Back to Work

by Bill Clinton

  We might be able to raise even more money by letting all Americans get in on the act. Americans are saving more, but most aren’t earning money on what they hold, because interest rates are low and the stock market is volatile. I’d like to see the president seek renewed legislative authority for Build America Bonds, to be sold in amounts from $100 to $1 million. The proceeds would be deposited in the infrastructure bank, with the bonds maturing ten years after they’re bought. That would put them outside the so-called budget window, and by the time they’re due, the huge returns on modern infrastructure will generate more than enough revenue to pay them off.

  Perhaps the Federal Reserve could also invest in the infrastructure bank or Build America Bonds to finance it. As we know, the Fed earns, even in normal times, a lot of money on its investments, mostly in Treasury issues, then turns the income over to the government. I don’t know if the Fed has legal authority to invest in an infrastructure bank that would pay back the investment plus interest, but if it is legal to do so, I think it’s a good idea.

  8. Speed up the process for approving and completing infrastructure projects. The recent Japanese earthquake and tsunami did an enormous amount of damage, including tearing a hole forty feet deep in a sizable section of a large highway. The Japanese repaired it in just six days. Construction workers have been rebuilding a small bridge over a railroad track in Chappaqua, New York, where Hillary and I live, for three years. The comparison isn’t quite fair, because in Japan everything was shut down and in Chappaqua a lot of work has to be done at night, so that people can use the bridge in the daytime. Still, three years is a long time. President Obama has committed to streamline the process for large infrastructure projects, and I’m confident it can be done without compromising environmental or safety standards.

  THE SUREST WAY TO CREATE JOBS, cut costs, enhance national security, cut the trade deficit by up to 50 percent, and fight global warming is to change the way we produce and consume energy. Even though the climate change deniers seem to have succeeded in making their position a core tenet of antigovernment ideology, there is a case to be made on economics alone.

  The main reason there has been no international agreement to cut greenhouse-gas emissions is that too many decision makers still don’t believe we can do it without curbing economic growth and too many carbon emitters keep reinforcing that notion.

  Lately, the opponents of green energy have started going after the economics hard, claiming green jobs cost over $1 million each and playing up the failure of a solar company that received more than $500 million in loan guarantees from the Department of Energy. The critics claim this example proves green tech is a dead end.

  They’re wrong. In July 2011, according to a report issued by the Brookings Institution and Battelle, newer clean-tech jobs grew 8.3 percent from 2003 to 2010, twice as fast as jobs in other occupations, and median wages were 20 percent higher than for other occupations, almost $44,000, compared with $38,616. The sector has continued to grow through the recession and now accounts for 2.7 million jobs. Its exports in goods and services amounted to $53.9 billion in 2009.

  These trends have developed in the face of a severe global recession and even though, unlike our major competitors, the United States hasn’t passed legislation to limit carbon emissions through a cap-and-trade system or a carbon tax, or adopted a clear standard to increase the percentage of our electricity generated by clean energy by a fixed date, or committed to a clear long-term strategy of incentives to encourage large investments in clean energy and efficiency.

  We’ve done as well as we have because of America’s enormous capacity to generate energy from clean sources and to improve efficiency; the large number of entrepreneurs, innovators, and financiers committed to a clean-energy future; and federal investments, tax incentives, and rule making since 2007, especially in the stimulus bill, that directed the equivalent of $800 per household to clean-energy funding, loan guarantees, and tax incentives, more than $90 billion in total.

  The progress in wind energy is particularly impressive. On a windy day in Texas, wind power can spike to 25 percent of total generation. It’s 20 percent in Iowa. More than 50 percent of the contents of current turbines installed in the United States are made in America, with more to come. In Michigan, URV USA is constructing the first foundry built in America in decades to provide the most up-to-date wind turbine casting. In 2009, enough new wind capacity was installed to power three million homes. And our wind power potential is staggering—37 trillion kilowatt hours, almost ten times our existing needs.

  You can tell I’m a big fan of President Obama’s energy policy and of the leadership of the secretary of energy, Steven Chu. But they’re facing a lot of competition in the battle for clean-energy jobs. Germany and China lead the world in clean-energy exports; China has installed more wind capacity than the United States, has about half the global market in solar cells, and is racing ahead with tens of billions of dollars in new investments and incentives, in a determined effort to lead the world in both the installation and the export of clean-tech products. Other countries are moving up, too. European countries lead the world in offshore wind power generation. India is investing massive sums in solar power. Brazil generates almost 80 percent of its electricity from hydropower, burns more ethanol from sugarcane than gasoline in its cars, and hasn’t even begun to seriously develop its considerable potential for wind and solar.

