10 Questions for . . . Jack Hidary, Chairman of SmartTransportation.org
October 9, 2009 1:07 PM
In this installment of 10 Questions for . . . , Senior Editor Daniel DiClerico speaks with Jack Hidary, chairman of SmartTransportation.org, which brings together various organizations seeking innovative transport solutions. Here, Hidary talks about the inspiration behind last summer's Car Allowance Rebate Program (cash for clunkers), the $300 million State Energy Efficient Appliance Rebate Program, and why he's now focused on making American homes more energy efficient through the PACE (Property Assessed Clean Energy) bond program. As always, the responses below are the opinion of the interviewee.
You're an entrepreneur with a background in finance, technology, and medical research. What turned you on to energy efficiency?
I love taking an idea from the back of a napkin to a full-fledged company. In 2001, I built an energy practice that exposed me to the inefficiencies of fossil fuel. Take coal. By the time you go from the coal mine to the processing plant, over the power line and into the home, you're left with around 15 percent of the original energy. That's an enormous waste. Then there are the health and environmental issues related to carbon emissions, not to mention the economic and national-security issues related to our dependence on fossil fuels.
How did that translate into cash for clunkers?
In 2005, I spearheaded the effort to change the taxicabs in New York City to hybrid vehicles. Today, 25 percent of the city's fleet are hybrid, and the rest will so be in two to three years. The success in New York got me thinking about the roughly 250 million cars in the rest of the U.S. I realized that there needed to be an incentive to accelerate their turnover, especially since the average age of our vehicles has gone from seven years to 14 or 15 years. When I was growing up in Brooklyn, our local utility had a program that gave rebates for trading in an old air conditioner for a new unit. That to me was a great model for what we needed to do with cars. So I put together some ideas for a cash-for-clunkers program and presented it at the 2008 Clinton Global Initiative.
Do you think cash for clunkers will have a long-term impact on our culture?
There's now an entire set of programs based on clunkernomics, or the notion that efficiency makes good economics. During cash for clunkers, people walked into their dealership with a totally different mind-set. They weren't just looking at the transaction value of the sticker price but also at the cost of gas and maintenance. They understood that if a car is $500 less on the sticker but costs $2,000 more each year to operate, that's a bad deal. In technology, we call this total cost of ownership. The concept has been around for years, but it's entered the consumer lexicon, and moved well beyond cars.
The U.S. Department of Energy recently kicked in $300 million for cash for clunkers for appliances. And I just had an e-mail from a leader in computer-data centers, which suck up about 2 percent of the country's electricity. She's proposing a cash-for-clunkers program that would help swap out these massive servers for more efficient ones.
Why have you turned your attention to buildings?
We're hoping to catalyze the same paradigm shift in how people buy and maintain homes. The built environment—houses, apartments, commercial buildings, warehouses, etc.—is responsible for 40 percent of the nation's energy use. The average American household uses 50 percent more energy than the average Italian household. So there are a lot of things we can do to make buildings more efficient.
We have better windows and lighting and ways to harness solar power. These things all have great payback, but they also cost a lot to buy and install. Enter two guys from Berkeley, California, named Cisco DeVries and Dan Kamen. They came up with the model for a bond-based financing mechanism that would give people loans to pay for their energy retrofits and solar. They approached me and several other folks with the idea. We looked at it and decided to take it to scale through the formation of the PACE Now coalition. We're predicting that the program will stimulate up to $500 billion in business over the next decade.
How does a PACE bond work?
PACE stands for Property Assessed Clean Energy. It's very simple for consumers to access. They apply for a loan from their city or municipality, say $20,000 to replace the windows, lighting, and central air conditioning. The city issues a PACE bond and then lends the money, which the borrower pays back over 20 years via a surcharge on their property taxes. That's plenty of time to break even on the energy retrofit and solar installation, and consumers still qualify for federal energy tax credits, saving them even more on the project.
I love taking an idea from the back of a napkin to a full-fledged company. In 2001, I built an energy practice that exposed me to the inefficiencies of fossil fuel. Take coal. By the time you go from the coal mine to the processing plant, over the power line and into the home, you're left with around 15 percent of the original energy. That's an enormous waste. Then there are the health and environmental issues related to carbon emissions, not to mention the economic and national-security issues related to our dependence on fossil fuels.
