Building emissions are rising

For most municipalities, heating and cooling buildings is a major source of climate pollution (namely, greenhouse gases, refrigerants and soot), though only 12% of Canada’s total. While both new and existing buildings have become more efficient in recent decades, these gains have been more than offset by increases in population and customer demand for more space. That helps explain why emissions from buildings have increased 9.5% since 1990. It’s also one of the reasons that Canada’s emissions increased again in 2019, directly contrary to our international commitments under the Paris Agreement.

Yet in the challenging journey to net-zero, eliminating emissions from heating and cooling buildings is one of the easier tasks. Older buildings, in particular, waste large amounts of fossil fuels, largely because so much air and energy leak through their walls, roofs, floors, doors and windows. We already have the technology to fix this and would reap many benefits from doing so.

Most people would prefer to live and work in buildings that are draft-free, warm in the winter and cool in the summer, that are inexpensive to keep that way and non-polluting. A source of renewable energy, such as solar panels or geothermal heating and cooling, can add self-sufficiency and resilience. In the 2021 Texas blackouts, owners of efficient homes with their own solar power avoided the misery and broken pipes that plagued so many of their neighbours.

Then why do existing buildings so rarely receive meaningful energy upgrades, even when they are renovated? My last report as Ontario’s Environment Commissioner, A Healthy, Happy, Prosperous Ontario: Why We Need More Energy Conservation, showed that challenges with financing the upfront cost are one of the main obstacles.

Why PACE financing works

Municipalities can play a key role in providing access to attractive financing for the incremental costs of energy retrofits, because of their ability to unlock PACE financing programs. PACE programs lend willing property owners the funds needed for upgrades through low-interest, long-term, fixed-rate loans secured through a property tax mechanism. The owner’s utility savings help pay back the loan, which can stay with the property or be paid out when it is sold. (This is important since the average homeowner moves every few years, while deep retrofits can take a decade or more to pay back. The purchaser automatically takes over the loan obligation.) In some cases, utility savings make retrofits cost neutral to the homeowner. The owner also receives improved comfort, higher resale value, and reduced capital equipment costs, and knows they are doing something about our greatest crisis.

PACE programs remove several significant barriers: property owners don’t have to put money up front, their credit rating may not matter, interest rates remain low, and they don’t have to keep paying back the loan if they move. For lenders, the loans are low risk because they’re secured through property tax, which has low defaults, high priority and adequate security.

Well-designed PACE programs make good financial and environmental sense, although they require patience. For example, Halifax Solar City photovoltaic systems cost an average of $20,000, for estimated savings of $57,000 over 25 years. A study for Our Energy Guelph calculated that a $3.2 billion investment in community energy – two-thirds of it in building retrofits funded through PACE – would yield $4.9 billion over 30 years, through energy savings, carbon price savings and electricity sales. Plus, the retrofits would slash carbon emissions and make homes more comfortable.

There are at least 34 clean-energy financing programs available across Canada. Halifax Solar City was the first, launching in 2013. It has financed most of the solar water heaters and PV systems in its city. Yet, despite many pilot projects and an alphabet soup of programs,[iii] Canadian PACE programs have not achieved either speed or scale. Instead, they run into obstacles that should be easy to fix. For example, half of all applicants to Toronto’s Home Energy Loan Program (HELP) were unable to proceed with their retrofit because their mortgagee didn’t consent. U.S. PACE programs have been leaving us in the dust, despite the environmentally hostile leadership of the Trump years.

Given the need for urgent, transformative change, what could  help Canadian PACE programs takeoff?

1. Ensuring that mortgagees cannot block PACE loans for energy upgrades.

There is no legitimate reason to allow mortgagees to block PACE loans for energy upgrades. Property tax default rates are low, and properties that have undergone PACE upgrades have a lower-than-average default rate. Equally important, according to a study in the Journal of Structured Finance: energy upgrades are the only renovation that yield a larger increase in property value than they cost. This obstacle could easily be resolved by legislation or by provincial governments setting up a loan-loss reserve to protect mortgagees. In the meantime, municipal councils can ask local banks and credit unions for formal commitments to automatically consent to PACE upgrades.

