In Print: Volume 89: Number 4
Setting the Pace for Energy Efficiency: The Rise, Fall, and (Potential) Return of Property Assessed Clean Energy
By Jeffrey Hoops
89 Wash. U. L. Rev. 901 (2012)
This Note discusses an innovative form of legislation known as “Property Assessed Clean Energy”, or PACE. PACE allows property owners to receive funding from their municipality for the purpose of energy efficiency improvements. This money is recovered by the municipality in the form of a special assessment that runs with the property, amortized over a period of ten to twenty years. This financing mechanism has two key advantages that make it an effective tool for encouraging homeowners to make their homes more energy efficient. First, there is no dauntingly high initial net capital outlay required on the part of the property owner. Second, since the assessment runs with the property, property owners pay only for the benefit they derive from the energy efficiency improvements, and no more, in the event that they move before full cost recovery is made by the municipality. As these are the two most cited barriers to implementing energy efficiency improvements, PACE has the potential to spur a wave of energy efficiency retrofits throughout the country. Indeed, until recently, this scenario appeared likely as state after state enacted PACE legislation.
In the summer of 2010, Fannie Mae, Freddie Mac, and the Federal Housing Finance Agency (“FHFA”) moved to quash residential PACE. Specifically, the FHFA believes that PACE creates unacceptable risk for lenders in general and its regulated entities in particular because most PACE legislation gives PACE assessment liens priority over pre-existing mortgages in the event of homeowner default. Thus, citing “safety and soundness concerns,” the FHFA directed Fannie Mae and Freddie Mac to refrain from purchasing mortgages secured by properties encumbered by PACE liens. As Fannie Mae and Freddie Mac own or guarantee over half of all residential mortgages in the United States, this action effectively killed residential PACE programs throughout the country. However, as discussed in detail below, this action arguably violated both the Administrative Procedure Act (“APA”) and the National Environmental Policy Act (“NEPA”).
This Note will both address this recent conflict in detail and propose possible solutions. Part II of this Note will provide a detailed overview of PACE and its recent history. Part III will then examine the recent actions of Fannie Mae, Freddie Mac, and the FHFA in a critical light, arguing that these entities’ actions are ultimately counterproductive. Part IV of this Note will then discuss potential solutions to the conflict, including both legislative and judicial resolutions. Finally, Part V will discuss the future of PACE.