Midwest Journal Spring 2009

growing a green midwestern economy

therooseveltinstitution spring09

therooseveltinstitution

Growing a Green Midwestern Economy

therooseveltinstitution 2100 M St, NW - Suite 610 Washington, D.C. 20037 www.rooseveltinstitution.org

Growing a Green Midwestern Economy Volume 1 • March 2009 Copyright 2009 Editor-in-Chief Dan Blue - Michigan State University

Managing Editors Gracye Cheng - Harvard University Nina Coutinho - National Director of Communications

Policy Editors Lucas Puente - University of Georgia Riley Wyman - Colorado College

National Editorial Board Robert Coniglio - Cornell University Clayton Ferrara - Rollins College Frank Lin - University of Chicago Elise Liu - Harvard University Fay Pappas - Rollins College Ryan Tang - Williams College Melanie Wright - Duke University Nina Zhang - Cornell University

National Staff Executive Director Nate Loewentheil Energy & the Environment Policy Strategist Riley Wyman

National Policy Director Caitlin Howarth Midwestern Regional Coordinators Dan Blue and Monika Johnson

Printed by Mount Vernon Printing Co. to responsible forestry standards. The opinions expressed within Growing a Green Midwestern Economy are exclusively those of the individual authors and do not represent the views of the editors, faculty advisors, the Roosevelt Institution, or any of the organization’s chapters, centers, reviewers or affiliates.

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Contents Letter

from the

Editor



Dan Blue, Editor-in-Chief

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Policy Memos Investing in Small-Scale Green Energy Olivia Cohn, J. Cory Connolly, Andy Cease, Kyle Bryan, Paul Burger, Anthony Mianecki, Sophia Mosher, Sarah Mullkoff, Michigan State University

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Endowment Investment in Energy-Saving Retrofits for University Buildings Paul Burger, Michigan State University

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Disposable Shopping Bag Tax Elizabeth Miller, Northwestern University

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Pay-Per Mile Premium Program Alixandra Hallen, Northwestern University

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Revolving Loan Funds for Campus Sustainability Projects Alex Wall and Naomi Harris, Northwestern University

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Eco-Drive Illinois Andrew Hobaugh, Northwestern University

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Reducing U.S. GHG Emissions: Federally Funded Methane Digesters Kelley Greenman, Washington University in St. Louis

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Banning Government’s Use of Bottled Water J. Cory Connolly and Kyle Bryan, Michigan State University

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Utilizing Brownfields in Renewable Energy and Mass Transit Development Daniel O’Connor, University of Michigan

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Articles Schools and Renewable Energy: A Revolving Loan Fund J. Cory Connolly, Michigan State University

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Sustainable Building in Detroit: Report and Recommendations Hilary A. Doe, University of Michigan

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Feeding the Urban Jungle Jian Wei Ang, University of Michigan

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Feed-In-Tariffs and State Level Implementation in Michigan J. Cory Connolly, Michigan State University

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Growing

a

Green Midwestern Economy

Dear Readers, We face serious challenges. Climate change is threatening the future of our planet and the Midwestern region of the U.S. is suffering from economic decline. Over the past year, students from across the region, informed by personal experience, empowered by the Roosevelt Institution network, and inspired by the difficulties before us, dedicated themselves to meeting these challenges with a different kind of activism—identifying critical problems and offering innovative and practical policy solutions. The ideas published here all focus on how the Midwest can capitalize on the green economy; each piece was researched, written, and edited by members of the generation that is inheriting these challenges. Many of these students have already begun engaging the policy process by working directly with local and state governments on their ideas. We hope this journal opens new doors and inspires others to take action. Growing a Green Midwestern Economy is part of a region-wide, environmental policy movement that is being led from the bottom up. These students have proposed policies for urban revival, greening universities, encouraging disaggregated clean energy generation, and more. A heartfelt thanks to our supporters at Michigan State University: the Office of Undergraduate Research, the Honors College, James Madison College, the Science, Technology, Environment, and Public Policy Specialization and Lyman Briggs College. Their generous support made this project possible. It is our hope that each policymaker, educator, stakeholder, and citizen that reads this journal will be moved to help revitalize the region and save the planet by working to cultivate a green Midwestern economy. With Hope for a Bright Future, Dan Blue Editor-in-Chief Midwest Regional Coordinator The Roosevelt Institution

Investing

in

Small-Scale Green Energy

Olivia Cohn, J. Cory Connolly, Andy Cease, Kyle Bryan, Paul Burger, Anthony Mianecki, Sophia Mosher and Sarah Mullkoff Michigan State University Communities are seeking energy efficient and economically viable avenues through which home energy can be purchased in a way that supports renewable energy and creates a greener environment. Renewable energy co-ops with a feed-in-tariff system represent one of the best energy options for Midwestern states: stimulating local economies, reducing reliance on non-renewable energy and benefiting the environment. Background Classic electricity co-ops function based on investor ownership, allowing for a group of citizens to possess the production, transmission, and distribution of an entity’s energy. Electricity co-ops account for approximately 10 percent of electricity production and own 42 percent of Key Facts U.S. distribution lines. Recently, • From 2005 to 2006, U.S. customers participating in the electric industry these co-ops have begun adopthave increased by 63% (91% of this ing renewable energy sources: in increase is residential). 2007, 11 percent of co-op power • Michigan’s increasing electricity originated from renewables. consumption accounted for nearly In October 2008, Michigan set the foundation for aggressive energy policy, establishing a provision for a state-wide net metering program to take effect within 180 days. Net-metering programs compensate energy generating consumers by reversing the meter according to the amount of energy produced and running that energy back into an electricity grid.

three-quarters of growth in State’s greenhouse gas emissions from 1990 to 2005. • In 2007, more than 50% of national renewable energy consumption occurred in the electric power sector. • Michigan must meet new standards: the Lansing municipality requires that renewable energy constitutes 7% of major utility retail sales by 2016; on the State-level, it is required that renewable energy constitutes 10% of annual retail energy sales by 2015.

A Feed-in Tariff (FiT) program builds on net-metering. It is a legally-binding agreement that pays the consumer at a higher rate per kilowatt hour for renewable energy than the market price for non-renewable energy, making it a profitable investment. Analysis The main challenge to renewable energy production’s political feasibility is that its implementation requires high start-up costs and is only profitable on a long-term scale. The co-op model shares the start-up costs across investors, reducing individual cost, while the FiT guarantees a short-run profit, thus providing real economic incentives for producers

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Talking Points • The energy crisis can be alleviated through adopting cleaner sources of production. • Energy co-ops, applied to renewable energy, can provide a framework for local, efficient, and practical means to purchase and use clean energy, and be a template for diplomacy in renewable investment. • Through the introduction of the 2007 Michigan Renewable Energy Sources Act, Michigan has identified itself as a leader in supporting progressive energy policy. • As energy needs rise, states are faced with the challenge of developing standards for efficiency in use.

of renewable energy. Consumers benefit, as FiTs mandate that the consumer utilizing renewable energy has access to the electricity grid, sets the price paid per kW hour for renewable energy higher than the price paid for nonrenewable energy (making it profitable), and binds utility companies to purchase a subset of energy through these sources. In this way, an incentive is provided for investment in renewable energy, which might otherwise be financially unfeasible for small-scale operation.

Opposition Opposition to FiTs claims that such policies would raise energy prices and would provide only minor mitigation effects. To buy the energy produced at a higher premium, electricity companies would have to distribute the cost across the entire consumer base, making the cost per customer negligible. The program would also provide that the tariff rate be maintained until the initial investment of the project is paid, after which the community could revert to a lower tariff or net-metering policy. The program would therefore be temporary, appeasing opposition, while allowing for a timely return to the initial investment, making it attractive to investors. Next Steps As Michigan policy-makers seek long-term sustainable energy infrastructure, this proposal provides an actionable step toward reaching their goal. Michigan citizens and policymakers begin by supporting FiT legislation (such as the Michigan Renewable Energy Sources Act (RESA)). Michigan should also support a community-based FiT program. A community-based program would be designed so that no individual may own more than 15 percent of the project, ensuring that profits are distributed widely and guarding against monopolization by large stakeholders. A community-based FiT would allow for low initial investments and economic risks, and makes way for a program that is a prime candidate for project loans. In addition it should be recommended that communities seeking to invest in renewable energy, with an initial involvement size and energy source approved by the MPSC, are guaranteed FiTs.

Sources available at http://rooseveltinstitution.org/midwest2009

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Endowment Investment in Energy-Saving Retrofits for University Buildings Paul Burger, Michigan State University Universities should allocate a percentage of unrestricted endowment funds toward energy-saving retrofits of their facilities. Climate change is upon us, and it threatens our future. Many broad spectrum technological solutions are not feasible at this time, yet we must take immediate action to slow the environmental degradation that is occurring at this moment. As our current economic situation necessitates sustainable solutions that are financially feasible, we should seriously consider one retrofitting our buildings with energy efficient technologies.

Key Facts • Buildings consume 70% of the electricity load in the U.S.. • In 2007, 90% of electricity in the U.S. was generated using nonrenewable sources. • Enrollment in degree-granting institutions increased by 23% between 1995 and 2005. • Ten of eleven Big 10 universities held over $1 billion in total endowments in 2007.

Background Green retrofitting is the exchange of out-dated technology for more energy-efficient technology. It can come in the form of improved building insulation, more efficient climate control systems, low flow shower heads, motion-sensor lighting or any other alternative that performs the same function as one’s current technology but uses only a fraction of the energy. Retrofitting for energy efficiency is essentially an investment with a slow, but nearly guaranteed, return. If sufficient time is allowed for the energy savings to recover the initial capital and maintenance costs, barring any unforeseen externalities, the investment will pay for itself and continue to save in the long run. The only variable is the rate of return, which depends on specific retrofitting strategies and energy price fluctuations. Universities provide an ideal economic setting for green retrofitting to take place; in fact, many institutions have already implemented such initiatives. As nonprofits with stable financial models, degree-granting institutions have the ability to recover over longer periods of time and do not run a high risk of bankruptcy. Furthermore, they are prime targets for retrofitting because they often rely primarily on non-renewable, high pollution energy.

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Analysis Many universities around the country have already implemented energysaving retrofitting programs on their campuses with much success. •Stanford University’s Energy Retrofit Program (ERP) invested more than $10 million over 15 years. Stanford expects to save $4.2 million per year. •The University of Illinois at Urbana-Champaign invested a total of $4.2 million on a lighting retrofit initiative, and expects to save $900,000 per year. •The University at Buffalo Invested $11 million on a campus-wide retrofit program, and expects to save $1.2 million per year. Many public universities have large endowment funds fed by private donations. These funds are invested in diversified holdings with an aim towards long-term gains. While some of these funds are restricted for use in scholarships or other programs, millions of dollars are left to endowment managers to invest at their discretion, in anything from private equity to commodities. Next Steps Publically funded universities should allocate a percentage of their total expendable (meaning unrestricted) endowment funds to green retrofitting projects for campus buildings. By shifting these endowment funds into retrofitting programs, universities can guarantee capital gains, while directly benefitting the campus atmosphere and the environment as a whole. Not only would a retrofitting program save on an institution’s energy costs, but it would also provide benefits to society as well, on the local and global levels. These programs will require planning, construction and maintenance professionals to ensure proper functioning, thus creating jobs and boosting economies. Environmental initiatives such as retrofitting can also help to improve the reputation of a given institution’s marketable product to anyone from prospective student’s to researchers to grant providers. The benefits of building efficiency retrofits will surely outweigh the costs in the long run. The current economic situation provides an opportune time for any form of investment, and universities are in a position to successfully take advantage. Given careful planning and ample recovery time, energy-saving retrofits will reap monetary as well as environmental benefits for universities for years to come.