2. Encouraging private sector funding of PACE loans.

Few municipalities have the spare capital to fund PACE themselves. Some compete for federal government funds via the Federation of Canadian Municipalities (FCM), plus local government dollars and perhaps a little private capital. (Ottawa, for example, has a pilot project combining FCM funding with a loan from the Vancity Community Investment Bank.) This approach cannot provide enough money to scale. It’s great that the federal government has increased the FCM Green Municipal Fund to approximately $1 billion, including a $300-million Community Efficiency Financing Plan. But it could take more than $800 billion to retrofit all existing buildings across Canada.

The private sector can provide money at this scale, and is indeed eager to do so, but is having trouble finding appropriate programs to fund without excessive risk or administrative costs. PACE programs could be a good fit. They can qualify for municipal green bonds, which are finding strong market appetite at better-than-usual rates. An inexpensive government loan-loss reserve would make these programs especially appealing and would minimize interest rates to homeowners.

In addition, private sector funding is less at risk of disruption by elections. Reducing political risk could improve contractor capacity, supplier capacity, customer awareness and customer confidence.

3. A multi-municipal entity with economies of scale.

One of the factors that has fuelled U.S. PACE growth to over US$8 billion is an independent third-party administrator that serves many municipalities. This makes it easier for municipalities that  want a PACE program but lack administrative capacity, technical expertise, know-how and capital, or simply want to reserve their borrowing power for other things.

Purchasing, marketing, administration and borrowing are all cheaper at scale. A mission-driven administrator can ensure that these programs are focused on the public good and not on predatory loans. A common entity can tap sources of private funds, such as pension plans, that prefer to lend amounts far too large ($50–100 million) for most individual municipalities.

Our Energy Guelph hopes to fill this role in Canada. If they, or a similar organization, succeed, Canadian municipalities may be able to grow their PACE programs at unprecedented speed to unprecedented size, and kick-start building retrofits across the country. After all, on the road to net-zero, funding building retrofits is one of the easier problems.

Dianne Saxe is one of Canada’s most respected environmental lawyers, with a Clean50 award, a Ph.D. in Law, and a Law Society Medal. She was a popular Environmental Commissioner of Ontario, reporting to the Legislature on environment, energy and climate. She now heads SaxeFacts, hosts the Green Economy Heroes podcast, is Deputy Leader of the Ontario Green Party

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As water levels continued to climb along the Ottawa River in late April, the nation’s capital became one of the latest Canadian towns to declare a climate emergency. It’s not a moment too soon. After 30 years of work by the largest scientific collaboration in human history, the Intergovernmental Panel on Climate Change, the climate crisis that humanity faces is now beyond question. A generation after they were first predicted, the impacts are now increasingly visible in Canada and around the world. Fires, floods, droughts, storms, wind and extreme heat are becoming increasingly severe.

In Ontario alone, insured losses from extreme weather events exceeded $1.3 billion in 2018. Uninsured financial losses by individuals, companies and institutions are often estimated to be one to three times as large as reported insured losses. On top of that, the Insurance Bureau of Canada reports that governments incur about $3 in damage to infrastructure and other public services for every $1 of those insured losses. And all these figures only cover losses measured directly in money, omitting significant health and environmental damage.

In the face of this crisis, as well as the collapse of biodiversity, it is beyond tragic that so many “senior” levels of government are doing so little – or worse, in some cases undoing a decade or more of hard work. With a federal election looming, the future of federal climate action is also uncertain.

In these dispiriting circumstances, municipal leadership is of great importance. As the owners and operators of most of Canada’s infrastructure, municipalities are at the front line of much climate damage. In many ways, they have more to lose from climate inaction than other levels of government. For one, they bear increasing social welfare needs as climate change disproportionately affects the poorest and most vulnerable. Municipalities are also much more vulnerable to liability lawsuits than senior levels of government, and municipal representatives are more visible and accountable to their constituents.