How did that translate into cash for clunkers?
In 2005, I spearheaded the effort to change the taxicabs in New York City to hybrid vehicles. Today, 25 percent of the city's fleet are hybrid, and the rest will so be in two to three years. The success in New York got me thinking about the roughly 250 million cars in the rest of the U.S. I realized that there needed to be an incentive to accelerate their turnover, especially since the average age of our vehicles has gone from seven years to 14 or 15 years. When I was growing up in Brooklyn, our local utility had a program that gave rebates for trading in an old air conditioner for a new unit. That to me was a great model for what we needed to do with cars. So I put together some ideas for a cash-for-clunkers program and presented it at the 2008 Clinton Global Initiative.
There's now an entire set of programs based on clunkernomics, or the notion that efficiency makes good economics. During cash for clunkers, people walked into their dealership with a totally different mind-set. They weren't just looking at the transaction value of the sticker price but also at the cost of gas and maintenance. They understood that if a car is $500 less on the sticker but costs $2,000 more each year to operate, that's a bad deal. In technology, we call this total cost of ownership. The concept has been around for years, but it's entered the consumer lexicon, and moved well beyond cars.
The U.S. Department of Energy recently kicked in $300 million for cash for clunkers for appliances. And I just had an e-mail from a leader in computer-data centers, which suck up about 2 percent of the country's electricity. She's proposing a cash-for-clunkers program that would help swap out these massive servers for more efficient ones.
Why have you turned your attention to buildings?
We're hoping to catalyze the same paradigm shift in how people buy and maintain homes. The built environment—houses, apartments, commercial buildings, warehouses, etc.—is responsible for 40 percent of the nation's energy use. The average American household uses 50 percent more energy than the average Italian household. So there are a lot of things we can do to make buildings more efficient.
We have better windows and lighting and ways to harness solar power. These things all have great payback, but they also cost a lot to buy and install. Enter two guys from Berkeley, California, named Cisco DeVries and Dan Kamen. They came up with the model for a bond-based financing mechanism that would give people loans to pay for their energy retrofits and solar. They approached me and several other folks with the idea. We looked at it and decided to take it to scale through the formation of the PACE Now coalition. We're predicting that the program will stimulate up to $500 billion in business over the next decade.
How does a PACE bond work?
PACE stands for Property Assessed Clean Energy. It's very simple for consumers to access. They apply for a loan from their city or municipality, say $20,000 to replace the windows, lighting, and central air conditioning. The city issues a PACE bond and then lends the money, which the borrower pays back over 20 years via a surcharge on their property taxes. That's plenty of time to break even on the energy retrofit and solar installation, and consumers still qualify for federal energy tax credits, saving them even more on the project.
How much will their property taxes increase?
First off, cash for clunkers benefited the whole country since the auto sector affects so many jobs directly and indirectly. What's great about PACE is there's no burden on the taxpayer at all. It's an opt-in program for consumers and commercial owners that's backed entirely by private sector money. The city of Des Moines or Milwaukee or Palm Desert will issue the bonds, but private investors will finance them. So the money isn't coming from city or state coffers. It's coming from Fidelity or PIMCO or other funds in the multitrillion dollar municipal-bond market.
What if homeowners sells their house, or if they're forced into foreclosure?
The loan stays with the house, so the next owner has to keep paying it back. That's what makes this such a great investment—the loan is backed by property taxes. I should add that the next person who owns the house is happy to pick up the loan because they know it means the property will be cheaper to maintain with an energy retrofit or solar investment. In this sense, PACE catalyzes an Energy Star equivalent for homes.
When someone decides to buy or rent a home, they can figure out quickly how much the energy bills will cost. The real-estate industry is so excited about PACE because when you invest in making a home more efficient you increase your home's value. The program also puts people back to work. There are 1.5 million construction workers in America who need work. Instead of building spec houses in Miami or another condo that will sit empty, let's ask our construction workforce to make our existing housing stock more efficient. The workers get paid, buildings increase in value and efficiency, and homeowner reduce their energy bill.