Sources available at http://rooseveltinstitution.org/midwest2009

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Disposable Shopping Bag Tax Elizabeth Miller, Northwestern University By implementing a twenty-cent tax on paper and plastic bags, the City of Evanston would generate temporary revenue for the city government, help businesses cut down on costs, and take steps to reverse the ecological damage inflicted by disposable shopping bags. History In America, nearly every retail transaction ends with the placement of purchased goods into a disposable shopping bag. However, these symbols of modern convenience are detrimental to the environment in a multitude of ways. The biggest problem with plastic bags is the fact that approximately 12 million barrels of oil go into the Key Facts production of the 100 billion • The production of paper and plastic plastic bags used annually in shopping bags consumes massive amounts of natural resources and America. emits toxic pollutants. After they are

used, paper and plastic shopping bags Contrary to popular belief, paper often end up littering the land and sea. bags are no more ecological than • In Ireland, a 20-cent tax on plastic their plastic counterparts. The bags decreased consumption by 90% manufacturing of paper bags in the first year after implementation and raised millions of Euros for the uses toxic chemicals and requires government. nearly five times more energy • Implementing a tax on paper and —2511 BTUs vs. 594 BTUs—than plastic shopping bags in the city of the production of plastic ones. Evanston, Illinois would generate Furthermore, 14 million trees are revenue for the city government until cut down to make the 10 billion disposable bags are no longer used and decrease packaging costs for busipaper bags used every year in nesses. the United States. Finally, these packaging options are not only environmentally costly—at a price of one cent per plastic bag and five cents each paper bag, large grocery stores such as those in Evanston spend substantial sums of money to purchase the thousands of bags they each distribute every year.

Analysis In recent years, three policies have emerged as ways to decrease usage of disposable shopping bags: bans, recycling programs, and taxes. When San Francisco implemented a plastic bag ban, consumers merely switched to using paper bags instead of reusable ones. Bag recycling programs, another option, are not economically feasible as it costs $4000 to process and recycle one ton of plastic bags, which can be sold on the commodities market for $324. Furthermore, it requires 1444 BTUs to recycle a single paper bag. While New York City passed a bill in January

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2008 that required all businesses who give out free plastic bags to also collect them for recycling, Mayor Bloomberg has since proposed implementing a six-cent tax on plastic bags to better control consumption. This third alternative, taxation of disposable shopping bags, has been proven to be the most effective in changing consumer habits and decreasing usage of disposable shopping bags. Ireland’s tax on plastic bags led to a 90 percent drop in consumption and raised the equivalent of 9.6 million dollars in its first year alone. More importantly, the policy has changed consumer habits. According to The New York Times, carrying plastic bags in Ireland has become “socially unacceptable”. In July of 2008, Seattle also passed a twenty-cent tax on paper and plastic bags, which is predicted to decrease consumption by at least 70 percent once it is implemented. Next Steps: Policy Implications and Small-Scale Progress In Evanston, customers of retailers defined by the city code as grocery stores, convenience stores, and combination drug/grocery stores would pay a 20-cent tax on every disposable shopping bag used. Officials in Seattle determined through their research that 20 cents would be high enough to be noticed by shoppers but not too high that it would cause outrage instead of consideration. In light of the strong community support for the Evanston Climate Action Plan passed in November of 2008, which was co-written by citizens and city officials to outline suggestions of ways the city could reduce its carbon emissions, it is likely that the people of Evanston will be open to a bag tax because of its positive environmental effects. Additionally, this tax would be beneficial for both businesses and the city government. It would allow businesses to decrease spending on paper and plastic bags, the costs of which are currently forced to be internalized by the practice of distributing disposable bags for free. The money raised by the tax would go into the Evanston Climate Action Fund to finance other green projects. To avoid hurting low-income individuals, people who are enrolled in the Supplemental Nutrition Assistance Program (formerly known as the Food Stamp Program) will be exempt from this tax. Although this proposal is designed specifically for the city of Evanston, Illinois, it serves as a model for any city in the Midwest. By following this plan, cities will not only bring in revenue and help businesses cut costs, but they will also be taking steps toward moving our society away from the thoughtless and excessive consumption that so strongly characterizes it. The ultimate goal for this tax is to turn the usage of disposable paper and plastic shopping bags into a practice of the past.

Sources available at http://rooseveltinstitution.org/midwest2009

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Pay-

per- mile

Premium Program

Alixandra Hallen, Northwestern University

State legislatures should compel car insurance companies in their states to provide an insurance premium option based on miles driven. This program would be opt-in, providing the consumer a choice of insurance policies. Background Drivers have little choice when it comes to purchasing car insurance. The driver can choose which company to purchase their policy from, and how much insurance to buy on top of the minimum required by the state they live in. Drivers, however, cannot choose how their insurance Key Facts premium is calculated, and this • Insurance companies do not take into often stands to help insurance account the number of miles driven companies and hurt consumers. when calculating the cost of an insurance policy.

• Providing the consumer with the Requiring insurance companies to choice of a policy that is calculated provide a premium option calcubased on miles driven is beneficial for lated based on miles driven gives both the insurance company and the the consumer a greater freedom of consumer. If California enacted a paychoice when purchasing an insurper-mile program, Californians would ance premium. The driver could save an estimated $40 billion dollars in car-related expenses. choose to buy a premium based • The Environmental Defense Fund eson miles driven, or to buy a more timated that if California instituted a conventional policy. The policy pay-as-you-drive program 55 million would be most attractive to cusless tons of CO2 would be emitted betomers who drive little or want to tween 2009 and 2010. decrease their amount of driving. This would provide a greater level of fairness to the consumer when purchasing insurance premiums. This policy would also allow insurance companies to take on less risk, because if people drive less, fewer accidents are likely to occur.

In the U.S. in 2006, transportation activities accounted for 33 percent of CO2 emissions. The Department of Energy estimates that transportation activities account for the greatest percentage CO2 emissions. Nitrous oxide is another hazardous component of transportation emissions. Since 1750, the global atmospheric concentration of nitrous oxide has risen about 18 percent, and in 2006 about 9 percent of all nitrous oxide emissions were from vehicles. Chicago is the second most congested city in the United States. Driving during peak hours is 57 percent longer than during off peak hours. By creating an incentive for drivers to drive less, traffic congestion will

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be significantly decreased in Chicago and anywhere else this policy is adopted. With the pay-per-mile policy, drivers will be encouraged to drive less, leading to a significant decrease in greenhouse gas emissions. Insurance premiums calculated using a pay-per-mile criteria will also reflect a more equitable way to charge motorists, remedying current practices which overcharge low-mileage drivers and undercharge highmileage drivers. A driver who drives the same amount regardless of how their premium is calculated will be no worse off and a driver who reduces their driving will save money. Analysis The California Department of Insurance is introducing a “green auto insurance option,” which would provide drivers with a way to purchase a premium based on the number of miles driven. Public officials in California are hoping this program will persuade drivers to drive less, helping to reduce greenhouse gases and vehicle accidents. “The Environmental Defense Fund estimates if 30 percent of Californians participate …California could avoid 55 million tons of CO2 between 2009 and 2020, which is the equivalent of taking 10 million cars off the road…would save 5.5 billion gallons of gasoline and save Californians $40 billion dollars in car-related expenses. …[as a result of the] adoption of pay as you drive as one of the means to meet future climate change gas reduction targets.” The program requires that the insurance company monitor miles driven. The companies would conduct odometer audits – through an independent odometer reading businesses that would remit the results to the insurance provider and prevent odometer tampering. An alternative is in-car electronic meters and GPS systems – the customer would have to choose this more expensive alternative. The major obstacle to this policy is opposition from insurance companies, who stand to lose revenue. It is possible insurance companies may lose some money in the short-term; however, in the long-term money will be saved when consumers begin to drive less and accidents decrease. Insurance premium pricing based on mileage has the potential to substantially decrease statewide driving, which would lower greenhouse gas emissions and decrease accidents. This type of pricing would provide a more equitable way for consumers to purchase insurance. Because the Midwest is an area heavily dependent on driving, this policy has great potential here. This and other complimentary policies will help transform the Midwest into a national and global leader in climate change policy.

Sources available at http://rooseveltinstitution.org/midwest2009

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Revolving Loan Funds for Campus Sustainability Projects Alex Wall and Naomi Harris, Northwestern University Colleges and universities should establish revolving loan funds as a way to finance projects that increase campus sustainability. Revolving loan funds provide schools with an excellent opportunity to promote sustainability, reduce energy and resource consumption, limit project-inhibiting up-front costs, and encourage student entrepreneurship and innovation. Background In light of the current economic recession, colleges and universities have become increasingly limited in the Key Facts amount of capital they can devote to projects that retrofit campus • Harsh economic conditions and depreciating endowments make it infrastructure and increase susdifficult for colleges and universities tainability. Since the middle of to invest in campus sustainability 2008, many colleges and universiprojects. ties in the Midwest have seen their • Revolving loan funds are proven endowments shrink considerably. mechanisms that allow academic Between June and December of institutions to finance sustainability projects while limiting up-front costs. 2008, the University of Michigan • Projects financed by Harvard Univerestimates it lost 20-30 percent of sity’s Green Loan Fund reduced camits endowment, while Northwestpus emissions by 33,227 metric tons ern University’s endowment has of CO2 and saved 15.5 million gallons taken a 20-25 percent hit since of water between 2001 and 2007. last August. Yet, by establishing revolving loan funds (RLFs) these schools can still invest in sustainability projects without facing significant up-front costs that inhibit projects. Revolving Loan Funds at universities grant small loans to individual or groups of community members for specific sustainability projects on campus. An established management board considers proposals and grants loans to the most effective projects. The fund is financed by grants, alumni and corporate donations, campus fundraising efforts, and student fees. The savings generated from the project are paid back into the fund over time until the project is paid for, thus providing a revolving source of capital. RLFs can set up a payback system that allows for growth by setting a target payback percentage greater than the original loan. By establishing RLFs, Midwestern colleges and universities can simultaneously practice environmental and fiscal responsibility, while providing vital educational opportunities for students. In addition, RLFs foster a stronger sense of campus community if students, faculty, staff, and ad-

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ministrators are all represented on the fund’s board. Analysis A few schools have already established RLFs and achieved tremendous benefits. Between 2001 and 2007, Harvard University’s Green Loan Fund financed 147 projects that reduced emissions by 33,227 metric tons of CO2 and saved 15.5 million gallons of water. Its projected annual savings of over $3 million and an average project return on investment of 26 percent for 2007, demonstrate its outstanding economic viability. Former Harvard President and U.S. Treasury Secretary Lawrence Summers went so far as to claim that “the best investment in the University is not the endowment, but the Green Loan Fund.” Student initiated funds with smaller budgets, such as the Macalester College Clean Energy Revolving Fund (CERF), are also capable of making vital contributions to campus sustainability. Macalester’s CERF has received over $97,000 in grants since its establishment in 2006, and is large enough to finance projects that retrofit inefficient buildings on a smaller scale. Critics might argue that potential grant money for an RLF could directly fund a project. However, RLFs offer significant benefits that isolated projects are unlikely to provide. The establishment of an RLF will attract donations specifically geared toward mitigating climate change and increasing sustainability. Additionally, the RLF board will ensure greater project visibility by marketing to potential donors and project applicants. This will raise campus awareness of sustainability issues, and create opportunities for student entrepreneurship and innovation. Next Steps Students, faculty or the administration should propose the creation of an RLF on their campus. A working group composed of all parties must create a charter that determines how the fund will operate within the university structure. The charter should establish a board to operate the fund, requirements for project proposals, and guidelines for loan disbursement and payback. Once the charter is created, the working group should seek approval from the administration. In order for an RLF to succeed, the university must give it the authority to evaluate and approve sustainability projects. Teams in charge of RLFs must obtain upfront capital to establish the fund. If the fund is set up to be cost-neutral for the university, board members must solicit funding from outside sources such as grants, student fees, and donations from alumni and corporations. Additionally, the board should seek university funding from academic departments and university grants. University money will have a greater impact through an RLF, because it will cycle through multiple projects rather than fund single initiatives. Sources available at http://rooseveltinstitution.org/midwest2009

