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Financial Innovation We Can Believe In?

It's fairly well-established that people could save money over the long run by making their homes more energy-efficient—better insulation, say—or even, in some cases, putting solar panels on their roofs to generate their own electricity. But many of these upgrades never happen, for a variety of reasons. Sometimes the incentives are misaligned, if, say, the landlord owns the building but the tenant pays electricity and heating costs. And sometimes homeowners are dissuaded by the high upfront capital costs. 

So, earlier this year, the city of Berkeley started experimenting with a novel idea that would at least address the latter problem: The city would issue a bond to finance the upfront costs of installing solar panels on people's houses and then let homeowners pay it back over the long term through property taxes (the taxes would carry over if the house was resold before the panels were paid off). Similar programs have now sprouted up around the country, from California to Texas, and have expanded to help finance efficiency upgrades, as well.

There are a few small snags, though. The program called for the packaging of lots of micro-loans to homeowners into large municipal bonds—a financial innovation that, while quite sound in theory, was understandably enough to give some banks pause, given recent financial events. And then there's the bond market: "I cannot think of a worse time to go out and try to sell bonds. I've never seen the climate as bad as it is,” Patrick Conlon, the director of a similar municipal program in Palm Desert, California, told Miller-McCune.

So that's where the federal government could step in. On Monday, Joe Biden's Middle Class Task Force released a report titled "Recovery Through Retrofit," which, among other things, encouraged municipalities to apply for new stimulus grants that could fund these Property Assessed Clean Energy programs. Cities would still have to sell bonds to finance their programs, but the federal money could help in places where private funding is scarce. Ideally, one administration official explained to me, cities could leverage their federal grants to bring in more private money. With demand for these projects sky-high, it’d be a shame if all this eco-goodwill dried up for lack of funding.

(Flickr photo credit: lkarrowhead26)