If there’s one thing I’ve learned running Capital Good Fund, it’s that sometimes good is good enough and sometimes it isn’t; knowing the difference is crucial. Take our DoubleGreen Loan, which we’ve offered since 2010. Ranging from $500 – $50,000, lower-income borrowers can use the funds for residential energy-efficiency and home health and safety measures, such as installing high-efficiency AC units, boilers, water heaters, or heat pumps; insulation, ductwork, and sealing; and removing mold and knob-and-tube wiring.
The product is part of a utility-run program that works as follows. A surcharge on everyone’s utility bill funds a pool of money; those funds enable borrowers to receive the loans at 0% APR, because the interest is paid directly to the lenders, up-front (we earn about 8.5%). Sounds great, right? Greenhouse gas emissions are reduced, homeowners save money, private lenders generate revenue, contractors create good-paying jobs, and homes are made safer and healthier.
To be sure, many of those positive outcomes are true. We’ve closed 555 DoubleGreen Loans for $4.8 million with a 99.5% repayment rate. As a result, borrowers have saved millions of dollars on interest and their utility bills; emissions have declined; and we’ve generated revenue to with which to change more lives. Lenders, borrowers, and contractors love it. It’s a good program.
The problem is that the program is not 100% aligned with the climate emergency: far too many of the measures we’re financing are for the installation of equipment–boilers and water heaters, namely–that still burn fossil fuels, albeit more much more efficiently. And once a homeowner puts in a boiler that costs $10,000, they’re not likely to replace it until it breaks, ten or more years from now. In the meantime, that unit will emit greenhouse gases that humanity simply cannot afford to continue to dump into the sky.
The focus now among climate activists, entrepreneurs, scientists, and the Biden Administration is on “electrification”–replacing every appliance in a house that runs on fossil fuels with one that uses electricity. The reason is that it’s extremely difficult to produce a “green” liquid fuel and extremely easy–and increasingly cheap–to generate green electrons. So it’s imperative that we do two things: first, accelerate the rate at which new solar, wind, battery backup, and other clean energy is added to the electric grid; and second, that we electrify as many appliances and vehicles as possible.
With current technology, it is safer and cheaper for a homeowner to own and operate an induction cooktop and electricity-driven heat pump than it is to use conventional gas appliances. One problem, however, is that most contractors are still in the mindset of selling what they know–gas-powered water heaters and boilers; another is that the electric systems do have a slightly higher up-front cost. There’s also the fact that homeowners don’t know to ask for a heat pump–they just want to have hot water, not spend hours becoming experts in HVAC technology.
But with a second heat wave baking the Western United States, I can no longer accept a program that is, say, 85% aligned with tackling climate change, even if it generates much-needed earned income for my nonprofit. Yet there are no easy answers. Because we rely on referrals from contractors, our Business Development team has begun to speak to them about our strong preference for financing heat pumps over boilers; we’ll even offer larger loan amounts with longer terms for the cleaner technology. (We have seen a recent uptick in the number of projects that are for things like heat pumps, just not enough; and we want 100% of projects to be electric.)
The challenge is that contractors are the ones that ultimately have the conversation with homeowners about the costs and benefits of different technologies, not us. By the time an application comes to Capital Good Fund, the applicant has already gone through the trouble of getting an audit and a scope of work; it is very difficult to send a client back to the contractor for a new scope of work, in part because our loan officers are not HVAC specialists.
Yet these are precisely the conversations that are going to have to take place in the coming years, over and over, in every sector of the economy. Yes, it is easier and faster to just install the boiler; explaining why the higher cost of the heat pump is worth it, and learning to make that case, takes longer. The cumulative outcome of these conversations will determine how quickly, and how equitably, we lower emissions.
As always, we cannot ignore the role of public policy. In fact, I am about to discuss the electrification issue with the utilities. After all, this is a ratepayer-funded program, aimed at reducing emissions and saving money; there’s no excuse, given that it’s not a privately-run program and what we know about climate change, to cling to the status quo. I’m going to take things a step further by setting a deadline of January 1, 2022: after that point, Capital Good Fund will no longer finance anything that burns fossil fuel. At the same time, we will advocate for the utility exclude any such appliance from the program.
Unfortunately, many of the utilities sell / provide natural gas as well as electricity; they have a monetary incentive to keep the gas flowing. In fact, utilities and the natural gas industry have been fighting efforts by cities, towns, and states to ban the inclusion of gas hookups to new construction. With current technology, there is no reason for homes to be piped for natural gas, other than the vested interest of the industry.
Other policies are needed. The good news is that the American Jobs Plan, Biden’s infrastructure and climate bill, is likely to include significant incentives for contractors and homeowners to electrify, for instance by providing up front rebates for heat pumps that will make the initial cost the same as for a gas-fueled equivalent system. Senator Martin Heinrich (D-N.M) will soon be introducing the Zero Emission Homes Act of 2021, which “provides rebates for the purchase and installation of zero emission electric appliances, with additional support for low- and moderate-income (LMI) households.” Capital Good Fund has signed a letter of support, and you can do so as well, either as an individual or organization, at this link.
The simplest thing would be for us to keep on making DoubleGreen loans without worrying about the purity of the program, to leave it to others to figure out how to get from 85% to 100% climate alignment. But as a mission-driven organization, we have to make hard choices. Of late, I’ve come to appreciate that we have a strong voice and role to play in lobbying for good policy, whether that’s capping the APR on all loans at 36% or making the Solar Investment Tax Credit refundable so that lower-income homeowners can benefit from it. This is an instance where both our voice and our actions are essential.
The fight to electrify all homes and “green the grid” shows that to tackle climate change, we need everyone on board: nonprofits, financial institutions, policymakers, regulators, utility companies, program administrators, contractors, manufacturers, homeowners, and activists have to come together to ensure that the green transition happens fast and in a way that benefits everyone, not just the wealthy. With the planet warming faster than even the most pessimistic scientists expected, this is a crisis where good simply isn’t good enough.