Zach McDade recently posted explaining the housing bubble and how it has helped shred the broader financial system. I wanted to note two trigger factors obscured by his general statement: “the market decided that we had built too many houses.” Here they are:
1. Suburban housing values fell, causing people to default on mortgages, precisely because demand for new subdivisions slackened. This happened at exactly the same time as energy prices spiked (both home energy use and transportation are higher in the suburbs), and America saw its first net flow of people from the suburbs to the cities since the 1950s. Decoded: the energy crisis => the change in suburban-urban land use value => the housing crisis
2. Low-income urbanites started defaulting on mortgages or rent payments as the cost of fuel, energy, and food rose. Food prices rose due to A. rising energy prices increasing input costs and B. crop failure due to adverse weather in several food-producing areas (US Midwest, East Africa, India, Australia) globally reducing supply. Decoded: the food crisis (itself caused by the energy and climate crises) + the energy crisis itself => rising cost of living for poor => the housing crisis.
So what does this have anything to do with me, the career I’ll be trying to start when I graduate in 10 months, or the stimulus package?
I have been working with hundreds and thousands of young people for climate and energy solutions that will help revitalize the economy as my recent blog posts focusing on the state and national policy levels mention. In the realm of residential energy efficiency in particular, I have been going much deeper, working over the past year and a half to launch a start-up phase co-op. Cooperative Energy Futures works with residents and neighborhoods to improve energy efficiency using a model that seeks to transform the energy efficiency market as described in the 4-point plan for creating a new efficiency industry that I’ll outline below. Beyond being a larger strategy for economic recovery, Cooperative Energy Futures and the approach it is developing is also one of my own career plans. I mean, when the economy is crashing, it’s a pretty good idea to be in the business of economic revitalization. By the way, if you’re feeling entrepreneurial about your future you should think about joining us (just add a note saying you’re interested in being on the team).
Recently, this adventure has taken me to the state legislature as the stimulus allocation plan is being developed, which means I have started digging in to what economic stimulus really means.
Here’s what it boils down to – are we throwing money into the problem or investing in a solution?
Minnesota is slated to receive about $131.5 million in federal stimulus funding for weatherization and energy efficiency to be spent over the next 18 months, plus about another $54 million in conservation block grants for the state. That’s a lot of money coming in quickly, and energy efficiency is just one small part of a series of investments in renewable energy, job training, infrastructure improvements, and economic aid in the recent federal stimulus package.
This is all very good news. Major investments in efficiency and weatherization are an excellent idea (I explain why in a note at the end of this blog post). The problem is that current market barriers are keeping energy efficiency, which ought to be a no-regrets, win-win-win solution, from being adopted at scale. No one in their right mind would let a 20% low-risk annual rate of return go by, especially these days in a falling economy, yet we do exactly that every day by throwing money out the cracks in our doors and the cold drafts that blow through our un-insulated walls. There are many reasons that we are missing these opportunities – lack of information, lack of access to capital, obscure and complex auditing and contracting services, and little feedback as to how much energy, money, and carbon one is wasting. If we can remove these barriers, hundreds of billions of dollars of investment will flow towards this sector on a sustained basis, helping all Americans cut their energy costs and carbon emissions while creating long-term sustainable jobs. If initial investments (even the roughly $200 million dollars that the stimulus package might provide to Minnesota) only go towards paying for efficiency in some more houses, we will have just scratched the surface and end up with the same stunted efficiency market we have right now. The stimulus funding will only help solve that problem if it is deployed rightly.
Part of the problem is the speed at which the money must be spent – within the next 18 months. For efficiency, this scale of funding means a factor 5 or more expansion of the workforce, meaning that several thousand new efficiency contractors will need to be trained and employed in record-breaking time (this also risks low-quality works). The problem is that unless funds are invested strategically to change the way the market works, in 18 months the funding will be gone, demand for efficiency will drop, and those thousands of people will be back out of work. $200 million just scratches the surface of the changes we could make in Minnesota.