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Eco-Drive Illinois Andrew Hobaugh, Northwestern University Illinois’ Secretary of State should mandate the inclusion of environmentally friendly driving techniques in the driving curriculum. Such techniques are shown to drastically decrease the amount of CO2 emitted by automobiles. Estimates predict that including these methods in the state driving curriculum can cause Illinois’ CO2 emissions to decrease by an estimated 7.423 million tons annually. Background Eco-driving is known to decrease gas consumption and thus CO2 emission. Eco-driving techniques include: avoiding rapid starts and stops, rolling in traffic, using air conditioning at high speeds, avoiding idling, and using the highest gear posKey Facts sible. Maintenance techniques include: checking tire pressure, • The amount of CO2 emitted by Illinois in 2006 was 242.81 million tons. replacing air filters regularly, and • Transportation alone was accountusing recommended oil. able for 75.8 million tons of CO2 in 2006 . • If all drivers in Illinois were to utlize eco-driving techniques, the state’s CO2 emissions would decrease by 7.423 million tons annually; this is equivalent to 9.8% of CO2 emitted by automobiles.

In August 2008, California, Colorado and The Alliance of Automobile Manufacturers joined together in an effort to promote Eco-driving within their individual states and throughout the U.S. The program promotes these driving techniques and provides education to the public on its interactive website.

An average of 13.209 million tons of CO2 is emitted annually in Cook County; automobile use greatly contributes to this total amount. In a city and state currently making an effort to lower CO2 emissions, Cook County would be an ideal location to implement the Eco-drive system. Analysis Eco-driving USA, a program sponsored by The Alliance of Automobile Manufacturers, and state-funded promotion programs - including television and online advertisements - have effectively raised awareness of eco-driving techniques. In addition, the use of eco-driving simulators to educate or re-educate drivers has given drivers a hands-on experience. Instrumentation, the use of in-car instruments such as cruise controls and gear-shift indicators to track mileage and gas usage, can help a driver monitor his or her actions. In fact, according to a report by the International Transportation Forum, “instrumentation alone can deliver around 5 percent savings and provide an incentive to maintain and even improve driver performance after training.”

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In addition, the European Union has found that testing eco-driving skills as part of the driver licensing examination results in significant decreases of CO2 emissions because novices maintain driving behavior taught in driver education programs. A study of the Dutch Ecodrive Program shows that since its incorporation into the driver’s education system, there has been an increase in the number of drivers who check tire pressure monthly from 28 percent in 2000 to 38 percent in 2005. Additionally, the number of drivers who own a fuel saving in-car device has also increased to 32 percent of all drivers in 2005. Next Steps Incorporating eco-driving techniques into the current driver education program is essential to combating the rising amounts of CO2 released by Illinois. A comprehensive program including promotion, instruction, testing and incentives should be used to influence drivers at multiple points in their driving careers. A comprehensive state plan for eco-driving should promote, through television and online advertising campaigns, the economic and health benefits of eco-driving techniques. The campaign should emphasize individual benefits: for instance, that eco-driving can save an individual around $405 annually on gas expenses. In addition, the state should test and certify driver educators on the principles of eco-driving. The state could also provide tax incentives to commercial driver instruction facilities that purchase simulators incorporating eco-driving and/or purchase hybrid cars for “behind the wheel” instruction. As all Illinois public schools are required to include driving instruction as part of the curriculum, beginning drivers in schools are an ideal group to educate in these techniques. Written and road tests, both for permits and license renewals, should include sections testing principles and practice of eco-driving. Finally, the Illinois’ government can also provide tax breaks to individuals who purchase a fuel consumption read out device for their vehicle, in order to ensure everyone is getting the maximum mileage per gallon of gas. Together, these elements will provide the foundation for healthier and cheaper driving in Illinois. Eco-driving offers a low-cost, high-return option for Illinois and other states to reduce CO2 emissions over time.

Sources available at http://rooseveltinstitution.org/midwest2009

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Reducing U.S. GHG Emissions: Federally Funded Methane Digesters Kelley Greenman, Washington University in St. Louis Using existing federal information and grant programs in the Environmental Protection Agency (EPA) and Department of Agriculture (USDA), a program should be established to federally fund the construction of methane digesters on animal farms. Background The livestock sector is a formidable sible for 18 percent of global emissions of greenhouse gases. But despite being a larger global contributor to greenhouse gas emissions than even the transportation sector, livestock is often overlooked in mitigation strategies. This is likely due to the diffuse sources of greenhouse gases from this sector, which include even livestock digestion and flatulation.

cause of global warming, responKey Facts • Most animal farms use ponds, anaerobic lagoons, or holding tanks for manure management—practices which release methane, a potent greenhouse gas, into the atmosphere. • If all 3,000 farms in the U.S. that have the capacity to utilize methane digesters captured gases from decomposing waste, it would result in a national reduction of over 21% of annual methane emissions from agriculture. • The construction of methane digesters at all qualifying farms could be funded by the Commodity Subsidy Program. By reducing the subsidies paid to the wealthiest 20% of farmers on a sliding scale, the construction of 3,000 digesters could pay for itself in 3.5 years.

In reality, 31 percent of total U.S. livestock emissions come from liquid manure management systems, such as ponds, anaerobic lagoons, and holding tanks, which are essentially point sources of methane. Because methane has 21 times the heat-trapping ability of carbon dioxide, it is imperative to address this particular source. The sizable amount of harmful emissions released from the livestock sector will only increase as the global demand for dairy products, eggs, and meat rapidly increases. It is essential to significantly decrease livestock sector emissions to successfully alleviate global warming. Analysis Methane digesters can be designed to burn methane for heating the digester system, and also for the generation of electricity. Each methane digester structure costs between $200,000 and $2 million to build, depending on the number of animals present and the climate of the region. At its most expensive, 3,000 facilities would cost $6 billion. Decreasing the subsidy payments of the wealthiest 20 percent of farmers on a sliding scale generates approximately $1.65 billion each year in savings, based on 2005 figures. Within four years, and with only minor reductions in

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Talking Points • Livestock waste accounts for 8% of domestic methane emissions. • Construction of methane digesters would contribute to effective climate change mitigation by capturing those emissions; it could also reduce emissions by offsetting energy that would otherwise be derived from fossil fuels. • Lowering emissions from agriculture would help the United States meet an important objective for international treaties like the Kyoto Protocol.

commodity subsidies, the USDA could fund the construction of biogas recovery systems at all 3,000 eligible farms; they will also have excess funds that would contribute toward informational campaigns and recruiting farmers to the program. Methane systems around the U.S. are augmenting the income of farmers, and boosting rural economies. This program gives eligible animal farms the opportunity to decrease their carbon footprint, and potentially generate electricity with their methane system.

A large obstacle to this policy however, is its political feasibility; the policy choice to reduce commodity subsidies, despite the wealth of funding that they could provide, is not an easy one. Large corporate farms, like those receiving the subsidies in the top 1 percent, hold enormous political clout and have historically been able to influence farm legislation to protect their interests. Next Steps Two federal programs, the Environmental Protection Agency’s AGStar Program and the USDA’s Environmental Quality Incentive Program, should collaborate on a campaign to establish methane recovery systems at all suitable animal factories in the United States. AGStar is an informational outreach program designed to promote biogas recovery, and the Environmental Quality Incentive Program is a voluntary conservation program offering financial aid and grants for such projects. Both programs have been established and successful for several years. Working together, they would distribute information and funding for system construction, making the process more accessible to farmers. The program would be funded from the Commodity Subsidy Program. Decreasing subsidy payments to the top 20 percent of wealthiest farmers on a sliding scale; the reallocation of these funds will fund 3,000 new methane digesters within four years. With rural communities suffering from global food and economic crises, legislators should recognize the unique benefits methane recovery systems could bring to mid- and small-scale farmers, especially in the Midwestern United States. With an abundance of livestock operations and mid- and small-scale farms, the Midwest has a particular potential for federally funded methane digesters. Unsurprisingly, the idea has already gained traction in Minnesota, Wisconsin, and Illinois. However, the prohibitive cost excludes mid- to small-scale farms, making the case for federal funding compelling. Sources available at http://rooseveltinstitution.org/midwest2009

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Banning Government’s Use

of

Bottled Water

J. Cory Connolly and Kyle Bryan, Michigan State University Situated in a region geographically defined by water, the cities and municipalities of the Midwest region must take a leading stance on water use and eliminate public funding for bottled water. The diversion of public funding to bottled water has negative impacts financially and environmentally. Despite being home to one of the world’s best public water systems, the United States consumes more bottled water than any other country in the world. City governments like East Lansing, MI can take a stance on this essentially environmentally-detrimental and unnecessary spending by eliminating the purchase of bottled water with government funds. Doing this can save money and address environmental concerns without compromising health concerns Background Since the 1700s mineral water and spring water have been hailed for their purity and their medicinal uses, but it was not until the 1990s that the bottled water industry truly gained a foothold in the United States. In 2002, a survey sponsored by the EPA determined that 74percent of Americans drink bottled water; one out of five drink only bottled water. In 2007, Americans drank more than twice the amount of bottled water as in 1997, guzzling 8.8 billion gallons at a cost of $10.3 billion in 2007, according to the Beverage Marketing Corp., a research and consulting firm based in New York. Analysis Health Concerns While smart marketing has long cast bottled water as a “pure” option, research shows that U.S. tap water may be just as healthy and that in some instances, bottled water is actually a greater health risk. In truth, tap water is actually subject to more rigorous standards of testing than is bottled water. The Food and Drug Administration (FDA) continuously regulates tap water in the U.S., but it only regulates bottled water that is sold across state boundaries. Ultimately, the FDA regulates only 30 to 40 percent of bottled water. In addition, approximately a quarter of bottled water brands have contained contaminated samples. Plastic water bottles often leach chemicals into the water they contain as well. Economic Concerns Health debates aside, there is no question about economic impact of bottled water—it costs citizens, cities and government-funded organizations significant and unnecessary sums of money each year. In a 2007 survey, the group Food and Water Watch documented that bottled water costs on average one dollar per liter, or $3.79 per gallon, whereas the EPA estimates that a gallon of tap water costs $0.002 nationwide.

