By Roger Valdez

The Clean Energy Fund targets 500 energy efficient retrofits by 2010.

We’ve been writing about some of the ways that federal stimulus funding has been misallocated to projects that would increase greenhouse gas emissions and aggravate our addiction to gasoline.

But there is some good news from Portland. The City of Portland and Multnomah County in partnership with Energy Trust and Shorebank Enterprise Cascadia have created the Clean Energy Fund which will use stimulus money to retrofit 500 homes in the greater Portland area.

It’s a pilot project that will allocate $2.5 million of stimulus money for the retrofits, starting with 10 homes this month and completing another 490 retrofits in the next two years. A bill expanding a similar state program, the Energy Efficiency and Sustainable Technology Act of 2009 (HB 2626 or the EEAST Bill), is pending in Salem.

If it passes it will add more resources to Oregon’s retrofit effort.

What’s important about the Clean Energy Fund project is that it provides reasonable financing terms for improvements that will yield energy savings and reduce greenhouse gas emissions. The financing spreads out the costs of the improvements over time, which is important because it is these costs that often discourage homeowners from making energy efficiency investments. Favorable financing means that dropping $1,400 for new insulation won’t devour a family’s cash supply.

There are some really great things about this program. First, Energy Trust will have a budget to walk homeowners through the initial steps of assessing which improvements would yield the most savings, essentially an energy audit.The City's FAQ calls this “handholding” which is an important step for a new program that might be confusing to some.

Second, the loan payback is “on bill,” which means that the three local utilities -- NW Natural, Pacific Power, Portland General Electric -- will incorporate the payback of the loans in the regular billing they send out to customers. For example, payments for that $1,400 insulation project would be spread out over time and would show up on regular energy bills. The monthly energy savings would likely be enough to offset the monthly increase to pay for the loan. This makes payback easy and essentially invisible, although initially there may be a slight increase in the homeowner energy bill.

Third, because the number of participants is small at first and the pilot is well resourced it should be relatively easy to evaluate over the next year. Project partners can identify and fix problems before it is expanded.

Last, but certainly not least, the project puts stimulus money into a local partnership that can create work for people in Oregon where the unemployment rate is 12.9 percent at last count.

The bigger challenge, however, is figuring out how to get these kinds of programs into multi-unit housing where split incentives keep owners and tenants from seeking energy savings. This program now seems to favor the owners of single family homes for whom energy savings and capital improvements are a sure way to increase the value of their asset. Some might argue that these kinds of improvements should be done by homeowners anyway, without all the extra help.

I don’t want to be overly critical. The Clean Energy Fund is a great program that will have a small but positive effect on reducing climate changing emissions and will generate useful information on how to construct financing for energy efficiencies that is easy and affordable.  But it’s important, as the project moves ahead, to use incentives where the market is stuck. And right now, the biggest market failure is happening in multi-unit rental housing.  It’s also possibly where the greatest benefits from motivating energy efficiencies can be found, both for energy savings and economic justice. We know the benefits of compact communities with lots of multi-unit housing. Expanding the program into multi-unit housing would benefit lower income people and support density.

So the Clean Energy Fund is a great start, but it shouldn’t stop with single family homes.

This piece originally appeared in Sightline Institute's blog, The Daily Score.