In Memoriam Fern Bernadette Jones

Yesterday, on Saturday June 24th, 2017, I attended a memorial service for Fern B. Jones, who sadly was killed by a garbage truck recently, close to her NYC apartment, at the start of a trip to her family home in North Carolina. As one of her family members humorously reminisced: "It took a Mack truck to kill her, a lesser car would have been totaled!" That observation was symbolically a very accurate description of who Fern was. She was a rock to family and friends alike. Here is a professional in memoriam from the Croatan Institute.

FBJ

To me she was a professional friend, dating back to when I found her an accountant some ten years ago at a time she needed help sorting out some business challenges. We stayed in touch ever since. Her background being linguistics (Yale) and Management (MIT), was often very complementary with mine, linguistics (Leyden, unfinished), and Economics (Fairfield U). She understood like no other the important role finance could play in the green agenda, and how in practice finance all to often played a perverse role, often inadvertently achieving quite the opposite of the purported goals. She grasped the analytics of green finance like few people I ever met.

Besides our professional involvement over the years, we became good friends, almost like brother and sister, able to support each other emotionally through thick and thin with all of the various challenges that life brings. At times we could play each other the ball in business, thanks to our complementary "domains." Years ago, she hit it off right away with my girlfriend, who in many ways was a mirror image of her, being the "go-to" person and an anchor for her own family. Periodically, Fern also attended my classes on A Course in Miracles when I was teaching at the Theosophical Society on 53rd Street, and we discovered a deep shared interest in spirituality, including my deep appreciation for the Quaker tradition where she felt most at home.

At the memorial service I was able to share about the many-faceted relationship I had with Fern, and how sincerely I felt she was like a sister to me. The theme that I was asked to speak to was "trailblazer," which Fern certainly was, and as we all know, being a trailblazer is not always easy. I took the opportunity to reminisce about a recent experience along those lines which Fern and I had.

At the inception of the NY Green Bank, we gave them a presentation, proposing a underwriting policy and program, which would support NY State's stated goal of, at that time, 50% GHG-reduction by 2030 and 80% by 2050. The point we made was that, if the bank financed any retrofits that achieved less than 50%, or ideally 80%, GHG-reduction, they were in fact insuring with mathematical certainty that the state would fail in its objective, something which is now pretty much a fact as the sate has scaled back its goals to 40% GHG-reduction by 2030 and 80% by 2050, without ever having addressed the fact of why their actual policies, including the all important role of the Green Bank practically ensure failure. The Green Bank bank was not receptive to our proposal a few years ago. However, in a recent meeting with NYCEEC, which is effectively the NYC Green Bank, we found out that at NYCEEC they were now having regular meetings about this exact point. The reality of course is that both banks, at the NY State level and at the NYC level, in actual fact financed mostly projects at the level of 20-30% GHG-reduction, and therefore are counter productive to the larger state mission. In short, a few years after we offered the solution, these institutions were starting to recognize the problem.

Fern had a keen sense about how finance could play a perverse role, if, like in these cases, people do not bring the correct analysis to bear. It is all finance 101 stuff, except most people forget about it. Not Fern. I called her the Minister of Finance, but maybe I should have been more specific and called her the Minister of Green Finance. She always laughed when I quoted Brealy and Myers again, when exposing yet another green finance scam, for she remembered what most people forgot. She knew when it was time to go back to the drawing board.

Fern's spirit will be with me forever, and her steadfastness will remain my inspiration. In honor of the deep spiritual foundation of her life, I ended my talk with a poem from Helen Schucman, scribe of A Course in Miracles, from the bundle The Gifts of God:

A JESUS PRAYER
-----------------------------
A Child, a Man and then a Spirit, come
In all Your Loveliness. Unless you shine
Upon my life, it is a loss to You,
And what is loss to You is also mine.

I cannot calculate why I am here
Except for this: I know that I have come
To seek You here and find You. In Your life
You show the way to my eternal home.

A child, a man and then a spirit. So
I follow in the way You show to me
That I may come at last to be like You.
What but Your likeness would I want to be?

There is a silence where you speak to me
And give me words of love to say for You
To those You send to me. And I am blessed
Because in them I see You shining through.

There is no gratitude that I can give
For such a gift. The light around Your head
Must speak for me, for I am dumb beside
Your gentle hand with which my soul is led.

I take Your gift in holy hands, for You
Have blessed them with Your own. Come, brothers, see
How like to Christ am I, and I to you
Whom He has blessed and holds as one with me.

A perfect picture of what I can be
You show to me, that I might help renew
Your brother's failing sight. As they look up
Let them not look on me, but only You.

New York's 2014 Energy Plan - GHG-reductions ahead

Green Finance reform should be the central focus of our climate change efforts, for under proper analysis reducing Greenhouse gas (GHG) emissions goes hand in hand with improving property values. The 2014 New York State Draft Energy Plan indicates a paradigm shift. The stated benchmark objectives are:

• 50% GHG emissions reduction by 2030
• 80% GHG emissions reduction by 2050

There is only one way to get anywhere close to that, and that is with massive adoption of renewable energy (RE), and in particular Site Derived Renewable Energy (SDRE), and green finance needs to catch up. Typical energy efficiency (EE) projects have been all the rage, tend to be in the range of 15-25% improvement. We will now need to focus on projects of 50% GHG emissions reduction and higher, otherwise we are dragging down the numbers. It also means we should focus on the demand side, for you can only go so far on the supply side, and green power generation is not an overwhelming case yet, but on the demand side, the economics are very powerful. It will just take time to develop the right opportunities. The draft 2014 NY State Energy Plan is an auspicious beginning for this paradigm change.