Fortunately, municipalities can also do something about it, which is why it’s exciting to see so many Canadian municipalities joining the ranks of over 520 councils around the world in declaring climate emergencies.

Most of these are in Quebec, where over 300 municipalities have signed “declarations d’urgence climatique.” Others in Canada include Halifax, Vancouver, Kingston, Hamilton, Richmond, London, Burnaby, Nanaimo, Burlington, St. Catharines, Moncton, and Old Crow!

A declaration will not, of course, accomplish anything unless it’s followed by real action. Only significant changes to business as usual can meaningfully affect the trajectory we’re on.

Aside from the enormous cost of adapting to the wilder, weirder weather that’s coming, adaptation will likely become impossible if we don’t reduce emissions. And climate pollution mitigation is where we face the biggest policy and implement gap.

Where can municipalities cut emissions?  

The majority of urban GHG emissions come from three sources:

• energy use in buildings (a function of both energy sources and energy demand)
• transportation
• waste management

Municipalities can tackle the climate pollution they themselves emit through heating and cooling municipal buildings, water treatment and use, vehicle fleets, waste management, etc. But they can have the largest climate impact by influencing the emissions of others – namely, all of us who live and work in and visit their municipalities.

It’s not just about land use bylaws and taxes, essential though they may be. Municipalities can galvanize private and public action through their targets and the examples that they set. Their relationships with others can build coalitions, generate buy-in and facilitate implementation of new ideas, new financial tools, and new standards of practice.

Vancouver is trying to lead the way. In January, it  adopted its climate emergency declaration, giving staff 90 days to come back with a plan of action. On April 29, Vancouver city council approved a Climate Emergency report with six new pollution reduction targets (called “big moves”) and 53 “accelerated actions”.

The “six big moves” are:

1. Walkable communities: By 2030, 90% of people live within an easy walk and roll of their daily needs.

2. Safe and convenient active transportation and transit: By 2030, two-thirds of trips in Vancouver will be by active transportation and transit.

3. Pollution-free cars, trucks and buses: By 2030, 50% of the kilometres driven on Vancouver’s roads will be by zero emissions vehicles.

4. Zero-emission space and water heating: By 2025, all new and replacement heating and hot water systems will be zero emissions.

5. Lower carbon construction: By 2030, the embodied emissions from new buildings and construction projects will be reduced by 40% compared to a 2018 baseline.

6. Restored forests and coast: By fall 2020, Vancouver will develop “negative emission” targets that can be achieved by restoring forest and coastal ecosystems.

The true significance of these targets won’t be visible until they start changing council decisions, especially on budgets, on infrastructure and on development. Council has promised to put a “climate lens” on its 2020 budget. In the meantime, Vancouver has pledged an impressive list of “accelerated actions” such as:

• considering zero emission areas (essentially car-free zones), road pricing and new parking rules
• density bonuses for zero emission buildings
• a climate trust/green bank to finance upgrades
• adding e-bikes to the bike sharing program
• a comprehensive waste reduction and diversion program for all city facilities
• a procurement policy that prioritizes local food in city-run facilities
• greening community events that the city runs, sponsors, and permits and
• reducing greenhouse gas emissions and fossil fuel use in city-run buildings and vehicles.

It’s inspiring to see this kind of municipal leadership at a time when good environmental news is in such short supply. Hopefully, Canadian cities won’t be alone in calling climate change what it is – an emergency – and then acting accordingly. Monday, the Ontario legislature will be debating an NDP motion to declare a climate emergency in this province. Any meaningful hope now has to come from a willingness to try new ways of doing things, and as The Democracy Center’s Jim Schulz said,  “from knowing that what is truly possible never reveals itself until we take the risk to seek it.”

Dianne Saxe is president of Saxe Facts, a business providing strategic advice and presentations on climate, energy and environment. She is the former Environmental Commissioner of Ontario and is a certified environmental law specialist.

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