  This is an area of enormous opportunity for us.3 However, besides the need for a renewable-energy standard and other changes that the current antigovernment majority in the House of Representatives opposes, there are real challenges to creating more jobs and starting new businesses providing clean energy and increasing efficiency, rooted in the lack of longer-term financing readily available for the construction of traditional power plants and the relative complexity of more decentralized green-tech operations compared with big coal-fired generators.

  Almost all the costs of solar and wind power, for example, are front-loaded, while the economic benefits in lower annual costs take time to realize. And building a new coal-fired power plant is simple. A utility gets approval from one regulatory body, hires one contractor to build the plant, secures a supplier of the coal, and gets to bill the customers over a twenty-year period, merging the cost of the plant with the annual cost of the coal. The annual costs of solar and wind are almost nothing, but the up-front costs are high (though dropping steadily as production goes up and technology improves), without a coal-like payback option of twenty years.

  To a lesser extent, the same thing is true of energy efficiency. To achieve this on a large scale, building owners should be able to offset for the cost of retrofits with savings they will realize from lower utility bills, eliminating large out-of-pocket expenses in a down economy. Savings of 30 or 40 percent typically take six to seven years to pay off, with interest, after which the utility bill is reduced forever. The problem is that most Americans don’t have access to this kind of “Just Say Yes” financing.

  Why is this so important? Because, on average, every billion dollars invested in a new coal-fired plant yields 870 jobs. The same amount invested in solar creates 1,900; in wind, 3,300, if the turbines and blades are made in the country where they’re put up; in big building retrofits, 7,000; in home retrofits, up to 8,000 jobs.

  To maximize job creation and other benefits, we have to do a number of things. Let’s start with conservation, the biggest bang for the buck, and a real opportunity. McKinsey & Company estimates that with an investment of $520 billion in efficiency improvements, we could save $1.2 trillion by 2020 and cut consumption 23 percent. That’s a return on investment of more than two to one, plus a large number of new jobs.

  9. Launch an aggressive, fifty-state building retrofit initiative. Recently, the Empire State Building in New York City completed a comprehensive energy overhaul, becoming the world’s largest building to get a high LEED (Leadership in Energy and Environmental Design) rating from the U.S. Gree
n Building Council. The project put 275 people to work, doing things like changing the heating and air-conditioning system; putting new, more efficient glass in the windows; and installing new lighting. The work was overseen by Johnson Controls, the energy service company whose technology was used to maximize energy savings with temperature and lighting controls and devices that track energy use. As part of the contract, Johnson guaranteed that usage, and reduced utility bills, would be 38 percent. That means if the savings don’t materialize, Johnson has to make up the difference. Since, like all businesses, it likes to get paid for its work, the actual savings will probably be 40 percent or more. At 38 percent savings, the project will pay for itself in four and a half years, after which the Empire State’s utility bills will drop dramatically.

  If this is such a good deal, why isn’t everyone doing it? Because all the costs are up front and few building owners, public or private, have enough cash on hand to afford them. What’s the answer? Let the owners borrow the money and pay it back, plus interest, from their utility savings. That would create a more friendly “Just Say Yes” system. Why isn’t it happening? Because many building owners either have too much debt to take out new loans or are not deemed creditworthy, because bankers aren’t sure they’ll own the building for the four to seven years it would take to pay the costs of a major retrofit from utility savings only.

  There are simple ways to solve this, though they require legislative action to do nationwide. First, the government could set up a Small Business Administration–like loan guarantee program to assure the banks they will be repaid. A $15 billion fund could guarantee $150 billion in loans and create a million jobs. Remember, this is a backup guarantee that probably won’t cost the taxpayers a penny, because the savings will have already been guaranteed by the contractor.

  An even better way to do it would be to let the utilities finance the retrofits, since they get the extra energy capacity retrofits provide to sell to other customers. To do that, utilities have to be permitted to “decouple” their rates from energy usage, charging slightly more per kilowatt hour on retrofitted buildings, or houses, until the costs of the retrofits are recovered.

  Today only twenty states permit decoupling of rates for electricity, natural gas, or both. Even in these states, some utilities don’t do it, because even though conservation is a cheaper way to get power than building a new power plant, plant building is something they know how to do, and the ratepayers, not their shareholders, pay for it. Sometimes politicians won’t do it for ideological reasons or because of pressure from interest groups that want to preserve the status quo. For example, Jim Rogers, the CEO of Duke Energy, America’s third-largest coal consumer, wants to finance home and large building retrofits, but lacks the authority to do so. Of course, this means the ratepayers are being shafted and lots of jobs are being left on the table, but politicians get away with it because so few people understand the economics of energy.