What we need to make the efficiency market work is:
- The creation of financial mechanisms that allow us to cycle funds and even generate a return. We did this at a small scale ($100,000) here at Macalester through the Clean Energy Revolving Fund. There are a number of technical and policy strategies to do this at a much larger regional scale. This is the step necessary to make sure that funding is not a one-shot deal, and to attract much larger amounts of capital from the private sector over time.
- Build the capacity for growth and sustained interest through enterprises that do outreach through community networks – efforts that engage large numbers of people at the local level through peer-to-peer engagement strategies and relationships with existing community partners such as churches, schools, local business associations, and community organizations have been shown to create economies of scale, allow quality control of work, and create the motivation for sustained engagement.
- Create training programs that produce quality work at low cost, are accessible to new workers without advanced skill-sets, and focus on creating employees capable of not only insulating your walls, but helping you walk through and understand the otherwise confusing process.
- Empower residents and neighborhoods as leaders of the clean energy economy by pursuing policy changes that make information more accessible (i.e. energy bills that are understandable and interesting), provide feedback through home smart meters and social norms, and encourage collaboration and innovation at the local level (advancing a smart-grid where all of us can manage, produce, and sell energy similarly as information flows in the internet).
Basically, the stimulus should do more than throw money at the problem. It should invest strategically in the infrastructure that will provide a solution in the long term. A solution that will be many times larger than the quick infusion of funding provided by the stimulus, and that will put us on track for a revitalized economy.
Want to make that solution into your future job?
If you are interested in working with Cooperative Energy Futures to link a community group with our emerging approach with (or even if you and a bunch of friends want to save money by buying simple, low-cost, do-it-yourself efficiency materials in bulk), OR you just want to help us out, please contact us through our Interest Form. If energy efficiency is not so much your thing, but you like the idea of building your career by building a green economy, you should join us this summer for the Summer of Solutions! There’s even a planning meeting on campus that you can attend this Saturday (contact the author – firstname.lastname@example.org)
For those who want the background, here’s the brief version of why major investments in energy efficiency make so much sense:
America’s 112 million housing units make up 35% of our electrical consumption, about 1.145 trillion kilo-watt hours per year. If you multiply that by the 11.47 cents per kilowatt hour that the average American paid for electricity in 2008 (according to the DOE), that’s $131.3 billion that residents are throwing to the coal industry, the nuclear industry, and other big energy providers (incidentally the fossil energy sector is the sector of the economy controlled by the fewest, biggest companies that have virtual control on the market, and create fewer jobs per dollar than most sectors of the economy while causing massive negative costs on society through air and water pollution, land degradation, and the wide economic impacts of climate change). And this isn’t even counting small businesses, or other sectors of the built environment, or natural gas and other sources of home heating. If the big numbers make your eyes glaze over, go look at your energy bill for a reminder of how much money you are losing. For most Minnesotans, it is upwards of $2,000 per year – much more for very large homes. The impacts of this energy cost disproportionately affect lower-income Minnesotans, both because their energy bill takes up a larger percentage of a smaller paycheck, and because low-cost housing tends to be inefficient and poorly insulated – making it high on energy costs. Similarly, the long-term impacts of burning all of this fossil fuel hurt people without the resources to compensate the most – like lower-income residents of New Orleans or places you are less likely to hear about, like flooded Bangladesh or drought-stricken areas in Africa.
The reason that investing so much stimulus money in efficiency is a great idea is that simple improvements (with paybacks less than 5 years) in home energy efficiency can cut energy usage in the range of 20-30%, helping keep money in our communities and reduces our collective investment in energy dependency and global warming. Deeper investments, with paybacks on the range of less than 10 years, can cut home energy usage by over 50%. The dramatic increases in home improvement trades like energy auditors, insulation contractors, and furnace replacers is also a huge boon for job creation – efficiency improvements yield far more jobs per dollar than any other source of energy (renewable energy creates several times more jobs per dollar than fossil fuels, and efficiency creates even more). It makes excellent sense to invest federal funds in this sector – it saves money for those who are struggling most in a tight economy, creates lots of job, improves our built infrastructure over the long term, and helps us start the journey to a post-carbon economy.