Policy Memo: Making Buildings Carbon-Free to Make Real a Green New Deal

The policy memos we publish distill what participants learn about stakeholders, terms and levers in the Policy module of the Financing and Deploying Clean Energy certificate program. We invite you to absorb the authors' thinking, reflect on how it clarifies issues in your own work, and consider applying or referring a colleague to join the next FDCE cohort. We're accepting applications here through March 13.

In January 2019, House Representative Alexandria Ocasio-Cortez and Massachusetts Senator Edward J. Markey presented a congressional non-binding resolution including a plan for the United States to fight climate change, while at the same time promoting the creation of high-paying green jobs. They called it a Green New Deal.

The resolution was dead on arrival, but it still achieved its goal of bringing climate change back to the top of the political agenda. With the help of the Sunrise Movement, this effort by Rep. Ocasio-Cortes and Senator Markey would set in motion a nationwide movement focused on pressuring federal, state, and local governments to take decisive steps to mitigate the effects of climate change.

This movement came to Ithaca, N.Y., as a Sunrise Movement chapter composed mostly of high school students, relying on social media and in-person demonstrations applied pressure to the Mayor and the city’s Common Council, leading them to unanimously adopt a local Green New Deal resolution in June 2019.

This resolution was meant to showcase the city government’s commitment to fight climate change by implementing a series of mitigation actions, while at the same time addressing historical inequities, economic inequality and social injustice.

Unfortunately, 2019 was also the year COVID started propagating around the world, forcing the economy to shut down and the city government to divert all its efforts to specific actions to control the spread of the virus. 
In April 2021 the city restarted its efforts to implement the Ithaca Green New Deal (IGND) by hiring a sustainability director. But at this point the world had changed, in many ways, requiring an even more aggressive strategy to meet the objectives stated in the original resolution.  

...at this point the world had changed, in many ways, requiring an even more aggressive strategy to meet the objectives.

According to the city’s own estimations, carbon emissions from economic activity in the city amount to 400,000 metric tons of CO2 equivalent, mostly from energy use in buildings, transportation and the electric grid.  Given the aggressive goals of the IGND, there was no time to implement a vertical, sector-by-sector, mitigation strategy. It was time to look for cross-cutting strategies if the city was to eliminate all carbon emissions before 2030.

Overall, the plan was simple: identify key economic, institutional and regulatory instruments that would enable the successful implementation of energy efficiency and conservation measures, electrification strategies, and decarbonization of all areas of the economy. This led to the development of foundational programs, such as the City of Ithaca’s climate justice program, as well as the development of infrastructure programs such as community choice aggregation, and city-wide electrification, among others.

A new Energy Code in July 2021 effectively banned fossil fuels in new constructions and major renovations. This left the challenge of eliminating the use of fossil fuels in existing buildings.

To address this challenge, and considering that most carbon emissions in buildings are associated with energy use, the city created the Energy Efficiency Retrofitting and Thermal Load Electrification (EER-TLE) program, also known as the Ithaca Electrification Program. With it, the city expected to reduce as much as 50% of the total emissions through three simple actions:

• Maximize thermal efficiency by retrofitting every building in the city. 
• Eliminate carbon emissions from energy use by substituting space and water heaters, cooktops and clothes dryers, with heat pumps and induction cooktops.  
• Maximize the use of carbon-free electricity by increasing rooftop and ground-mounted solar installations in the city, while taking advantage of the economic benefits of co-deploying electric vehicle charging infrastructure.  

What made the Ithaca Electrification Program different from other programs in the United States was the scale. The intention was to retrofit and electrify every single building in the city. For the city to be successful, it needed to hit six objectives. 
1) create economies of scale to achieve substantial savings in equipment, parts and labor;
2) increase economic sophistication and reduce industry fragmentation;
3) achieve bulk purchasing power;
4) develop a skilled workforce;
5) maximize the efficiency in the allocation of state and federal incentives;
6) unlock and de-risk financial flows.  

The City of Ithaca’s building stock includes close to 6,000 buildings, including single-family and multifamily residential, mixed-use, commercial, industrial and special purpose buildings. This breadth made economies of scale possible, yielding potential savings of up to 30%. Likewise, bulk purchasing could lead to substantial cost reductions in heat pumps, solar systems and EV charging infrastructure.  The program also sought to address industry fragmentation by promoting the development of new partnerships and the consolidation of industry sectors, while at the same time inviting equipment manufacturers to compete to be part of the multi-year program, thus increasing economic sophistication, shifting market dynamics and enabling further equipment cost reductions.

The overall cost of the program was estimated at $600 million, including all residential and commercial buildings in the city. For a city like Ithaca, which has an annual budget of $80 million, the cost of the program represented the biggest challenge. Under normal circumstances, the city would issue debt in the form of municipal bonds to raise the necessary funds. But the scale alone made this strategy unfeasible.

However, the size of the market and the type of technology-driven transformation that was required made this an ideal opportunity for private investors: a multi-year program, with a highly diversified building portfolio and a government-backed program, made this an attractive opportunity. This proved to be true when the city received commitments for more than $100 million from private investors, enough to fund a pilot program for the retrofitting and electrification of 1,600 residential, commercial and industrial buildings.

There were still three more issues to address: inefficient government incentives, overall risk and cost of capital.

To address these issues, it was necessary to rethink the role played by local, state and federal governments. For example, fragmented state incentives could be consolidated and repurposed as a mechanism to reduce the cost of capital, by relieving pressure on the capital stack, providing a guaranteed partial return to investors. Similarly, federal incentives could be used in the same way, or leveraged to create a loss reserve, increasing financial inclusion and indirectly affecting the cost of capital. The city government could then focus on implementing risk mitigating actions such as loan guarantees or a form of stop-loss insurance issued by a third party, protecting the overall program against catastrophic losses.

Thus, by rethinking the role of government, the program managed to attract private investors, reduce the cost of capital, achieve financial inclusion and transfer risk away from the city. This led to the creation of different financial products, including zero-to-low cost lending and operating leasing.

Consistent with the objectives of the IGND, the Ithaca Electrification Program incorporated a climate justice strategy by stating that at least 50% of the economic, social and environmental benefits of the program were going to be redirected to climate justice communities, comprised mostly of frontline communities.  This was operationalized by adding specific socio-economic and demographic criteria to building selection and by providing a loan loss reserve large enough to guarantee full financial inclusion.

Climate justice concerns also shaped the development of workforce development and environmental literacy programs, including new apprenticeship, training, certification and micro-credential programs, mostly designed to attract climate justice communities to participate and benefit from this transformation effort.

With all these elements in place, the City of Ithaca created a strategy that, if successful, could lead to the decarbonization of the entire building stock and a reduction of approximately 50% of the total emissions in the city.  
On November 3rd, 2021, the City of Ithaca’s Common Council unanimously approved a resolution authorizing the city’s Mayor to designate a program manager for the implementation of the first city-wide building decarbonization program in the country.

By leveraging private capital and repurposing government incentives, the city was able to deploy the necessary economic incentives and institutional support to initiate this transformation. However, it is expected that future policies such as energy and building performance standards will be necessary to achieve full participation and meet the goal of full building decarbonization by 2030.

While many issues remain, including community participation, supply-chain and code enforcement, the City of Ithaca has already embarked on a very ambitious plan to reduce carbon emissions. The lessons and experience from this program will be shared with other cities and governments across the United States, hoping to accelerate the transition to a carbon-free economy, supporting the state of New York’s and the Federal Government’s strategy to reduce greenhouse gas emissions in the next 10 years.