Can PACE take off?

Municipalities across Canada are grappling with how to honour their climate emergency declarations and net-zero commitments. To reach net-zero by 2050, municipalities would have to ensure deep energy efficiency and /or renewable energy retrofits in an average of ~3% of existing buildings every year, starting now. PACE (Property-Assessed Clean Energy) programs could help tackle this huge task, but only if they grow at unprecedented speed to unprecedented size. Can it be done?

Building emissions are rising

Climate pollution (greenhouse gases, refrigerants and soot) from heating and cooling buildings is a large proportion of most municipalities’ emissions, though only 12% of Canada’s total. Emissions from buildings have increased 9.5% since 1990, as increases in population and floor space have more than offset efficiency improvements. This is 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 leaks through their walls, roof, floor, 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, inexpensive to keep that way and non-polluting. These buildings can have much better indoor air quality and therefore occupant health. This is particularly important in areas with persistent or occasional periods of intense air pollution, e.g. due to wildfires. A source of renewable energy, such as solar or geothermal, can add self-sufficiency and resilience. In the 2021 Texas blackouts, efficient homes with their own solar 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? Chapter 3 of my last report, A Healthy, Happy, Prosperous Ontario -Why we need more energy conservation, showed that challenges 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 Property Assessed Clean Energy (PACE) / local improvement charge programs. PACE programs lend willing property owners the cost of the upgrades through low-interest, long-term, fixed-rate loans secured through the property tax mechanism. The owner’s utility savings[i] help pay back the loan, which can stay with the property or be paid out when it is sold.

PACE programs resolve several significant barriers: property owners don't have to put money up front, the interest rate does not change, their credit rating may not matter, and they don't have to keep paying back the loan if they move.[ii] The loan is low risk because it is secured through the property tax, which has low defaults, high priority and adequate security.

Well-designed PACE programs make good financial and environmental sense, although they take patience. For example, Halifax Solar City PV systems cost an average $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, 2/3 of it in building retrofits funded through PACE, would yield $4.9 billion in 30 years, through energy savings, carbon price savings and electricity sales. Plus they 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 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. (City of Toronto, 2017). US PACE programs have been leaving us in the dust, despite the hostile leadership of the Trump years. Given the need for urgent, transformative change, what could make Canadian PACE programs take off?

Three key steps to takeoff

Here are three key steps that could make the difference:

  • 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 an even lower than average default rate.[iv] 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, and /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.
    • 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.[v] This approach cannot provide enough money to scale. It’s great that the federal government has increased the FCM Green Municipal Fund to ~$1 billion, including a $300 million Community Efficiency Financing Plan. But it could take >$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 could be at less risk of disruption by elections. Reducing political risk can improve  contractor capacity, supplier capacity, customer awareness, and customer confidence.

     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.

    This article was first published in Corporate Knights,

    [i] 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.

    [ii] 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.

    [iii] E.g. CHEERIO, the Collaboration on Home Energy Efficiency Retrofits in Ontario

    [iv] DBRS, “DBRS Publishes Commentary on Residential PACE Delinquency Trends” (22 February 2018), online: <>.

    [v] Ottawa, for example, has announced a pilot project combining FCM funding with a loan from the Vancity Community Investment Bank.

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