Property Assessed Clean Energy (PACE) Financing: Recent Controversy and Litigation

Property Assessed Clean Energy (PACE) Financing: Recent Controversy and Litigation

J. Cullen Howe   By J. Cullen Howe, Environmental Law Specialist, Arnold & Porter LLP

There is a continuing controversy over Property Assessed Clean Energy (PACE) financing, which provides loans for improving energy efficiency in buildings. Property Assessed Clean Energy (PACE) Financing has been challenged in various jurisdictions. This commentary begins by providing some basic information on PACE financing by answering the questions "What is PACE financing," "Why does it exist," and "Why is it threatened"? It then explores how litigation could affect the status of PACE financing and provides a context for reading the PACE-related decisions in Town of Babylon v. Federal Housing Finance Agency, Natural Resources Defense Council v. Federal Housing Finance Agency, California v. Federal Housing Finance Agency, and Leon County, Florida v. Federal Housing Finance Agency.

"Buildings require massive amounts of energy for their construction and operation. Approximately one-third of all energy generated worldwide is used in buildings. In the United States, buildings use approximately forty percent of all energy generated and three-fourths of all electricity," writes J. Cullen Howe. "And because most of this energy comes from power plants that use coal as their primary fuel source, buildings are also responsible for much of the greenhouse gases (GHGs) that are emitted. In 2009, buildings in the U.S. were collectively responsible for 39% of U.S. GHG emissions and 8% of worldwide emissions."

 "A proven way to reduce overall energy use and the resultant GHG emissions is to reduce the amount of energy used in buildings; in other words, to make them more energy efficient," explains the author. "As Steven Chu, the Secretary of the Department of Energy, has famously remarked, 'Energy efficiency is not just low-hanging fruit, it is fruit that is lying on the ground.' In 2009, McKinsey and Company released a report finding that building-based energy efficiency offered a vast, low-cost energy resource for the U.S. economy. The report concluded that if energy efficiency measures were executed at scale, it would yield gross energy savings of more than $1.2 trillion, almost twice the $520 billion upfront investment, and would reduce end-use energy consumption in 2020 by 9.1 billion BTUs, approximately 23% of projected demand. The report also concluded that this savings would potentially abate 1.1 gigatons of GHGs annually."

 "The methods and technology used to make buildings more energy efficient are widely known and available. Methods to retrofit an existing building typically include, among other things, adding additional insulation, installing more efficient lighting and HVAC systems, and putting in energy efficient windows," reports Howe. "Many of these methods have a relatively short payback period, making them attractive investments. For example, energy-efficient lighting projects generate an average 45% return on investment, which translates to a payback period of 2.2 years."

 "One primary barrier to efficiency retrofits, particularly in the residential arena, is the upfront cost. Retrofitting a residential property typically costs thousands of dollars, money that many residential owners simply do not have available. This article will discuss a potential solution to this problem-Property Assessed Clean Energy (PACE) financing, and the controversy and resulting litigation that has sprung up in its wake."

J. Cullen Howe is an environmental law specialist in Arnold & Porter LLP's environmental practice group, focusing on climate change, sustainable development, and state and federal environmental laws. He is the managing editor of the monthly newsletter "Environmental Law in New York," and edits the Environmental Law Practice Guide, Brownfields Law and Practice, as well as Environmental Impact Review in New York. Along with Michael Gerrard, he co-edited the book The Law of Green Buildings, that was co-published by the American Bar Association and the Environmental Law Institute in 2010. He is an adjunct professor of law at Pace Law School, where he teaches a class on green buildings and sustainable development.

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