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In 2007 the city of San Francisco banned the purchase of bottled water after reports that the government was spending approximately 500,000 dollars on bottled water each year. Mayor Gavin Newsom estimated that the city had saved $1 million as of 2008. Environmental Concerns Bottled water has a negative impact on the environment. Unlike soft drink containers, these bottles do not have a deposit and are rarely recycled. It is estimated that 29 billion plastic bottles are produced each year in the United States alone. The majority of plastic bottles are not recycled, amounting to 2 million tons of plastic bottles accumulating in US landfills. Poor disposal of plastic bottles is not bottled water’s only negative impact on the environment; the process of bottling water actually requires three bottles for every one that is produced. Additionally, there are 17.6 million barrels of crude oil used every year in the production and distribution of plastic water bottles Opposition Bottled water interests such as the International Bottled Water Association, which represents 450 bottlers, suppliers and distributors, will likely oppose these bans. Some critics may claim that tap water is not a health solution because it has been found to contain contaminants. While this is true, the health, environmental and economic downsides of bottled water demonstrate that cities cannot continue looking to bottled water as an easy solution. With local and state governments currently struggling to cut costs, this measure should be carefully considered. Next Steps Cities in the Midwest should follow the example of the 250 cities in the U.S. and the government of the United Kingdom in their efforts to ban the purchase of bottled water. In Ann Arbor, Michigan, this policy has already proved effective, saving the city money by using bottled water for city events and distributing reusable water bottles to attendees. The money that is saved by abstaining from bottled water should be invested in the municipal water system and public water quality. Even with the high standards for the public water system in the United States, it is in need of better regulation and better infrastructure. Shifting these funds toward public water will help in providing clean, safe, and cheap water for everyone. Although cities are the best target for this policy, a coordinated effort in cities across the Midwestern region has the potential to significantly increase environmental awareness among citizens, reduce unneeded pollution, and promote research for a more economical, healthy and sustainable public water system. Sources available at http://rooseveltinstitution.org/midwest2009

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Utilizing Brownfields in Renewable Energy and Mass Transit Development Daniel O’Connor, University of Michigan The state government should create a task force – comprised of a government team and an action-oriented academic team from a university – to gather and disseminate information on brownfields and engage potential developers to build transit and renewable energy projects on these sites. Background A brownfield is a physical property, such as an abandoned factory building, upon which redevelopment is complicated by the possible presence of hazardous substances. BrownKey Facts fields contribute to sprawl and can put holes in tax bases. Additional• Michigan has accumulated over 40,000 acres of “development-ready ly, dumping, theft, and vandalism brownfield property.” The potential is in brownfields can contribute to a enormous. sense of abandonment and inse• Hands-on academic research, where curity in the neighborhood. the faculty participates in actual Brownfield sites can be evaluated on two key criteria: (1) extent of environmental hazard, as a function of danger level and clean up costs, and (2) population density and development potential of surrounding area.

brownfield site evaluation and not just broad policy discussion, has proven successful in Pittsburgh, PA (CarnegieMellon University). • Michigan has passed a 10% Renewable Portfolio Standard and has placed a new emphasis on building public transit systems. Despite the slowing of the economy at the state and national levels, their will likely be a lot of development occurring in these two fields over the next decade.

Mass Transit Sites In the past, developers have chosen to build factories along highways, rivers, or rail lines for accessibility. These characteristics make those old factory sites, now brownfields, ideal locations to incorporate into a mass transit system. Such sites, characterized by high population density and low hazard levels, could serve as stations/stops or as administrative or maintenance areas. Depending on the size and location, some stops could be grown into park-and-ride areas, with room for on-site and local business development (such as a coffee shop or a newspaper stand). Renewable Energy Sites In September 2008, Michigan passed a renewable portfolio standard that will require 10 percent renewable energy generation by 2015. In order to meet this requirement, Michigan public utilities will have to install renewable capacity or buy energy from third party renewable energy suppliers. Using brownfields to erect wind turbines and solar panels would

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be an economically and environmentally ideal choice for Michigan’s development. Low density, high hazard areas—such as certain factories—due to their remote location or the extremely hazardous nature of their contaminants, are simply not suited to be used as part of a transit system. Such brownfields would be instead suited for renewable energy generation. Installing wind turbines and/or solar panels on these sites provides a use for the site while avoiding costly and intensive full cleanups. Analysis The environmental remediation necessary for the development of brownfield sites would require significant funding. However, the benefits of development and elimination of environmental hazards in already populated areas far outweigh such costs. Additionally, funding from sources such as the EPA is often available to mitigate this problem, a factor that must be considered during the site selection process. Local residents have fought the installation of wind turbines as eyesores, but if the turbines replace abandoned industrial land (away from their neighborhoods), local residents may be more open to the idea. The aforementioned problems associated with brownfields—theft, dumping, vandalism, and tax base erosion—would also be eliminated by a wellmaintained, tax-paying renewable energy generation site. Next Steps The Michigan state govenment should take this opportunity to create a “Utilizing Brownfields Initiative” that includes the following three elements: 1) A government task force responsible for collecting and disseminating information relevant to the development of brownfields, particularly the clean-up subsidies that are available at all three levels of government (local, state and federal). The task force will also be asked to evaluate current brownfield incentives and work with developers to consider ways that they can be improved. 2) An action-oriented brownfield research and evaluation team made up of urban planners and environmental scientists from local universities (U. Michigan, MSU and WSU). The universities could encourage faculty contribution to the team by taking participation into account upon consideration for tenure. The research team will be expected to evaluate the actual properties. This hands-on approach of academic researcher at Carnegie Mellon University, has contributed greatly to the success of brownfield initiatives in Pittsburgh, PA 3) A mandate that any mass transit spending project conducts a high-level evaluation to see if they can incorporate brownfield lands into their plan. Sources available at http://rooseveltinstitution.org/midwest2009

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Schools and Renewable Energy: A Revolving Loan Fund J. Cory Connolly, Michigan State University Michigan’s public school system is notoriously under-funded. At the same time, the state is largely dependent upon coal and other non-renewable sources for electricity. Renewable energy policy and educational policy in Michigan require attention and there is potential to address both with comprehensive policy. The National School Boards Association claims that an average school district of 3,000 students spends $400,000 in energy related costs, or approximately 2.2 percent of the district’s budget. The board also found that school districts located in large metropolitan areas can spend more than 20 million dollars. As a result, Michigan’s schools spend approximately 1.36 billion dollars annually to pay for coal. The United States is widely expected to raise its commitment to greenhouse gas reduction targets dramatically at the next UN framework convention in Copenhagen later this year. If it does so, emissions will likely be regulated on a state-to-state level. For Michigan, where approximately 60 percent of the power supply comes from coal and only 4 percent from renewable sources, the impending shift means dramatic improvement in energy efficiency will be necessary. Yet, it is also an opportunity for economic reinvigoration. Michigan ranks fourteenth in the country in wind speeds and has reliable solar resources as well. Moreover, it possesses the distinct advantage of a manufacturing-based economy and a highly skilled technical work force seeking new sectors for growth and employment. Many large wind turbines are expensive to transport via rail or truck, but, given its location on the Great Lakes and existing infrastructure, Michigan has the ability to ship these massive structures to various locations throughout the Midwest and the eastern seaboard. Michigan’s shift toward renewable energy should begin with its educational system. Policies to promote renewable energy for public schools are not only a means of reducing pollution, but also an educational resource and a powerful cost-saving measure. Renewable energy in Michigan Two policies in particular compensate consumers for their renewable energy production, and therefore promise to spur innovation in Michigan schools. The first, net-metering, guarantees that small energy producers will receive credits from utility companies per kilowatt of energy produced, effectively reversing the meter. As a result, net-metering runs energy back onto the electric grid and allows compensation for

energy production. Michigan recently passed net-metering legislation as part of a renewable portfolio standard package, Senate Bill 213. The net metering program, as provided for in Section 173(1) of Public Act 295 of 2008, is definitive step forward in Michigan’s campaign for renewable energy and subsequent shift toward a green economy. A second, more progressive, policy to compensate consumers is a feedin-tariff. An important distinction between net-metering and FITs is that net-metering works on the idea of offsetting energy usage where as feed-in-tariffs enable small-scale producers to become net energy generators. Feed-in-tariffs are a common policy mechanism in Europe and are likely the most effective strategy of promoting localized renewable energy production. In the United States, however, feed-in-tariffs have not seen success in part because of the increased energy costs associated with them. Feed-in-tariffs have been proposed within Michigan, but net-metering is currently more popular and can be extremely effective if utilized correctly. Net-metering in Michigan has a few unique attributes. Reimbursements for energy generated via net-metering is limited to one percent of the utility’s peak load from the year before. This amount is broken down into two parts. Projects under 20kw capacity can account for up to one-half percent and receive full credit from net-metering. Projects between 20kw and 150kw can account for another one quarter allotment. Projects exceeding 150kw are eligible for the final quarter of the net-metering quota. Another distinctive feature of Michigan’s net-metering program is its net excess generation policy, which allows energy credits to be carried over not only from month to month, but also from year to year. This is uncommon: often the credits amassed at the end of each year are absorbed by the utility company. This modified net-metering presents numerous challenges to renewable energy generators, but can still provide financial incentives for small energy producers to continue to produce electricity. Schools as generators Schools spend a substantial amount of money on energy needs every year. If a school were to implement renewable energy on a school site— whether operating wind, solar, hydro, biomass, or other sources of renewable energy—it could provide significant long-term savings through Michigan’s new net-metering program. The renewable energy produced on the school site would go towards running the building and the facilities. When the energy produced by the renewable source is in excess (i.e. at night for wind, or in the summer for solar) the energy is fed into the electric grid and the school is credited for the energy that it provides to the utility. These credits are used to reduce energy costs. Reductions in energy costs would vary widely depending on the quality energy resources in the area of the school, the size of the project, and

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the agreed rate for net-metering. As outlined earlier, a larger percentage of the capacity for net-metering is allocated for projects under 20kw. Large projects are not impossible, but the policy suggests that in Michigan, a multitude of small disaggregated projects at schools throughout the state may be the most achievable option. The savings from renewable energy projects have been demonstrated elsewhere. In Iowa, savings from wind energy projects ranged from $3,496-$120,000 annually after repayment of the initial investment; the payback period varied from 4 to 13 years. For one school in Ohio the annual energy savings from the installation of solar panels amounted to approximately $175,000. Once net-metering is ensured, the main obstacle to renewable energy projects on school sites are the initial costs. The start-up costs for wind or solar projects is substantial, with wind projects costing upwards of $1,000 per kwh of production capacity. The costs of a solar project are even higher, costing around $12 per watt and between $16,000 and $20,000 for a 2kw project. The initial costs of these energies prevent schools from taking advantage of these resources as academic and environmental aids. A policy solution is necessary in order to ensure schools have this opportunity. Revolving Loan Fund One promising remedy to the daunting start-up costs is the establishment of a revolving loan fund dedicated to renewable energy for schools in Michigan. A revolving loan fund grants low or no interest loans, which are recycled upon repayment as a loan for another party. A school repays this loan through the savings from the aforementioned net-metering program. Eventually, the school’s loan will be paid in full and the school will achieve annual energy savings. Precedent for such a policy can be found in Iowa, where a revolving loan fund, called the “Alternative Energy Revolving Loan Program” (AERLP) has been implemented. This program traditionally paid no more than half of the initial cost, leaving the rest to the school district to finance independently. Michigan has seen this same type of funding mechanism in the twomillion dollar “Northern Lights” revolving loan fund, which expired in 2006. The fund was designed to help businesses, schools, and local governmental agencies increase energy efficiency. Revolving loan funds are not a novel concept, but if combined with sufficient net-metering policies, they can yield substantial benefits for schools in terms of both energy savings and educational value. In Michigan, Senate Bill 46 currently proposes a revolving loan fund for renewable energy on school sites. Sponsored by State Senator Patricia Birkholz, the bill proposes a 10 million dollar fund called the Alternate Energy Revolving Loan Fund. The distribution of loans is overseen by

the Michigan Public Service Commission and will be granted to school districts that have “a viable plan for cost-effective energy efficiency improvements in tandem with construction of a renewable energy production system.” The loan will function on a repayment period of no more than 20 years. Utility opposition Utility companies generally present the greatest opposition group to net-metering and may cause problems for schools looking to pursue this policy mechanism.1 Utilities rely primarily on two arguments against netmetering: possible safety ramifications, and increased wear on power lines. First, they argue that decentralized energy production can have negative safety ramifications. With an increased number of generators using the electric grid—the complex of transmission and distribution electric lines—maintenance workers may face a risk of electrocution. When a power line is down, the centralized utility company usually halts electricity flow to certain areas in order to allow for safe repair. Utilities claim that disaggregated producers could continue to supply power to the electric grid while repairs are taking place. While this is a justifiable concern, most net-metering systems have to “kill” switches to prevent energy from being run back into the grid in such a circumstance. One of these safeguards is automatic—built into the meter—and the other is manual. While it may have been relevant in the past, this argument has been rendered obsolete by technological advances. Second, utility companies claim that consumers pursuing net-metering will overload the electric grid and cause increased need for repairs to the transmission and distribution lines. While the electric grid in the United States is notoriously outdated, the implementation of disaggregated sources of energy is very unlikely to overload the electric grid. Renewable energy by nature is scattered throughout the distribution and transmission regions. In fact, the dispersal of renewable energy sources may actually enhance the grid by limiting line loss, the loss of energy as it is transmitted in high voltages from one location to another. The long distance transmission of these renewable energy sources would not be necessary and would potentially make the electric grid more efficient. Opposition from utilities can be expected, but recent legislation has made it less likely. In 2008 Michigan passed its first Renewable Portfolio Standard mandating that utilities receive 10 percent of their energy from renewable resources by 2015. Utility companies need renewable energy sources to meet this mandate and hence will be less likely to oppose such projects in the near future.

