price tag of between $7 and $9 million, I'd say it's a bargain.

There's plenty more information on the City of Portland's website here. You'll also find a fair treatment of the problems, which are mainly related to the upfront costs and the disruption of installing the system. Then you should also check out SunNE's wikispaces page for all the rest of the details.

If you want to help get the project off the ground, you can check out their Ideablob. (And here's a nice article in the Oregonian too.) Even better, executive director John Sorenson tells me that Northwest Neighborhood Energy is hosting a dance and fundraiser on January 31 from 7 to 10 p.m. You'll even have a chance to check out the 90-year-old boilers while you're at it.

Hat tip to Cy Berryman at Northwest Energy Coalition for clueing me in to this project.

Why Is Transit Ridership Still Strong?

Eric de Place — Wed, 10 Dec 2008 18:01:27

As PBS reports, transit ridership appears strong even though gas prices have been falling. Or at least ridership was strong through September, the last reliable count:

More than 2.8 billion trips were taken from July through September – an increase of 6.5 percent over the third quarter of 2007. In that time, there was an increase in ridership of 8.5 percent on light rail (streetcars), 7.2 percent on buses, 6.3 percent on commuter rail and 5.2 percent on subways.

Last year, 10.3 billion trips were taken on U.S. public transit – the highest number of trips taken in fifty years.

But how can this be? Hasn't everyone heard that falling gas prices mean that we'll soon be driving Ford F-150s on two-hour commutes from the exurbs? Won't gas consumption start increasing dramatically?

Maybe, but I think not. At least not right away. Here's why...

1.) Demand does respond to price -- really it does -- but there's a lag time. The big changes in demand take a while to kick in. For example, when prices rise you maybe cut a few discretionary trips right away, but you probably won't buy or sell a car overnight. You may tweak your work schedule to telecommute on Fridays, but you likely won't move your residence or job location right away.

(An aside: consumers have historically seen gas prices as inherently volatile and unpredictable: if prices are high today, they'll likely be lower next month. I'd bet a pile of money that consistently high prices -- and the belief that prices will remain high -- can change consumer response in not-entirely-understood ways.)

2.) Income may matter more than price. (In economist-speak, income elasticity of demand is probably higher than price elasticity of demand when it comes to gasoline.) In other words, people respond to gas prices, but they respond even more to changes in income. When wages go up, people drive bigger cars and they drive them more miles. But when wages go down -- as they almost certainly are now -- people respond by trimming their sails. We tend to opt for efficiency and look to save a few bucks by taking the bus when we can, maybe even ditching a car altogether.

These reasons were often supplied to assert that Americans would never, ever, ever stop guzzling fuel. But of course when gas prices spiked in mid-2008 it turned out that Americans are pretty darn resourceful. (Though it did take a while for the resourcefulness to have a measurable effect.) We drove fewer miles, and we drove slower. We started taking transit in numbers. And when we drove we switched to our more fuel efficiency vehicles. In short, for all these reasons and some others, gasoline consumption dropped.

Naturally, these same things can happen in reverse. But in order for them to we'll probably need to see not only low prices but also a strong economy -- and even then we'll need time to see the effect. Folks who moved to a walkable neighborhood won't soon be leaving. And some folks who traded in a car for a bus pass will find that they prefer getting about by transit. (That is, if transit service can be maintained in an era of crushing budgetary constraints.)

Only time will tell. It will be interesting to see what fourth quarter transit ridership is like. My guess is that it stays reasonably strong. Your predictions in the comments, please, and I'll meet you back here in '09 for an update.

Gas Up, Congestion Down

Clark Williams-Derry — Tue, 09 Dec 2008 11:21:43

It might not have been obvious at the time, but the massive fuel price spike last summer did have one hidden benefit: it eased congestion.