What lessons of cash for clunkers do you want to see applied to PACE?
The emphasis always needs to be on savings. Cash for clunkers helped consumers get out of the yoke of expensive clunkers that they were driving to work every day. With houses, people spend an even bigger chunk of their household income on heating and cooling and electricity. And they don't have to. We can enable homeowners to start spending less. The second takeaway from cash for clunkers is the built-in marketing tool we had in car dealers. They were the ones that really got the word out. I'm hoping that Home Depot and Lowe's and local building contractors become empowered in the same way to teach homeowners about PACE and help them get their loans.
Until that time comes, what can homeowners do to learn about the program?
Go to www.pacenow.org and see whether the bonds are offered by your city or state. In the last 18 months, 14 states have passed a PACE bond program. California was first, but other states and cities are gaining ground. Annapolis, Maryland, and Babylon, New York, are two that come to mind. So the program is catching fire across the country. If it's not in your area, call your governor or city council and demand that they set up a PACE program. This is a citizen issue and citizens definitely have a voice.
In the majority of cases, loans are structured in such a way that the surcharges are less than the energy savings. At the commercial level, companies doing the work guarantee that they'll pony up the difference if the savings aren't there. At the residential level, more and more companies—known as energy service companies, or ESCOs—are offering the same guarantee.
Critics of cash for clunkers talk about the burden on taxpayers. Is there a similar issue with PACE?First off, cash for clunkers benefited the whole country since the auto sector affects so many jobs directly and indirectly. What's great about PACE is there's no burden on the taxpayer at all. It's an opt-in program for consumers and commercial owners that's backed entirely by private sector money. The city of Des Moines or Milwaukee or Palm Desert will issue the bonds, but private investors will finance them. So the money isn't coming from city or state coffers. It's coming from Fidelity or PIMCO or other funds in the multitrillion dollar municipal-bond market.
What if homeowners sells their house, or if they're forced into foreclosure?
The loan stays with the house, so the next owner has to keep paying it back. That's what makes this such a great investment—the loan is backed by property taxes. I should add that the next person who owns the house is happy to pick up the loan because they know it means the property will be cheaper to maintain with an energy retrofit or solar investment. In this sense, PACE catalyzes an Energy Star equivalent for homes.
When someone decides to buy or rent a home, they can figure out quickly how much the energy bills will cost. The real-estate industry is so excited about PACE because when you invest in making a home more efficient you increase your home's value. The program also puts people back to work. There are 1.5 million construction workers in America who need work. Instead of building spec houses in Miami or another condo that will sit empty, let's ask our construction workforce to make our existing housing stock more efficient. The workers get paid, buildings increase in value and efficiency, and homeowner reduce their energy bill.
What lessons of cash for clunkers do you want to see applied to PACE?
The emphasis always needs to be on savings. Cash for clunkers helped consumers get out of the yoke of expensive clunkers that they were driving to work every day. With houses, people spend an even bigger chunk of their household income on heating and cooling and electricity. And they don't have to. We can enable homeowners to start spending less. The second takeaway from cash for clunkers is the built-in marketing tool we had in car dealers. They were the ones that really got the word out. I'm hoping that Home Depot and Lowe's and local building contractors become empowered in the same way to teach homeowners about PACE and help them get their loans.
Until that time comes, what can homeowners do to learn about the program?
Go to www.pacenow.org and see whether the bonds are offered by your city or state. In the last 18 months, 14 states have passed a PACE bond program. California was first, but other states and cities are gaining ground. Annapolis, Maryland, and Babylon, New York, are two that come to mind. So the program is catching fire across the country. If it's not in your area, call your governor or city council and demand that they set up a PACE program. This is a citizen issue and citizens definitely have a voice.
Essential reading: When you're ready to replace you're appliances, be sure to check out the free buying guides on our appliances hub and learn about the best places to buy appliances. Save up to $1,500 on your annual utility bills, read our reports on pellet stoves and solar water heaters, and find out which compact fluorescent lightbulbs top our ratings (available to subscribers).
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