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Recommendations 1) Exempting Schools from the 1% limit Several strategies could be incorporated into Senate Bill 46 to make it more effective. First, any school district entering a net-metering agreement in tandem with the revolving loan fund should be exempt from the one percent limit mentioned above. A waiver would enable more schools to take advantage of the project while simultaneously preventing them from unintentionally monopolizing the one percent allotment. It would therefore allow homeowners and small businesses to take full advantage of the net-metering program as well. 2) Opening the Fund for Basic School Retrofitting Open the fund to retrofitting to include schools without wind or solar capability. The fund should also be open to energy-efficiency upgrades through basic retrofitting. The existing legislation is unclear as to whether the fund is applicable for strictly efficiency upgrades or whether efficiency upgrades are simply a prerequisite for receiving a loan. Currently, it appears that schools cannot request funding for retrofitting alone. Not all schools have access to adequate wind, solar, or other renewable energy sources—but virtually all buildings can benefit from improved efficiency. Furthermore, efficiency upgrades have lower initial costs and can reduce energy use by about 10-20% a year. These upgrades could be particularly effective in urban areas where wind and solar capabilities are not available. 3) Front-loaded tariff rates The revolving loan fund would be more effective if schools receiving a loan were guaranteed a front-loaded tariff rate. For renewable energy projects, like wind and solar, it is possible to determine the approximate total amount of electricity produced by a project. Similarly, with this information it is possible to determine the net present value (NPV) of the project in a lump sum of money.2 Once the NPV rate is established front-loaded rates can also be determined, meaning that the amount of money credited per kwh in the initial years of the contract would be much larger than in the latter years. Front-loaded rates would minimize the amount of money necessary in the revolving loan fund because of a faster rate of circulation. Through a quicker return to investment, they would also provide increased incentives for schools to take part in the net-metering program. Finally, they would also make it easier for schools to find funding from other sources, such as loans or municipal bonds—an important advantage given the current economic climate. Since the average rate over the entire contract will be the same, and since re-

newable energy production from schools will be such a small fraction of the total, short-term increases in tariffs will not cause significant burdens for utilities. This mechanism is modeled after the Community-Based Energy Development (C-BED) program in Minnesota, which is geared toward community projects. 4) Augment net-metering to better serve schools One of the current major obstacles to renewable energy for schools is the exclusion of projects that would produce more than 150kw. The net-metering program does not apply directly to such projects, and they are forced to pay a “standby” fee.3 This policy should be changed. A petition by the organization Michigan Green Schools is currently under way to have this fee waived for schools. As of publication, the petition has been signed by 136 Michigan school districts. The net-metering program in Michigan is overseen by the Michigan Public Service Commission (MPSC), which neglects two important classes of renewable energy projects. Those between 20kw-150kw receive modified net-metering and those above 150kw receive little guarantee of net-metering. Such policies significantly hinder netmetering in these ranges of production, which are often suitable for renewable energy generation on the scale of a public school. Specifically, the MPSC must ensure that the mid-range projects can achieve reasonable agreements with the utility companies for energy generation. Second, Section 177 (2)(3) of Public Act 295 of 2008 outlines an important aspect to an effective net-metering program. Schools and other parties participating in net-metering need a guarantee of meters at limited or no additional cost. Meters measure the energy consumption of an electricity consumer and they can also measure the energy a school returns to the electric grid, making it possible to measure the savings a school should receive. It is essential that these meter costs are not shouldered solely by the consumers pursuing net-metering. In Michigan, many utility companies are installing new meters to better serve business purposes, but neglecting to install advanced meters. All consumers pay for basic meter upgrades, because the cost is spread across the entire consumer base, while advanced meters are installed the cost is incurred by individual consumer. Net-metering requires the installation of advanced meters, making it critical that the cost be spread across the entire consumer base. If the cost of an advanced meter is paid by the entire consumer base, the net-metering program will be more accessible to schools.

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Conclusion The revolving loan fund, as proposed in Michigan, is a great step for renewable energy that will enrich public education, cut energy costs, and preserve the environment. In this troubled economy, it will encourage a market for renewable energy and in turn generate well-paying jobs for skilled workers from the manufacturing and construction industries. Yet that is by no means the primary justification of this program. At its core, a revolving loan fund coupled with effective net-metering will increase environmental awareness and save money for Michigan’s schools. The incorporation of renewable energy into the public education system will provide investment in the Michigan’s economy in the short term, and it will also—through education—establish a foundation for renewable energy in Michigan in the future. Notes To fully understand utility opposition, it is important to grasp the structure of the electric utility model. The electric energy industry in the United States encapsulates three functions: generation, transmission, and distribution. Generation is the source of the energy whether a wind turbine or a coal plant. Transmission is the transport of the generated energy in mass quantities of high voltage and requires specific types of transmission lines. Distribution requires that the electricity is reduced to lower voltages and transported along a distribution line directly to businesses, households, schools, and other various consumers. 2 In this situation, NPV represents the lump sum value of the project’s generating capacity over the life of the project. For instance, a project with a 20-year contract would divide the NPV by the total kwh expect to be produced over the 20 years—yielding the NPV rate. 3 The standby fee is couched as a means of insurance in case of failure in the local generator. When, for example, a school’s wind turbine is not working because of a malfunction, the utility company guarantees that it will have energy to supply to the school while the turbine is out of commission. While this rarely happens, utilities charge a fee for having the service available at all times. 1

Sources Birkholz, et al. “Senate Bill No. 46.” 27 Jan. 2009. Michigan Senate. 5 Feb. 2009 . Birkholz, et al. “Senate Bill No. 213.” 6 Oct. 2008. Michigan Senate. 5 Feb. 2009. . Connolly, Cory. “Wind Turbines on School Sites.” 2008. Roosevelt Institution. 5 Feb. 2009 . “Consumers Guide.” National Renewable Energy Laboratory (NREL) Home Page. 2003. 26 Feb. 2009 . Galluzzo, Taresa, and David Osterberg, comps. Wind Power and Iowa Schools. Mar. 2006. Iowa Policy Project. 1 Apr. 2008 .

”Michigan Energy Overview.” http://www.dleg.state.mi.us/mpsc/reports/ energy/energyoverview/. Michigan Public Service Commission. 4 Feb. 2009 . Michigan Wind Power. Michigan Wind Power Services. 5 Feb. 2009 . “Net Present Value and Front Loaded Pricing.” Community Based Energy Development. 5 Feb. 2009 . “Ohio Solar Schools Program.” The Foundation for Environmental Education. 5 Feb. 2009 . Proudfoot, Paul. Michigan’s New Energy Legislation. 2008. Michigan Public Service Commission. 5 Feb. 2009 . ”Schools For Energy Efficiency.” 2007. Hallberg Engineering. 26 Feb. 2009 . State of Michigan. Michigan Public Service Commission. DLEG. 12 Sept. 2008 . Vujovik, Vuk. “Looking Ahead: Energy Costs and School Buildings.” School Construction News. Oct. 2006. 4 Feb. 2009 . “Wind Power Technology Worldwide.” Wind Turbine Warehouse. JP Sayler and Associates. 5 Feb. 2009 .

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Sustainable Building Recommendations

in

Detroit: Report

and

Hilary A. Doe, University of Michigan Abstract The environmental sustainability movement has been gaining momentum in the United States since the 1990s. At the heart of this “green” movement have been sustainable building practices, legitimated and institutionalized by the United States Green Building Council and the popular Leadership in Energy and Environmental Design (LEED) certification program. Evidence from cities that have implemented such sustainable building practices demonstrates that they can improve perception of a city and attract people and businesses necessary to strengthen the economy. The business case for building developers is convincing: LEED certification has been shown to make a development more profitable over its life-cycle. More importantly, many cities have passed green building incentives simply because of their benefits to society, including resident health and environmental improvement, and also to remedy misinformation about the green building process that lead to suboptimal decisions regarding investment in green development. The political climate’s favorability to sustainable solutions—as evidenced by the city’s Green Task Force, the state’s “green” priorities, and the federal funding available for cities making progress towards environmental sustainability—provides a great opportunity for Detroit to re-market the city and rejuvenate the economy by passing green building incentives. In order for Detroit to endorse LEED certification without losing needed tax revenues, the city should utilize tax abatements to ease upfront costs and encourage the development of socially beneficial green buildings. Incentivizing green building can help developers realize a profit through development in Detroit, while improving the environment, the health of the residents, and the city’s public image. Detroit’s Starting Point: Summary and Analysis Detroit’s city council has already formed a Green Task Force and has expressed interest in building “green” through LEED certification. However, despite the favorable political climate—the city council is receptive, the state has established green jobs and other environmentally-conscious initiatives as part of the Governor’s priorities, and the federal government has funds available to cities pursuing environmental sustainability—no local legislation has been passed related to “green” building. SustainLane, a environmental organization renowned for producing peer-reviewed US City Rankings revealed a trend in the most environ-

mentally-conscious US cities; all top-rated cities pursuing environmental sustainability, ranked by SustainLane, have begun incentivizing “green” building in some way. LEED certification, because of the legitimacy it has gained through institutionalization, has often served as most cities’ first step towards an environmentally friendly portfolio, as well as a catalyst to other sustainable policies and a healthy “green economy.” Detroit’s Progress Towards Sustainability Detroit has not remained competitive with other cities in terms of its “progress towards sustainability.” SustainLane’s most recent U.S. City Rankings (2006) ranks Detroit 43rd out of the 50 largest cities in terms of overall urban sustainability. It should be noted that some of Detroit’s largest Midwestern counterparts (and cities with similar manufacturing pasts) are represented amongst the highest ranking cities, including Minneapolis, Chicago, Milwaukee (#16) and Cleveland (#28). Detroit does particularly poorly in the areas of planning and land use (43 out of 50), and air quality (48 out of 50)—scores coded as “Sustainability in Danger” by SustainLane. Additionally, the metrics describing Detroit’s current economic climate rank it below most other major US metropolitan regions, including strength of the green economy (one of Governor Jennifer Granholm’s areas of focus) and sustainability of the knowledge base (an area receiving attention from organizations such as Michigan Future, The Center for Michigan, and the New Economy Initiative). Conversely, cities that ranked highest in overall sustainability and maturity of green policy rank are also near the top of the list for these important economic indicators. Despite the variation in the top cities’ green policy portfolios, each scores higher than Detroit in one area: green building (as measured by the number of LEED certified buildings in the city). Since green building has been institutionalized through the establishment of the USGBC and the LEED certification program—a system which certifies buildings for their sustainable design and construction elements—it is often a first initiative undertaken by cities interested in sustainability. SustainLane suggested that Detroit should, “inves[t] in…green building,” to “…improve the lives of [Detroit] residents and keep more of them in town.” Current Action The City of Detroit has already expressed interest in green policies/practices for their “positive long-term economic, social, and environmental impact on the city.” The city council established a Green Task Force dedicated to improving the city’s sustainability. To date, the council has begun work on initiatives to “attract new green industry and transition existing industry to operate in a more sustainable manner,” to ensure the city purchases environmentally friendly products, to encourage the mayor’s membership in the U.S. Conference of Mayors’ Climate Protec-