Take a look, for example, at this report from traffic information firm INRIX. I'll let them summarize the numbers:

Overall, 96 of the 100 [metropolitan] markets, and all of the top 50 largest markets, had decreases in congestion during the first half of 2008...Across all roads and markets, roughly 26% of the peak hour [congestion] evaporated.

So when gas prices peaked, more than one-quarter of rush hour congestion simply disappeared. Similarly, rush hour travel times improved, with the "travel time index" (essentially, the time penalty for driving at rush hour) declining by about 7% in Seattle and 6% in Portland compared to the previous year.

I don't mean to suggest that we all should be grateful for high gas prices. The price spike posed a real burden to lots of working families--a burden that was far greater than the limited and fairly concentrated benefits of congestion relief. I, for one, am not pining for the days when gas was over $4 per gallon.

Still, the numbers demonstrate two important points. First, relatively minor decreases in rush-hour travel can have big benefits for congestion: traffic volumes only have to go down a bit in order for traffic congestion to go down a lot. And second, people have significantly more ability to cut back on driving than we tend to think. Even at rush hour there are a lot of trips that aren't vital, and that will "evaporate" when the costs of driving go up by as little as a dime per mile.

Idaho's Progressive Utility Rules

Alan Durning — Tue, 09 Dec 2008 10:56:53

Utilities are among the few remaining large companies that are relatively solvent and profitable. Harnessing their might to retrofits for all would be a powerful step toward economic stimulus.

But most utilities in Cascadia are conflicted about helping their customers save energy. On the one hand, they’re legally obligated to do it. On the other hand, if they do it successfully, they don’t make as much money.

Resolving this conflict in favor of conservation requires an innovative form of utility regulation called “decoupling.” A decoupled utility makes profits not in proportion to its sales but in proportion to its success in advancing efficiency. (Decoupled utilities, furthermore, have nothing to fear from comprehensive, auctioned cap and trade with built-in protections for working families.)

In recent years, Cascadian utilities and utility regulators have been making stepwise progress on decoupling. Oregon’s two big natural gas companies—NW Natural and Cascade--are decoupled, as is the natural gas division of Spokane-based Avista. California decoupled all its utilities in one sweeping move a few years ago. Perhaps more surprisingly, since March of 2007, Idaho Power has operated under the most progressive decoupling rules in Cascadia. You heard me: Idaho Power.

Oregon’s electric companies and most of Washington’s utilities operate under the conflicted old rules. But we may see progress soon. At present, the Oregon Public Utility Commission is considering a proposal from Portland General Electric to decouple its electric rates. If the commission approves PGE’s proposal, then Oregon’s other big electric utility PacifiCorps probably will follow.

Then we’ll need action from Washington and British Columbia.

Decoupling is an ideologically neutral innovation that helps save energy, lower customer bills, reduce greenhouse gas emissions, and unlock green-collar jobs. Interestingly, in both Washington and British Columbia, decoupling is getting held up by the right of the political spectrum. BC’s center-right climate champion Premier Gordon Campbell has yet to follow his ideological soul mate Arnold Schwarzenegger and decouple utility profits from sales. In Washington, whose Puget Sound Power & Light once led the continent on decoupling (before the wave of deregulation ended all that in the mid-1990s), center-right Attorney General Rob McKenna—or his office—has been a consistent obstacle to decoupling, whenever it’s proposed before the Transportation and Utilities Commission. Perhaps decoupled California’s Republican governor—or just about any elected official in deep R Idaho—could put in calls to the premier and the AG?

[Photo credit to Flickr photographer thomas.merton.]

Recycling Depression

Alan During — Mon, 08 Dec 2008 13:40:13

Of all the news I read this weekend, here’s what most surprised me:

The precipitous drop in prices for recyclables makes the stock market’s performance seem almost enviable.

On the West Coast, for example, mixed paper is selling for $20 to $25 a ton, down from $105 in October, according to Official Board Markets, a newsletter that tracks paper prices. And recyclers say tin is worth about $5 a ton, down from $327 earlier this year. There is greater domestic demand for glass, so its price has not fallen as much.

