Ithaca’s Creative Approach to Financing Carbon Neutrality Goals | Article

Ithaca, a small city and college town in upstate New York, is taking action to dramatically reduce its carbon emissions. In 2019, Ithaca passed its version of the Green New Deal and committed to achieving carbon neutrality by 2030. Last November, Ithaca’s city council voted to decarbonize and electrify all buildings in the city through a new Efficiency Retrofitting and Thermal Load Electrification Program, thereby taking a major step towards its carbon neutrality goal. Ithaca was the first city in the country to commit to fully decarbonizing and electrifying all its buildings.

Across the United States, residential and commercial buildings make up 40 percent of all carbon (CO2) emissions. To address this outsized contribution to climate change, Ithaca's program will scale up solutions that have already proved successful at an individual or neighborhood level: retrofitting buildings with energy efficiency upgrades, installing solar panels, and electrifying gas appliances. This tried-and-true method can reduce city-wide emissions, which amount to 400,000 tons of CO2 a year, by 40 percent.

The vast majority of the 6,000 buildings in Ithaca are estimated to need electrification updates (to move away from fossil fuels like natural gas) and retrofitting (to become more energy efficient). The first phase of the project, expected to last three years, will include running an energy audit and retrofitting 1,000 residential and 600 non-residential buildings. A second phase will retrofit 3,500 residential and 900 non-residential buildings.

But upgrading these buildings will be no small–or inexpensive–feat. The upgrades are expected to cost $600 million, and with a yearly budget of $80 million, Ithaca cannot finance its ambitions alone.

City officials have turned to the private sector, securing $150 million in private equity funding commitments for the first phase of the project. This funding will go towards financing low-cost loans for Ithaca building owners, which will be paid back on monthly utility bills. Such on-bill financing solutions can both speed up climate action and reduce the financial barriers to energy efficiency improvements faced by low-income communities by cutting upfront costs. Funding will also cover an audit of buildings to determine eligibility for retrofits and electrification.

In order to attract private investors, Luis Aguirre-Torres, director of sustainability for the City of Ithaca, sought to mitigate the risk of financing the program. The large number of buildings covered under the Ithaca Green New Deal proved to be an advantage in this regard, as the larger pool of covered buildings spreads out risk.

In order to account for potential payment defaults, the city has negotiated with the New York State Energy Research and Development Authority to create a loan loss reserve that would cover missed payments. This will help mitigate risk and ensure that low- to moderate-income residents are not left behind by improving the credit risk profile of those who otherwise might not qualify for a loan.

Meanwhile, Ithaca has arranged for a program manager to handle the private investments, and the city will also take on some of the liability. Ithaca’s Common Council awarded the contract to a consortium of entities, with the primary contractor being Brooklyn-based startup BlocPower.

The city reduced its financial risk further by getting a stop-loss insurance policy, which protects against unpredictable or catastrophic losses. Aguirre-Torres summarized the financial setup in a wide-ranging interview with the City Climate Corner podcast: “We have investors putting money into a special-purpose vehicle, which is a financing facility set up by a program manager, by a main contractor [BlocPower], who's transferring some of the risk through a Loan Loss Reserve Program to the City. And, the City's transferring [the risk further] to an insurance company.”

Private financiers are able to receive a return on their investment thanks to funding from state and federal programs and to several philanthropic foundations willing to cover interest payments for low-income residents.

If every moderate- to low-income resident participates in the program, the target level of funding to subsidize zero-percent interest rates would be $13 million, a figure Aguirre-Torres considers manageable.

“[Private investors] still get a return, it's just that the return is not paid by the community, it is paid by a combination of financial instruments and incentives and subsidies that we're going to make use of,” he explained.

But the Ithaca Green New Deal is about much more than reducing carbon emissions in buildings. Aguirre-Torres describes Ithaca’s “people-first approach” to achieving the city’s climate goals, saying that he is working with three nearby cities to create a “green jobs corridor.”

“We believe that by working together we can create a unified program, with similar apprenticeship, training and micro-credentials, that people can use to participate in the new industries and job opportunities being created with the Ithaca Green New Deal.”

Carbon neutrality by 2030 remains an ambitious goal for Ithaca, and the rate of emissions reduction must accelerate substantially if the Ithaca Green New Deal is to be successful. But Ithaca is showing how private sector funding can be available for ambitious public-sector climate goals.

To keep warming below 1.5 degrees Celsius (2.7 degrees Fahrenheit), communities across the United States need to engage in rapid emissions reduction in the next decade. While the infrastructure and resources of each city will differ widely, key aspects of the Ithaca Electrification Program, like private financing, are feasible anywhere.

Ithaca has attracted national and international attention with this groundbreaking program and the innovative financial model designed to back it. All eyes will be on the small city in the coming years to witness its progress towards an entirely decarbonized economy.

Authors: Alison Davis and Isabella Eclipse