Economic Impact
I’m not an economist, but I am a common-sense accountant, so I believe I can take a conservative measure of the economic impact of this policy proposal.
Consider the case study in Part 3. The policy allowed Mr. Jones to borrow about $39,275 more than he otherwise would have been able to. Furthermore the terms of the loan forced him to spend all of it, and then some (i.e. another $3,225 out of his pocket {for the moment}... plus another $5,500 out of his utility’s treasury). All told, it’s an injection of $48,000 directly into the economy that would not have occurred but for the long-term low-interest financing brought about by the policy. Over time, Mr. Jones would recover $7,500 in tax credits for installing the solar panels and geothermal heat pump[6] plus the net $106 per month in reduced cost of home ownership, plus an additional tax deduction for mortgage interest on the borrowed $39,275. At least some of these credits, deductions and savings will be further spent... another direct economic infusion.
Most economists believe in a multiplier effect... where direct spending is compounded as a result of the people and companies further spending at least a portion of the initial direct spending. Per Moody’s Economy, a multiplier of 1.59 is applicable to infrastructure projects (which this very-much is). Thus, just the direct $48,000 spend would lead to about $76,300. GDP resulting from the $7500 tax credit, the additional mortgage interest tax deduction (about $460/yr), and $106/month ($1,272/yr) home-ownership savings wouldn’t have as high a multiplier because the homeowner (a) wouldn’t be forced to spend it and (b) might have gone into personal debt for their out-of-pocket costs… yet an additional $4,000-$5,000 in GDP would be reasonable… for a total GDP boost in excess of $80,300.
The added benefit of all this new economic activity would be additional jobs that can’t be exported, particularly in the hard-hit construction industry. This proposal will be especially beneficial in areas of the country that have suffered the most due to the collapse of the housing market (where prospective users of renewable power are unlikely to be eligible for a conventional home equity loan), where electricity usage and/or electricity rates are high, and which benefit from an abundance of sun (California, Arizona, Southern Nevada, Florida). There is a substantial relationship between GDP growth and job growth... particularly when the GDP growth occurs in an industry where there is substantial excess capacity (like construction). In 2012, US GDP per employed person was about $105,500. So, for every Mr. Jones that can renovate his house, about 0.72 jobs is likely to be created. If there are one-million Mr. Jones that take advantage of this proposal... that’s 720,000 jobs, and $1.27 billion per year in additional discretionary income in the energy-saving households.
The reduced cost of home ownership should reduce the credit risk to the holders of these mortgages.
Fiscal Impact
The only Federal outlays that would be required under current law are (a) a 30% tax credit (through 2016) for Section 1122 improvements and (b) a mortgage interest deduction for interest upon the amounts financed. Those outlays almost certainly would be offset by Federal receipts resulting from the economic activity and reductions in Federal outlays for unemployment benefits and other welfare programs.
Suppose 1,000,000 “Mr. Jones projects” occurred as a result of the proposal (less than 2% of America’s single-family homes). The fiscal breakeven point would occur if the $48-billion worth of projects (a) yielded $80.3-billion in GDP growth {a very reasonable estimate}, (b) resulting in almost $11.65-billion in additional federal receipts {or about 14.5% the added GDP... currently federal receipts are about 15.5% of GDP} and (c) 720,000 new full-time non-exportable jobs {reasonable} resulting in 50,000 families no longer receiving Food Stamps assistance {also conservative}. Should these projects result in higher GDP growth, higher federal receipts or additonal employment/further reductions in government benefits, enacting the proposal would reduce the national debt... perhaps by $1-to-$2-billion. If 1,000,000 projects occurred each year, the job gains would be permanent.
Historically, the price of solar panels has come down 20% each time worldwide usage of them doubles. I have not considered the economic or fiscal impact of any future price decreases, but, all things being equal, any further cost decreases would be fiscally positive.
Environmental Impact
The energy-related improvements in the Mr. Jones example would reduce his household’s grid-energy consumption from an average of 2,500 kilowatt hours per month to about 500 kilowatt hours per month... a reduction of about 2,000 kilowatt hours per month, or 24,000 kilowatt hours per year.
If electric utilities offset this reduced demand with a reduction in supply, this single project would prevent about 28,400 lbs of carbon dioxide pollution each year.[7] If one million homes around the country received these results, this would reduce America’s annual carbon dioxide output by about 14.15 million metric tons.[8] If all of the reduction in grid supply comes from shutting down coal-fired plants, the CO2 reduction would be as much as 25.3 million metric tons. [9]
Now, lets dream a bit bigger. Suppose this program can achieve an average electrical-energy energy savings/renewable-energy production of just 13,000 kwh per household in 73.1-million US households (not quite 70% of all households and about 90% of single-family-home households). That would be around 950-billion kwh. Now, suppose the average street-legal vehicle in the USA were 8% more energy efficient[10] than today’s fleet {attainable}. With the amount of electricity saved in the households, you could power half of all American vehicles in all vehicle classes with electricity without generating any additional electricity from a coal, gas or nuclear power plants. These transportation changes would cut annual CO2 emissions by 777 million metric tons[11]... more than ⅛ of what the US puts out in a year.
There is no magic bullet to solve America’s and the planet’s economic, energy, and environmental challenges. It will take great minds formulating great ideas and courage among our nations leaders to adopt them. The proposal I’ve put forth in these pages will help the US and the world on all of these fronts with no obvious downside.
Click Here to go back to Part 1, Part 2 or Part 3.
[6] The extent of the tax credit depends upon the nature of the local incentive.
[7] Based upon the carbon footprint of Arizona’s fuel mix for electricity per carbonfund.org
[8] Based upon the carbon footprint of the USA’s fuel mix for electricity per carbonfund.org;
[9] 24 B kWh x {2.86 mt CO2 / mt coal} ÷ {2,712 kWh / mt coal}.
[10] Not to be confused with fuel efficient. Fuel efficient = less fuel in the tank, battery etc. for the same work. Energy efficient = less power required at the axle to move people and cargo the same distance.
[11] 719 million from the conversion to electricity; 58 million from the remaining gas/diesel vehicles being more efficient.
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