Those numbers boggle me. Why have prices for used commodities dropped more than for the virgin ones? Anyone know?

Happy Feat

Clark Williams-Derry — Fri, 05 Dec 2008 12:14:48

Apparently, a good mood is contagious: the New York Times reported yesterday that a long-term study has found that having a friend, neighbor, or even a distant acquaintance who's happy can make you happier. The authors believe the contagious effect of happiness can be both powerful and far-reaching:

“if your friend’s friend’s friend becomes happy, that has a bigger impact on you being happy than putting an extra $5,000 in your pocket.”

Wow: five thousand bucks for happiness at three degrees of separation. That may seem pretty unlikely -- until you remember that money doesn't actually do very much to make you happy. Sure, most people get a momentary jolt of pleasure form an extra 5 grand. But research has shown that the joy we get from money is pretty thin stuff, and it fades fast. And that makes it at least somewhat plausible that the ripple effects of bliss, even three times removed, could be worth a lot of cash; sharing a smile is like spreading the wealth.

Of course, I think there's good reason to be skeptical about the results. No other research has confirmed the effect of happiness three times removed. But in the meantime, if you're happy and you know it, clap your hands! Hopefully, someone will hear you.

[Hat tip to Jessica Branom-Zwick. Photo credit to Flickr user Donna Cymek.]

The Tax Loophole For Pesticides

Eric de Place — Tue, 02 Dec 2008 17:19:45

So Washington is facing a $6 billion budget shortfall, give or take. The state is looking at slashing funding for core services like public schools, higher education, and even public safety. The governor is calling the situation "truly ugly." Things are really pretty dire.

It seems like this would be a good time to close tax loopholes, especially when the loopholes are antiquated and preverse. So here's one: despite the fact that Washington levies a sales tax on pretty much everything, the state has a special tax-exemption loophole for pesticides and fertilizers. We're talking about roughly 2 billion pounds of fertilizers and maybe 37 million tons of pesticides that, for some reason, we don't tax. If we applied the same tax rate that we use for clothing and computers, toys and tacos, we'd be looking at $100 million over the budget cycle.

$100 million won't solve all our budget woes but that's a decent chunk of change for teachers, cops, and college tuition. Why on earth should we keep this loophole?

In fact, the toxic tax exemption is partly a result of historical accident. The state legislature carved out the exemption in 1943 "to assist an economically distressed industry." One can only assume that agriculture lobbyists have given the loophole its staying power. And this really is about the agriculture industry. Ordinary schmoes like you and me have to pay sales taxes for fertilizers and pesticides; it's only farmers that get the exemption.

It's not like this is the only loophole for big ag. The state's Department of Revenue has identified 42 different tax exemptions -- worth more than $600 million per budget cycle -- provided to farmers. These are effectively taxpayer subsidies for agriculture. Not that all of these subsidies should disappear -- some of them may be smart -- but still, closing the pesticide and fertilizer sales tax loophole is fairly small potatoes in the big scheme of things.

These tax exempt pesticides are the very same products that degrade water quality, kill and poison wildlife, and even hurt human health. Some of the fertilizers are also major contributors to global warming. What's more, the loophole has the effect of disadvantaging organic and natural agriculture. If pesticide users had to pay the appropriate tax rate, it would make organic food a bit more cost-competitive, a healthy boon for consumers.

The state's proposed budget cuts are bad business. In the bulls eye of the cuts we've got social services and public health, school-aged kids and towns struggling for economic development. We're talking about slashing core pillars that underpin Washington's civic environment. It would be something more than lousy policy to make those cuts without first closing this toxic tax loophole -- it would be shameful.

Credit where it's due: Yoram Bauman, a longtime friend of Sightline. I didn't do a lick of research for this post, I just copped everything from the informative website that Yoram created to test a ballot initiative a few years back. See, especially, the FAQs. (Of course, any errors are my responsibility.)