Dedicating New Real Estate Transfer Taxes for Energy Efficiency A Revenue Option for Scaling up Green Retrofit

1. Dedicating New Real Estate Transfer Taxes for Energy EfficiencyA Revenue Option for Scaling up Green Retrofit Programs T. William LesterAssistant ProfessorDepartment of City and Regional PlanningUniversity of North Carolina, Chapel Hilltwlester@unc.edu

2. Outline • Motivation • Design of an Energy Efficiency Transfer Tax (EETT) • Implementation and political feasibility • How to model net impacts? • Quantitative Exercise from NC • Findings from IMPLAN • Context and conclusion

3. Motivation • Huge potential of energy efficiency • Residential structures consume 22% of all energy (EIA, 2008) • Retrofitting existing structure essential to reduced energy use • What are residential retrofit measures? • HVAC replacement • Windows/Doors • Appliances/Lighting • Weatherization • Potential to save 40% on energy bills from retrofit (McKinsey, 2009) • Most policies offer “carrots” • Utility rebates • Federal Tax credits (e.g. $500 down from $1,500 under ARRA) • …..Failure to achieve critical mass • Historically high unemployment • 9.1% overall (May 2011) • 16.3% in construction sector (May 2011)

4. Background • We may need to start using more “sticks” • Real Estate Transfer Taxes (document stamps) • One of the oldest forms of taxation • Originally a federal tax, enacted in 1921 • Repealed in 1965, but devolved • Currently 37 states have some level of transfer tax • Ranges from 0.1 (CO) to 2.2 percent (DC) of assessed value

5. Policy Design: An Energy Efficiency Transfer Tax • Level: $25 per $1,000 of assessed valuation, or 2.5% • Home buyers liable • Immediately rebated when a) audit and b) qualifying residential retrofit activities completed • Apply to existing homes built before 2000. • Energy Star homes exempt • Creates seller incentive • Pay or Play • Residual rebates apply to existing LIEE program funds • Pros: Progressive and proportional • Cons: May distort fragile housing market

6. Implementation and political feasibility • Option 1: Traditional Transfer Tax • Collected at time of purchase (i.e. on closing statement) • County recorder of deeds and state LIEE agency • Benefits: Follows existing policy infrastructure • Pitfalls: Lenders may balk at extra closing costs • Option 2: “Synthetic Tax” • Off statement • Administered through income tax code • 2 years to complete the work, or pay the tax • More politically feasible

7. Will this policy create net new jobs? Pd A. Revenue for EE (from consumer surplus) t= Tax imposed P B. Revenue for EE (from producer surplus) δ =Deadweight loss of tax Ps Q’ Q

8. What to measure • Positive • Investment dollars for construction and energy audits • Energy savings • Negative • Behavioral response in housing market (i.e. price elasticity) • Reduced household spending • Falling demand for energy production

9. Calculating EE Investment Level: NC

10. Calculating Energy Savings

11. How is EETT paid for? Summary of IMPLAN Model Inputs

12. IMPLAN Economic Impact Results

13. Results: Job Impacts 3,485 Construction 144 Auditors

14. Job Creation Figures in Context • Is 3,485 construction jobs and 5,900 jobs overall in North Carolina significant? • Compare to current number of unemployed workers • If enacted in 2011, the EETT would: • Decrease overall unemployment rate from 9.7 to 9.5% • Decrease construction industry unemployment by 1.2% • Add $56 million to state and local coffers

15. Conclusion • Bottom line: EETT can have a net positive impact on job creation • Policy makers shouldn’t be afraid to use the “stick” • Messaging and communication is key • Tied to saving mortgage interest deduction • Responsibility of home ownership • Precedents: • Building codes for new construction • Recycling mandates