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tion Agreement, which would “commi[t] the City of Detroit to the Kyoto Protocol,” and to educate city staff and the public on LEED building guidelines and other green policies. The city operations subcommittee has also facilitated Detroit’s membership in the United States Green Building Council (USGBC) in order to encourage green building practices, and it has begun coordinating energy audits on city buildings to determine energy usage and identify areas of improvement. Detroit: Potential for Progress In addition to Detroit’s current political climate, factors outside the city have further amplified the potential for city action. The Governor’s “Green Jobs” initiatives and her emphasis on the importance of attracting the alternative energy industry have resulted in more environmentally-conscious industries. Detroit has seen evidence of this through companies like Walker Energy Services’—a biofuels corporation—waste recycling proposals, the interest of major wind energy companies, and Chevrolet’s decision to begin production of the electric-powered “Volt” in the Detroit-Hamtramack (DHAM) production facility in Detroit. To retain and attract similar businesses to the city, Detroit must embrace their “green” interests. Detroit could also benefit from the federal monies available to cities making progress towards sustainability. Because of its current ranking in air quality and efficiency, Detroit’s initial policy efforts stand to make great impact, making the city an attractive candidate for federal funds. Some federal funding options include: the Environmental Protection Agency’s sustainable development challenge grant program, as well as the Enhanced Sustainability in New Investment program. Background: The Sustainability Movement and Green Building The sustainability movement in the U.S. has been gaining momentum since the 1990’s and has been linked to talent retention and economic rejuvenation, as environmentally-friendly cities are more attractive to residents, businesses, and investment. Since its start, green building has been at the center of the sustainability movement. The U.S. Sustainability Movement The sustainability movement has been gaining prevalence in local policy since 1990, with the rise of increased environmental-consciousness in building and architecture. Though there is no one definition of “green building,” generally, a green building is sensitive to: • • • •

Environmental Health Resource and Energy Consumption Impact on people (quality and healthiness of work environment) Financial impact (cost-effectiveness from a full financial cost-return perspective) • The world at large (a broader set of issues, such as ground

water recharge and global warming, that a government is typically concerned about) In response to the increased interest in green building the USGBC was founded in 1993. Today, the USGBC, “a non-profit organization composed of leaders from across the building industry,” that, “work[s] to advance buildings that are environmentally responsible, profitable, and healthy places to live and work,” consists of more than 12,400 member companies and organizations. The central and most popular program instituted by the USGBC is the LEED Green Building Rating System; the LEED system is a professional accreditation program that certifies buildings at different levels according to their environmental attributes and sustainable features. When it was first introduced in 2000, 8 million square feet of building space underwent LEED certification; that number jumped to 100 million square feet by early 2003. Currently, “over 3 billion square feet of building space are involved in some capacity with the LEED program.” LEED-certification’s popularity may be attributable to the potential gains to be made economically and environmentally from green building practices. According to the USGBC, existing buildings “account for 39 percent of CO2 emissions in the United States,” and, “over the next 25 years, CO2 emissions from buildings are projected to grow faster than any sector.” Additionally, the costs of building green are decreasing. In 2002, it was estimated that buildings that underwent the USGBC’s LEED-certification process cost developers between 3 and 5 percent more than conventional buildings. By 2003, the average building premium for green buildings was just under 2 percent. By 2007, when Davis Langdon released his report “Cost of Green Revisited,” he concluded that “there is no significant difference in average cost for green buildings as compared to non-green buildings.” This reduction in the “green premium” decreases the magnitude of incentives necessary to encourage developers to utilize green building practices. Green Building: An Explanation of Green Certification Sustainable development refers to the concept of the triple bottom line: the achievement of social, economic, and environmental objectives in parallel. All U.S. sustainable building guidelines, including regional guidelines that have been established in some parts of the country, are based on the USGBC’s LEED system. LEED ranks participant buildings into one of four levels of certification, depending on the number of points a building earns for integration of sustainable practices. This four-level system allows each project to incorporate the sustainability building measures that are most viable for their context, so that it’s feasible for all developments to attain some level of certification.

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The four levels of LEED certification are broken down as follows: Level of LEED Certification

Points Required

Platinum

52-69 (maximum) points

Gold

39-51 points

Silver

33-38 points

Certified

26 (minimum) -32 points

Why Use the LEED Program? Though LEED-standards are growing in popularity and are accepted almost universally as environmental building standards, there is debate as to whether or not the actual certification, which can become quite costly, is worth the expense. Developers must monitor each point during the design and construction process and ensure that it is properly implemented, while guaranteeing there is sufficient proof/documentation of all sustainable features. To avoid this costly process, some cities and states have established their own boards that evaluate and recognize buildings with green elements. In spite of these cost concerns, there are many arguments for endorsing LEED as a city’s green building standard The benefits include LEED’s name recognition, its quickly growing membership, its flexibility, the reduction of conflicting state standards for national developers, the avoidance of increased city/state bureaucracy and a standardized rating system that allows outsiders a clear perception of the building’s qualityFurther, grants exist to alleviate the costs of LEED projects. Most importantly for the City of Detroit, 1) common knowledge of the system makes a LEED-certified building attractive to environmentallyconscious buyers who recognize the worth of decreased operation and maintenance costs, while 2) simultaneously advertising the city’s commitment to environmental-sustainability. The Case for Green Building Incentivizing green building in Detroit could make development more attractive. Since there are no finite numbers on the amount of development that would be spurred, however, the true public benefits to incentivizing LEED certification is the ability of the city to use these incentives as marketing tools. Support for green building practices could improve the city’s public image and potentially attract more environmentally-conscious residents and businesses. Economic Benefits of Green Building: The Business Case The most convincing reason for developers and city officials to pursue green building during these hard economic times is the monetary benefit. All things considered, it becomes clear that when sustainable ele-

ments are planned from a project’s inception, the total benefits outweigh costs (while last-minute, “bolt-on” sustainable design elements, mentioned earlier, dramatically increase the price of green buildings). When doing a cost benefit analysis on a particular building, or considering the costs of green buildings in general, it is important to consider the costs associated with a building throughout its life cycle before determining whether the project is more or less expensive than a standard building. Using Life Cycle Cost Analysis allows costs associated with a building to accrue over time so that the benefits of decreased operations and maintenance expenses are considered along with immediate upfront costs of (re)development (the Life Cycle of a building is generally about 60 years). The costs of green building with the LEED program are closely aligned with the level of certification pursued. In any case a developer should anticipate an initial increase in upfront costs, though the size of this cost premium is steadily declining. These up-front costs include increased cost of the design and planning process (as it may be lengthier or require a more experienced team), increased cost of materials, and additional administrative costs associated with LEED certification. The economic benefits of green building include financial benefits, as well as reductions in investment risk and building manageability. Financial benefits include decreases in capital costs, operational costs, as well as improved investment and profitability. Capital costs of green building vary substantially; if planned for at the project’s inception, however, additional costs can generally be offset by benefits elsewhere (especially because a developer can choose the number of points it is cost-effective to pursue in the LEED certification system). For example, the savings associated with on-site construction (encouraged by the LEED system) generally outweigh any additional costs of sustainable building materials (the costs of which have dramatically decreased as the market for such products became apparent). Additionally, operational cost savings are enormous, accounting for “approximately 5 times construction costs over the typical 60 year life of a building,” due to the reductions in energy and water usage. Green building also improves the investment, as buyers are likely to pay more in rents and resale. Finally, the construction and development industries have learned to develop sustainable buildings with “the same performance/appeal or more for less effort [in comparison to a traditional building]…,[thereby] increasing the profitability of the development.” The benefits of a green building project evaluated with Life Cycle Analysis and intentionally pursued from the project’s inception, then, outweigh the additional upfront costs and can prove profitable for a development’s stakeholders. Though this is primarily an argument for a developer to pursue green building, the City of Detroit should consider that by increasing stakeholder profit through encouragement of “green”

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development processes, more investment may be attracted to the city than would have come otherwise. Societal Benefits of Green Building In addition to their resulting economic benefits, many cities have made decisions to implement green policies—with tangible positive results – on the basis of societal benefits. The societal benefits of green building can be classified into three main categories: environmental, health, and public image benefits. Environmental Benefits The incorporation of green building practices has been shown to produce significant environmental benefits, by increasing climate change controls, mitigating ozone depletion, reducing resource depletion, lowering pollution levels, and supporting biodiversity. Of these, climate change control through the reduction of greenhouse gas emissions (including CO2, SOx, methane, and others), as well as the decline in ozone depleting substances, are expected to have the most impact on the overall well-being of the environment. Health Benefits Sustainable building practices have been associated with decreased risk of asthma and other pollution-related detriments of resident health. Additionally, the well-being of occupants is improved by the building’s decreased emissions. This has positive implications for a building owner as well, as it decreases the opportunity for litigation surrounding tenant well-being and compliance with internal environment regulations. Finally, the improvement the air quality/lighting in an indoor environment have increased levels of worker productivity and tenant retention, thereby reaping profits for building owners. Public Image Benefits By taking steps to improve the quality of life in a neighborhood through green building practices, both the city and building owner’s public image can be improved. Marketing a building’s LEED certification and the improved aesthetics of green buildings to the community and to prospective buyers and tenants can dramatically increase community support for development and the public perception of the business and city government. Marketing the progressive, environmentally-conscious nature of LEED-certification incentivizes might do more to improve the City of Detroit’s economy through secondary attraction and retention of talent, green jobs, environmentally-conscious businesses, and capture of federal funds, than the first-order monetary benefits green building may spur. Necessity of Government Action As mentioned previously, the incorporation of green building techniques into developments is likely to improve the development’s profitability

and result in a more socially optimal outcome. In order to help developers overcome market failures—such as a failure to properly assess cost using life-cycle costs analysis and account for negative externalities to the community or to dramatically discount future savings when making initial building decisions—that lead them to choose traditional building practices, the Detroit City Council must implement policy. Government policy is necessary to surmount 1) inaccurate perceptions about sustainable building, 2) individual stakeholder interests, and 3) the private sector’s failure to calculate societal costs and benefits. Developer misconceptions about the LEED process must be overcome. The economic value of green building will not be apparent if muddied by false information; developer estimates of the additional capital costs associated with sustainable development are often based on outdated practices, such as, “bolt-on” sustainable elements added well into a project’s development. These costs were high, but are certainly not reflective of those associated with an efficient process executed today. Another complication that city policy can help overcome is the extreme segmentation of the development industry; the numerous stakeholders responsible for the property at different times during its life cycle make calculating the total benefits of green building difficult during the planning, design, and construction process, when decisions about costeffectiveness are made. A development’s stakeholders might include investors, developers, tenants, and owners. The varying interests of these stakeholders often lead to the victimization of the tenant, who must bear the burden of operational costs, though he has no input regarding the incorporation of sustainable measures during development. City action can encourage life-cycle analysis, so that the tenant’s interest in operating costs is considered during the planning process. Finally, though a development’s stakeholders primarily base decisions based on the cost efficiency of a project, green building practices offer societal benefits often inaccurately considered when the decision to seek LEED certification is made. It is the government’s responsibility, then, to overcome the market failure and make policy aimed at moving towards the socially optimal outcome. Incentivizing Green Building: Options for the City of Detroit If Detroit chooses to incentivize green building practices per the recommendation of SustainLane, the program’s design will be crucial to its success. Research suggests that there are a few outcomes any well-written green building incentive should produce: 1) the incentive should help developers overcome the initial cost premium 2) the incentive should move developers towards the socially optimal outcome for tenants and the citizens at large, and 3) the incentive should be appealing to all stakeholders through a building’s life cycle.

