In the past year British Columbia has been ravaged by fire and flood, first losing the Village of Lytton, then seeing our highways and rail lines wiped out by brutal flooding. The climate crisis is building in British Columbia, and we need to do everything we can to move toward a sustainable future.
While the BC Government has committed to a 40% reduction of CO2 equivalent emissions by 2030, but our current emissions are trending in the wrong direction. At last count, British Columbia was 7% above the 2007 benchmark target.
Clearly, if we want to live up to our words, we need to take concrete action to address our emissions.
The three main sectors of the economy that contribute to emissions are energy, transportation, and the built environment.
Frankly, BC will not see carbon emissions reduction in the energy sector because over 98% of our grid power is already clean hydroelectric energy. Realistically, BC will have to see significant emissions reductions from transportation and the built environment.
While the transportation sector is seeing emissions reduction, and promising technologies are coming online to replace internal combustion engines in our transport fleet like hybrid engines, biofuels, natural gas, and hydrogen – fleet transformation takes roughly 15 years.
On the other side of the ledger, in the building stock, there is even slower turnover, with building stock lasting anywhere from 30 years to over 100. While the BC Step Code goes a long way to encourage strong emissions and environmental standards in our new buildings, little has been done to incent retrofit and revitalization of older buildings.
Property Assessed Clean Energy Financing (PACE) can do just that. An innovative financing model implemented in jurisdictions across North America, PACE financing provides long term, low interest financing for environmental retrofits of commercial buildings – to pay for things like better insulation, energy efficient windows, improved HVAC systems, and switching from oil and gas heating to a hydro electric powered heat pump. Repayment of PACE financing is made possible through an assessment on the building’s municipal taxes.
Based on lessons learned in other jurisdictions, a comparable program in British Columbia could, over the next ten years see hundreds of millions of dollars worth of investment, and create thousands of construction jobs, all while tackling the climate crisis.
The benefits of the PACE loan structure are self evident:
- Environmental Benefits. Commercial building emissions are a major contributor to our carbon footprint. Incenting building owners to reduce emissions will help meet our climate reduction targets.
- No Upfront Costs. As PACE provides up to 100% financing for building efficiency projects, there are no upfront cost to the Province, to the taxpayer, or to the building owner.
- Immediate Positive Cash Flow. PACE projects are usually designed to ensure that the cost of PACE financing is exceeded by the energy savings, resulting in a positive cash flow each month, thereby actually lowering monthly operating expenses.
- Low Interest Rates. PACE offers an opportunity for the commercial building owner to acquire a bond tax lien financing rate for projects, providing access to the institutional grade debt market, and to longer-term financing than the owners would likely secure on their own.
- Long Term Financing. PACE is financed over the useful lives of the project. By providing low cost financing with a long amortization, PACE helps overcome the traditional barrier that faces energy efficiency – – which is an insufficient payback or ROI.
- Off Balance Sheet. Depending on the accounting treatment, the full PACE financing may be treated as off-balance-sheet, as the financing is attached to the building, not to the building owner. Building owners who are already fully financed may find PACE financing available to them.
- Non-Recourse Financing. A PACE assessment stays with the property upon its sale, enabling building owners to make energy efficiency improvements to buildings with financing that does not need to be paid off upon the property’s sale but instead transfers to the new owner.
- Ability to Pass Through PACE Payments. As PACE financing uses a property tax assessment for its repayment, the PACE payments can therefore be passed through to the building’s tenants under a “triple net” lease, meaning that the building owner’s payments would not go up. At the same time, the tenants would likely not notice the increased tax assessment, as the cost of energy utilities would likely go down.
- Higher Rent and Greater Property Value. While the PACE financing would be spent on energy efficiency enhancements, the improvements would very likely add value to the building. Studies show that green buildings often command higher rents and increased property values.
We should implement a PACE program in BC to support commercial enterprise meeting the carbon emission reduction targets set by both levels of government. We encourage other non-profits, and the finance, construction, and energy industries to join us in calling upon the Province of British Columbia to implement a ‘Made in BC’ commercial PACE program to help building owners finance their ESG capital investment and tackle the climate crisis head on.
Clark M. Roberts, QC., is the President and CEO of AdvantageBC, a Vancouver based non-profit committed to moving British Columbia toward a sustainable future.
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It is time for the BC Government to allow municipalities in BC to unlock the use of private capital to reduce emissions associated with existing commercial buildings. Clark, well put!