  So, if we’re back to bank loans, the retrofits should start with the buildings sure to be in use with the same owners for five to seven years—public and private schools, federal, state, county, and local government buildings, college campuses, museums, libraries, auditoriums, hospitals, and big commercial buildings with limited indebtedness. If we just did the schools, colleges, and government buildings, we could keep a large number of construction workers busy for a couple of years.

  When I first proposed this project in 2009, it met resistance in Washington from people who said it was unrealistic to quickly expand a retrofit market of $7 billion a year to $50 billion or more a year because a few big energy service companies, including Johnson Controls, Honeywell, and Siemens, have more than 90 percent of the business for big building retrofits. That’s true, but not relevant to thousands of school buildings across the country that could also get an energy-savings guarantee from a local bonded general contractor who needs the business and doesn’t want to lose skilled workers in a down economy.

  The average school building is over forty years old and ripe for big savings, especially from more efficient heating and temperature controls. I’m sure you know of an old school building where on cool but not frigid days, the heat is on and the windows are open because the ventilation is poor and the temperature (and the energy use) can’t be controlled.

  Some school districts have been told that they can’t borrow money to retrofit buildings because they’re already at their debt limit, with property tax revenues pledged to pay off school-construction bonds. The rating agencies should exempt retrofits when calculating debt capacity because the schools don’t take on new obligations; they just keep paying their utility bills at the same dollar amount until the costs are covered. If the savings don’t cover the costs, the contractor makes up the difference. This is not like buying subprime mortgages.

  The president’s plan includes $25 billion for investments in school infrastructure. It’s a good start, but the money could go even further if put into a loan guarantee fund and/or incentives to utilities to decouple and finance retrofits themselves.

  10. States and localities should have their own retrofit initiatives. States can provide their own loan guarantees or mandate decoupling of rates. Beyond that, they can provide for payment of retrofit costs over time on property tax bills, on the theory that even if a building or a house changes owners, the utility bill still goes down, so the current beneficiary should pay the loan off. California has already passed legislation authorizing this procedure.

  In some states, the electric co-ops are helping to finance retrofits. And whenever a city is served by a municipally owned utility, the public utility can decide to finance home and building retrofits without seeking federal or state approval. It’s interesting that the only state in the country where all homeowners are served by municipal utilities is conservative Republican Nebraska. Apparently, this is a government function its citizens have decided not to put on the antigovernment hit list. As a result, Nebraska has provided fertile ground for a pioneering effort to offer homeowners an eight-hour retrofit, with utility savings averaging more than 20 percent.

  Arkansas has a unique program called HEAL, Home Energy Assistance Loan, in which employers first retrofit their buildings, then take the savings and offer loans to their employees to retrofit their homes. The employer is repaid from employees’ energy savings. The program was developed by my foundation’s Climate Initiative with a small grant from the state’s stimulus funding for clean energy. Martha Jane Murray, the architect who runs the program, also oversaw the Climate Initiative’s work on low-income housing retrofits in New Orleans after Katrina, where 50 percent energy savings were achieved. The idea behind HEAL is to make workplace retrofits the norm and to create both the demand and the financing for employee residential upgrades. The work now under way with HEAL’s employers and their employees is already projected to save $250,000 a year and to create a lot of jobs. This is a public-private partnership that could be set up anywhere. The savings achieved and the jobs created should assure big-time expansion of the program.

  The challenge with all these efforts is how to take them to scale. If Congress refuses to establish an infrastructure bank, states, big cities, or groups of states and cities could set up their own infrastructure bonds and perhaps attract some of the capital that would have gone to the national bank.

  On retrofits, New York may have found the way to scale them. On August 4, 2011, Governor Andrew Cuomo signed a groundbreaking energy-efficiency financing program called on-bill recovery. Homeowners with modest incomes can all participate because they will repay the loans as a line item on their utility bill. The monthly loan repayment will be less than the savings they will realize from the benefits of the retrofit, thus providing a portion of the economic gain to the home-owner right away. It’s estimated that over the next four years, one million homes and businesses could be retrofitted, creating ten thousand to twelve thousand jobs per year and saving New Yorkers an estimated $1 billion on their utility bills.


  11. Get the pension funds involved. Public-employee and labor-union pension funds should finance investments in the infrastructure bank and in energy retrofits, especially for schools, colleges, and government buildings. They offer decent returns at very low risk and, unlike many investments in their portfolios, will create a lot of jobs, many of them for union members. The AFL-CIO’s president, Richard Trumka, and other union presidents, along with CalPERS, the California Public Employees’ Retirement System, have already committed to raise $10 billion for this effort. This is a great opportunity for them and for the economy. At the Clinton Global Initiative in September 2011, Trumka and his partners announced that they had already secured more than a billion dollars for this effort.