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The two most popular green building incentive options include: 1) tax abatements on green buildings and 2) grants/monetary incentives for green buildings. Tax Abatements Though tax abatements are “the most robust and widely used incentive to promote [green building],” the percentage of taxes abated differs from program to program and often depends on the level of green certification that a building pursues. Abatements also differ in number of years of eligibility (short vs. long-term). Finally, abatements are the most flexible incentive option, as they can be tailored to a green performance standard and modified depending on a certain projects needs/ effects. Both Cincinnati and Honolulu have implemented tax abatement programs. The plans, however, differ greatly. The Cincinnati plan offers a 100 percent abatement, good for the maximum number of years allowable by law, to 1) homeowners who renovate or purchase a home built to LEED standards, and 2) owners/developers of multi-unit housing, mixed-use developments, and commercial developments that achieve LEED certification (subject to evidence of compliance with program criteria, such as a cost-benefit analysis, etc.). In contrast, The Honolulu Temporary Tax Exemption, provides a “one-year real property tax exemption for commercial, industrial, and resort developments that earn LEED certification,”—a short-term abatement which excludes residential development. In both the plans, the size of the tax abatement is constant despite the level of certification achieved. Additionally, it is granted after certification and not during the development process, and both abate 100 percent of taxes. The 100 percent abatement is relatively common; in other cases, abatement correlates with the level of LEED certification. Tax abatements provide a great opportunity for a city to achieve its goals with a green building incentive, as they are flexible. Though longer-term tax abatements provide reward for building sustainably through a large portion of the building’s life-cycle, it is not clear that tax credits which are not granted until after LEED certification is achieved would effectively combat developers’ concerns about increased upfront costs , as they could not be guaranteed with certainty. Further, even if granted during the planning process, when the developer decides to pursue LEED certification, the tax abatement option will not effectively accomplish the goal of rewarding stakeholders throughout the building’s lifecycle if the entire abatement (renewable over a designated number of years) is sold by the developer upfront. Investors would then receive the tax credit for the number of years it is granted, while future stakeholders and tenants see no benefit from decreased tax burden.

Therefore, tax abatements will not necessarily reward stakeholders throughout the development’s lifecycle unless designed appropriately, and, may fail to overcome the upfront costs that influence the developer’s decision. That being said, the benefits to public image and marketing of the city’s progressive measures may still improve perceptions of the city. The tax abatement would be most appealing for a residential owner or for a developer who intends to maintain ownership of the commercial/multi-unit space after construction is completed. Additionally, depending on whether the abatement is short-or longterm, lost tax revenue to the city could be considerable. In order for the policy to effectively overcome the market failures of misconception/ misinformation/coordination delineated above, however, a longer-term abatement would likely be necessary. Grant/Monetary Awards Grants are also being used to encourage green building. Typically, grants are awarded as a lump sum to the developer/owner, who can choose to use them to subsidize either LEED certification costs or the total cost of the building. The amount of grant funding necessary to cover the “green premium” and effectively encourage LEED certification is complicated, as the estimated premium for a green project 1) is decreasing quickly, and 2) varies dramatically depending on the level of LEED certification. Therefore, instead of a “one size fits all approach”, grants programs are generally designed with different levels of funding available based on the level of LEED certification a developer pursues. Also, grants are typically given once the developer proves intent to pursue the LEED certification, though funds are contingent upon the eventual receipt of a certification of the level a developer indicates. Two examples of grant programs to encourage green building include the Pasadena LEED Certification Program and the plan Des Moines, Iowa has designed for Wellmark—one of the city’s largest developers. The Pasadena LEED Certification Program provides grants for developers/owners pursuing LEED certification on an increasing scale: $15,000 for LEED certification, $20,000 for LEED Silver, $25,000 for LEED Gold, and $30,000 for LEED Platinum. The Pasadena program provides the above amounts as one-time lump sums to applicants who have provided “verification of LEED registration, execute a Letter of Agreement with Pasadena Water and Power, and receive their City building permit.” The program is capped and the grant money is distributed on a first-come, first-serve basis in order to control costs. Similarly, Des Moines has designed a grant program to incentivize one of its largest developers, Wellmark, to pursue LEED certification. In this project-specific example, Des Moines offered a grant of: $25,000 for certification, $50,000 for LEED Silver, $100,000 for LEED Gold, and $150,000 for LEED Platinum. These grants will be extended to the proj-

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ect’s stakeholders annually for ten years. Longer-term grants will be more attractive to developers that intend to maintain ownership, or to persons purchasing the building in the future. Also, the increased funding available for higher levels of certification may entice more developers to pursue Gold and Platinum certifications. In the Pasadena cases, the size/price of the development is irrelevant when determining the amount of grant funding distributed. Additionally, both plans are capped to control costs and incentives. Each program also delineates the amount of money available to a developer based on the level of LEED certification pursued. In the case of residential development and developer-owners, the long-term grant program may lead to fewer total green projects, since more owners may opt to pursue higher levels of certification where the payoff for doing so if higher (thereby using a larger portion of the city’s total program funding). Also, the costs associated with the tax abatement model are less difficult for a city to overcome. When implementing a tax abatement program, the level of city funds is not decreased. Rather, increased future revenues are forfeited for a number of years in order to encourage development. Under the grant/monetary incentives, an amount of money needs to be accrued by the city in order for it to be redistributed. These costs are exaggerated if grants are recurring, as in the Des Moines case. Policy Recommendation for the City of Detroit After considering these incentive options , the best option for Detroit is a modified version of the tax abatement model. Once modified, a tax abatement can cost-effectively accomplish all three outcomes that an ideal green building incentive should by 1) helping the developer overcome the initial cost premium in the design/planning and construction process, 2) moving towards the socially optimal outcome for future tenants and the citizens at large, and 3) appealing to stakeholders throughout the development’s life cycle. In order to help developers overcome the initial increase in upfront costs, the tax abatement should incorporate a portion of the grant model’s structure: the abatement should be applied as soon as there is evidence that 1) the developer intends to pursue LEED certification and 2) the level of LEED certification that will be achieved is determined. The percentage and length of the tax abatement should depend on the level of LEED certification pursued. By designing the abatement on a sliding scale (with a larger percentage of taxes abated for longer periods of time as the level of LEED certification increases), the incentive may entice developers to take on the higher cost premium and plan developments for high levels of certification. These model buildings would evidence the city’s commitment to environmental sustainability in a way that a lot of development achieving minimum certification may not. In order to overcome upfront costs, developers should be allowed to sell the tax credit

that will be granted during the years of the planning and construction process. By helping developers overcome the market failures preventing them from pursuing LEED certification, the tax abatement plan can incite a more socially optimal outcome for Detroit residents—thereby accomplishing the second goal of green building incentives. Once development is completed, the remaining years of abatement (associated with the level of LEED certification achieved), will be available to owners of the property at any time, thereby spreading the benefit of green building across the buildings life cycle and increasing the building’s appeal to future owners while arguably reducing the costs transferred to tenants. Finally, the tax abatement would not cost the city any additional money. Rather, it may attract additional investment, on which the city would sacrifice tax revenue for a certain number of years (15 years is the standard for other such abatements in Michigan), while the community benefits from reductions in blight, increased confidence in the area, beautification, and the potential for increased residents and jobs. Conclusion It is clear that environmental policies, in Detroit, can coexist with a flourishing economy, while attracting the types of persons and businesses necessary to strengthen it. The business case for developers is convincing—LEED certification can potentially make a development more profitable over its life-cycle. More importantly, the favorability of the current political climate, the state’s “green” priorities, and the federal funding available, make green building incentives a great opportunity for Detroit to re-market the city to a new set of residents and businesses, enhance overall investment, and rejuvenate the economy. Through well-designed tax abatements, Detroit can publicly endorse LEED certification as a first-step towards incentivizing green building, help developers overcome misconceptions/misinformation, and overcome the problems of coordination amongst a development’s many stakeholders. These tax abatements can act as another tool to help developers realize a profit through development in Detroit, contribute to resident health and environmental improvement, and improve the city’s public image. Notes SustainLane’s US City Rankings are determined using a combination of primary and secondary research that includes surveys and interviews from 2005-2006 (to which Detroit official from the city’s Environmental Affairs Department responded), and publicly available sources published between 2002-2006. The US City Rankings are considered a legitimate data source, as evidenced by their citation in academic papers and nationwide articles, as well as their instruction in universities across the country.

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Sources “About US.” SustainLane. 03 November, 2008. . “About USGBC.” U.S. Green Building Council. . “Detroit: Opportunities for Change.” SustainLane US City Rankings. (2006). 7 July 2008. . “Pasadena LEED Certification Program.” Pasadena Water and Power: City of Pasadena. “State and Local Green Building Incentices.” Local Leaders in Sustianability. Pg. 6 Sustainability Ranking by US City (2006). SustainLane. 7 July 2008. . [pdf]. Sustainable Development Challenge Grant Program. Federal Register Environmental Documents: US Environmental Protection Agency. 13 July 2008. . US Green Building Council. LEED Rating System, Version 2.1. November 2002. . US Green Building Council, Urban Land Institute and The Real Estate Roundtable. “Making the Business Case for High Performance Green Buildings.” 2002. . Yates, Alan. “Quantifying the Business Benefits of Sustainable Buildings: Summary of Existing Research Findings.” Centre for Sustainable Construction, Building Research Establishment, Ltd. 16 February 2001. , Background to Sustainable Development.

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Feeding

the

Urban Jungle

Jian Wei Ang, University of Michigan Abstract In just a span of 5 years, the urban community of the Midwestern states stood witness to a global food crisis, a brutal economic calamity and a warming planet. The rise of urban agriculture in the wake of these events is no coincidence: urban agriculture reflects the enthusiastic spirit of people who are tapping into the environment to address the socio-economic issues that confront them. A perfect blend of four major events— the steady rise in urbanization, the decreasing number of farms in the Midwest, the soaring domestic food prices and the economic recession of 2008—has brought momentum to the urban agriculture movement. Urban agriculture is defined as “an industry located within (intra-urban) or on the fringe (peri-urban) of a town, an urban centre, a city or metropolis, which grows or raises, processes and distributes a diversity of food and non-food products, reusing mainly human and material resources, products and services found in and around that urban area, and in turn supplying human and material resources, products and services largely to that urban area.” Due to its distinctive benefits, urban agriculture is worth the attention of state and local government, to which the following policy recommendations are addressed. Mindful of the current economic climate, the policy recommendations that are proposed in this paper involve moderate to little financial resources; the policies favor utilizing current and existing channels of execution instead of creating a complex web of bureaucracies. Importantly, urban agriculture needs to be viewed not just as a temporary relief for our existing pains, but rather as revolutionary concept that will redefine the way we lead our lives in the setting of an urban jungle. Urban Agriculture Under the Spotlight Though it is imperative to note that these categories may overlap, urban growers can be into three broad (but not exclusive) categories: backyard gardeners, community gardeners and commercial growers. A) Urban Backyard Gardeners Many of these urban backyard gardeners are hobbyists who enjoy growing their own food supply to supplement their daily diets with seasonal harvest. Plants and vegetables are usually planted in small pots and containers in their private gardens.