GHG reductions goals can only lead to more SDRE

I published my comments to the draft energy proposal on Scribd, here:
http://www.scribd.com/doc/217064925/DaBx-Comments-on-NY-State-2014-Draft-Energy-Plan

The good news is that the commitment to these GHG emissions reduction goals forces a radical change towards renewable energy.

50+% GHG emissions reduction: change happens on the margin

1. Change happens on the margin
2. We have limited means. (Think bringing $10 or $20 billion to a trillion dollar problem).
3. Therefore on the margin projects with better than 50% reductions in GHG emissions compete against projects with 15-25% "energy savings" and nominally GHG reductions in the same range. We should ignore the fallacy that natural gas reduces GHG emissions. Therefore we should furthermore only entertain SDRE projects with over 50% GHG-reductions.
4. Once we model a retrofit on the basis of a 30 Year cash flow model, it will be clear that there are plenty of SDRE projects that can achieve the 50+% GHG reductions target, and there is tremendous potential for sound projects that will be financially superior to EE projects. EE investment projects have been typically evaluated on component-level payback from marginal energy savings, sometimes in a bundled approach like NYSERDA's MPP. However, under a proper cash flow analysis, the long tail of 30 years of no energy bills will in many cases overcome the initial capital hurdle. Proper finance can do the rest.

Again, if we want to make progress towards these New York State energy goals, we cannot afford EE projects, but only SDRE retrofits. And, we cannot do it without reforming what now goes for green finance, and develop a more robust green finance 2.0.

The case for energy efficiency as a goal in its own right has been thoroughly discredited, and we'll be in the business of teaching old dogs new tricks. Building owners and many "consultants" in energy efficiency have been trained to look for opportunities for marginal energy savings. The approach has been helter-skelter, and a seemingly more systematic approach like NYSERDA's MPP just hides the problem and makes it worse. Many savvy building owners have always known that energy efficiency does not add up. It does not - simply because of diminishing returns. No matter how much you spend, you never get "there," and nobody knows where "there" is anyway. The new paradigm is: Green finance achieves GHG reductions with SDRE investments paid for by energy savings.

There is an unstated assumption in the current policies that focus on energy efficiency. That assumption is that you can always switch tracks later, and implement renewable solutions. This is not true, because in any given property, you will have often designed yourself into a corner you cannot get out of without writing off a good part of the work you have done in the name of EE. So the switch often becomes prohibitive if you did not plan ahead. Hence the need for proper planning first, and that means a 30 year technology plan for SDRE for any property.

From components to whole building projects

The other major change must be to always look at whole buildings, or even blocks, districts, communities, regions, etc. A holistic approach is a must, and overall GHG reductions are the goal. For the time being this is made harder because incentives are still at the component level, not at the building level. Component level incentives cause accountants to engineer energy systems, with disastrous results. The Baucus tax proposal has the right idea of one single incentive, based on GHG reductions, but, as drafted, it leaves out the demand side, which is the most important part. The idea is right but should be extended to the demand side.

Green Finance reform

Green finance in one part is the financing of major capital projects, and that is proceeding apace. What today goes for "green finance" for energy retrofits is completely compromised by the over emphasis on Energy Efficiency, and in most cases just a rebranded form of ABL (Asset-Backed Lending), against energy savings, all of which goes back to Amory Lovins' idea of the "fifth fuel," and the subsequent mythological creation of the "negawatt," leading us to think that "energy savings" is an investable asset. This approach is like painting lipstick on a pig, and in the extreme it takes forms like EDF's "Investor Confidence Project," which encapsulates these easily falsifiable, and unfounded assumptions that EE is somehow additive towards the solution into a seemingly impressive framework that unfortunately rests on a false assumption.

PACE financing compounds the problem even further by misusing the beautiful investor protections it provides on EE projects, and thereby undermining its own long term relevance. And PACE will become irrelevant if it does not refocus to over 50% GHG-reductions, and that means SDRE projects. The name PACE means Property Assessed Clean Energy, and its potential is now being wasted on EE projects, which merely serve to prolong the agony.

The over-emphasis on energy efficiency is completely self-destructive, and analytically unsound, it lacks a basis in fact, both economically, financially, and environmentally. It is already being falsified in the market place by net zero construction, but for retrofits, as soon as there are significant securitizations of 50% and above GHG reduction financings, the EE investment craze will come to an ignominious end. The typical 15-25% "energy savings" from EE projects, which come with diminishing returns, i.e. no follow-on strategy, will inevitably make way for the 50+% GHG reduction projects which will offer compound returns, and an ever improving follow-on strategy, not to mention asset appreciation of the underlying property with every energy price hike.

The time has come for green energy finance reform. Once the analytics of Energy Efficiency are properly understood, the nomenclature "green finance" should be limited to SDRE projects with over 50% GHG reduction, and never for EE projects which are a financial and environmental dead end, and in effect an indirect subsidy to the carbon fuel industry. This shift automatically entails a new focus on maximizing asset values for building owners.

Education

Along with all of this, there is a massive need for education, and objective and independent information. While I was finishing up this blog, my partner, Bruce Lorentzen, EE, wrote to me as follows:

Last week  I was a judge of faculty and student research projects at Univ. of Bridgeport.  I was amazed that a professor with a PHD was presenting a study on microgrids and he was a proponent of PV.  This was alarming in that he had within his research, heat storage.  I challenged him on why he was wasting precious land and rooftops and only being 15% efficient.  He then admitted that perhaps solar thermal was better.  I then offered that with 400% efficient heat pumps, he had the opportunity to reduce pollution by at least 75% whereas PV only reduces by 15%.  We must educate the educators!!

Conclusion

Energy Efficiency is not a proxy for GHG reductions, and should not be a policy goal. It is an indirect subsidy to carbon fuel, and achieves the opposite of what we want. The new paradigm for green finance is achieving GHG reductions with SDRE investments paid for by energy savings.