Decarbonization of Buildings in Canadian Cities
Building decarbonization (reducing emissions from buildings) is a key issue in major Canadian cities where buildings are one of the largest sources of emissions. One way to fund building decarbonization is property assessed clean energy (PACE) financing. PACE allows property owners to access long-term financing for energy efficiency upgrades, secured through a lien on their property taxes.
In a new paper for the Institute on Municipal Finance and Governance, 2022–2023 Richard M. Bird Post-Doctoral Fellow Robert Stewart outlines three approaches to PACE financing: government administered and financed; privately administered but government financed; and privately administered and financed. For the third approach, Stewart discusses the use of sustainability-linked bonds (SLBs) to attract private capital to PACE programs. SLBs are a type of debt which ties emissions reduction targets to the interest rate, meaning the rate could climb if targets are not met. Finally, the paper proposes that municipalities establish special purpose entities to administer PACE programs for commercial buildings and capitalize them by issuing SLBs.