B) Urban Community Gardeners This term commonly refers to urban growers who grow their produce on land that has been specifically divided into smaller lots for each household’s use. There are instances where community gardeners share the garden lots and the fresh produce that is grown there. Excess food may be sold for profit or distributed for free to welfare centers. C) Urban Agriculture Commercial Growers As the name suggests, these growers produce fresh produce specifically for commercial purposes. Usually grown in the sub-urban area or in the urban city, the fresh produce are usually sold and distributed to the nearby restaurants and grocery stores. Challenges in the Status Quo Before delving deeper into the policy recommendation for urban agriculture, it is imperative for one to understand the challenges that have precipitated its growth. These are the four contentious problems that will be addressed by urban agriculture: Steady Increase in Urbanization and Inequality Since 1780, the expontential growth of urban population has led to the construction of sky-scrappers to house the increasing population. Specifically in the Midwestern states, urban dwellings continue to grow both in population and size.

Figure 1: United States’ Urban Population from 1750 to 2000

Inequitable development in terms of economic success gave rise to slums within close proximities to these cities, leading to a whole range of socio-economic challenges such as urban poverty. This, contributed

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to the mushrooming of homeless shelters and community members who rely on public assistance to sustain themselves. This widening gap between the “haves” and the “have-nots” has divided the urban community. Urban agriculture provides an opportunity to integrate disadvantaged segments of the population back into the working community. Diminishing Number of Farms As cities grew bigger and more successful, more land was allocated for industrial and commercial purposes, pushing agricultural based economies into the rural and outskirt areas. As a result of this systematic rejection, daily food supplies for urban communities originate from miles away. A new research sponsored by the LaSalle Bank labeled Detroit City as a “food-desert”: 550,000 residents would have to travel twice as far to reach the nearest mainstream grocery store rather than the nearestfastfood outlets. Via monetary instruments or protectionist trade measures, the US agricultural industry receives a large amount of support from the government to help against imports of developing countries. To exacerbate the situation, technological advancement in the USA has caused the agricultural industry to produce more food supply than what is demanded by the local community. It leads to the flooding of the market with unwanted supply of excess food, driving the market price down and making the industry hugely unprofitable. Thus, despite subsidies, some business owners have decided to scale back their business and venture into more profitable business dealings. This has led to a decline in the agricultural supplies in the market, causing a reduction in the food supply. Prices have increased, causing the urban community to feel uneasy about their food security. Number of Farms in the Mid-West Year 1997

Year 2002

Michigan

53,519

53,315

Illinois

79,112

73,027

Indiana

66,707

60,296

Iowa

96,705

90,655

Kansas

65,476

64,414

Minnesota

78,755

80,839

Missouri

110,986

106,797

Nebraska

54,539

49,355

North Dakota

32,348

30,619

South Dakota

33,191

31,736

Ohio

78,737

77,797

Wisconsin

79,541

77,131

Urban agriculture provides a means for consumers to have a sense of control over the produce that arrives on their dinner table every night. Global Food Crisis Circa 2005 and 2006, the world was confounded with a drastic hike of global food prices that sent ripples of panic across the globe. One of the main reasons was the drastic increase in the oil prices that raised the cost of food transportation. As stated previously, a huge portion of urban communities’ food sources are obtained from rural communities. An escalation of the global oil prices caused a rise in transportation and distribution costs.

Figure 2: Food Price Index from April 2007 to April 2008

During the span of just one year, from March 2007 to March 2008, the price of wheat shot up 130 percent and rice by 74 percent. With rice as the staple food in most Asian nations and wheat in high demand in Midwestern states, this ignited a chain reaction raised domestic food prices.

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Figure 3: Price Increase from March 2007 to March 2008

Urban agriculture would provide an alternative to the current food production system that would provide communities with fresh supplies at competitive prices. Economic Recession of 2008 Though subdued effects of a recession has been felt by the American community since the late 2006, the National Bureau of Economic Research only declared a recession in early December of 2008. The economy in the Midwest was badly affected. On the January 27th, 2009, the Bureau of Labor Statistics reported that the unemployment rate in Midwestern states rose 0.6 percent since November 2009. A loss of 59,000 jobs in Michigan and 36,000 jobs in Illinois made them two of the worst performing states in these difficult times. With a rippling wave of foreclosures throughout the cities in the Midwest, the socio-economic dynamics of these urban settings are changing. Cities and neighborhoods that were once buzzing with activities are turning into slums. A huge economic burden is exerted on welfare centers as they face both a slash in their endowment and huge increases in the turnout of citizens prying for help. The current recession creates enormous obstacles for centers to purchase enough food for an increasing number of people. The situation makes urban agriculture a viable solution: with the assistance of relevant organizations, community members who are dependent on a welfare program can mobilize to help plant their own produce. According to the Detroit Agricultural Network, more than 40 community gardens working with churches, food banks, and homeless groups have distributed more than six tons of produce in a given year. Policy Recommendations: Where Do We Go From Here? Currently, the economic recession has depleted most of the state and local government’s financial resources. In 2009, Illinois is expected to see a reduction in its base revenues by 1.9 percent; Wisconsin is missing its Year 2009-2011 budget projection by $3.5 billion and Indiana is projected to collect $721 million less in taxes than it has projected. The policy recommendations presented here have factored that into the equation, favoring the use of existing instruments of execution at the state and local level—such as prevailing agencies, department and legislation etc.—instead of the creation of new programs. A) State Level The executive branch should first take a stance in encouraging urban agriculture. The state has to send a message that it is willing to invest in and ensure the success of its urban agricultural policies. To create political momentum and grow the movement, Midwestern states should

declare least one day per month as the “Buy Local Produce” day. For example, the Michigan House of Representatives named the 18th of September 2008 as the 4th “Buy Fresh, Buy Local – Select Michigan Day”. On that day, a selected number of local urban producers were invited to the set up their stalls in front of the state assembly. Wide media coverage ensured that this event would not go unnoticed. State and Education Public schools can also promote the spread of urban agriculture. State government should work closely with the school administration to encourage the creation of a plot of school land for gardening purposes. Students should be given the responsibility for the nurturing of the land. Not only would this expose the students to idiosyncrasies of gardening, it would also establish a sense of ownership of their surroundings. Fresh produce from that plot of land could be used as the supplies for that school’s cafeteria. This would ensure that the students receive fresh and healthy produce. Public schools should also invite parents to play an active role in nurturing the garden. This could range from parents partaking in planting the fresh produce to parents supplying seeds and organic fertilizers for the garden. Besides yielding a closer interaction between the school and the parents, such policy could subtly shape the parent’s perception on urban agriculture as a whole. State universities could be encouraged to organize talks and academic subjects that would promote an awareness and discussion of urban agriculture among its community. Local business owners and NGOs related to urban agriculture could be invited to share their experiences with students at the university. University career centers can promote internships at local urban agricultural businesses sites and market it as a unique experience especially relevant to the Midwest. A Public-Private Venture From a financial standpoint, the lack of start-up capital is usually an obstacle to the growth of urban agriculture. This is particularly true for large-scale urban farms. The state could set up a lottery system for entrepreneurs who are in need of capital, without directly raising taxes.1 The lottery would come in an interest free loan that would only be paid by installments after two years of the business’ inception. With this, the entrepreneur would be provided sufficient time to grow his or her business without having to worry about capital repayments. To achieve the maximum effect for the money invested, this lottery would only be eligible to entrepreneurs who intend to set up large-scale urban farms.2 The creation of this lottery system would encourage more entrepreneurs to consider urban agriculture as a potentially lucrative business. Besides that, the state government should adopt an active stance in

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bringing the private sector into the picture. State governments should persuade local banks to provide micro financing to entrepreneurs who need the fiscal capital to jump start urban agriculture. This would not only encourage cooperation between the private and the public sector, but also help deal with a core problem of the recession: unfreezing the credit market. Since, relative to the investment demanded by other ventures, the start-up cost of urban agriculture isn’t huge and the market for it is stable, most local banks might be more willing to restart the issuing of credit to the community. To encourage public-private cooperation, the concept of Corporate Social Responsibility should be tapped. In the city of Detroit, for instance, an organization named “Urban Farming” works hand-in-hand with multinational companies such as Starbucks and Home Depot to plant fresh produce at unused land that will later be delivered to the existing welfare centers. Building Urban Agriculture The state should mandate that developers allocate a certain size of land for the purpose of urban agriculture. The size of the land should be proportional to the number of residences projected by the developer. Additionally, the type of residential homes should also be taken into account. For example, high-rise residential buildings should be allocated a larger portion of land compared to terrace houses, which have backyard gardens. Plots need not be large to yield satisfactory results. In a 130day moderate growing season, a 10x10 plot of land could yield a year worth of household vegetable needs. These lands may not be converted for alternative purposes without the approval of the local government. Such policy would provide each residence the chance to practice urban agriculture. State legislatures should also enact laws that enforce the practicing of urban agriculture on rooftops. This applies both for residential and commercial buildings. Such policy has already been implemented in some European nations such as Switzerland and parts of Germany. This policy is particularly useful for promoting urban agriculture in regions that are facing a scarcity of allotments for plots. For commercial buildings, the developers would be responsible to ensure that vacant rooftops are converted into patches of small gardens; in residential zones, displacement of green space would be transferred to the roof. B) Local Government Land for Urban Agriculture To hit the ground running, the local government can first temporarily convert unused and vacant public lands3 within its jurisdiction into urban agriculture zones until other uses are proposed. Vacant public lands that are within the residential zones should be released to the residents

for this purpose, for a period long enough to produce at least one cycle of food, with little or no cost. In the absence of alternative investments, local governments should lease vacant non-residential public lands to the public on a long-term basis. To provide more incentives to the public, any for-profit urban agriculture activity would be tax exempted. For example, in the year 2000, the Chicago local government allowed Ken Dunn to establish City Farm, in the Cabrini Green neighborhood for no charge as an effort to capitalize on unused land to generate jobs and fresh produces for the community. From an abandoned land, City Farm yielded $60,000 in produce sales in year 2007. To ensure self-sustainability, local governments can pursue a rigorous Community Supported Agriculture (CSA) strategy. A CSA farm is a combined effort between a farm and a community of supporters (shareholders or members) that creates a direct relationship between the production and consumption of food. Basically, each shareholder would pay a fee necessary for the farm to function by purchasing a “share” of the season’s yield. More often than not, this fee covers all the necessary operating costs. This policy would reduce the obstacles in obtaining capital and ensuring the area’s food security. Food security isn’t just focused on food sufficiency but also the nutritional quality of the produce. An unbalanced diet would have sweeping long-term consequences towards the declining quality of life of the urban community. These days, the agricultural produces consumed by the urban communities are often transported from far away places and thus a wide range of pesticides and preservatives are used to prolong the freshness of the food. Due to its close proximity to the city, urban agriculture would not require the excessive use of preservatives and pesticides. Local governments should embark on an extensive and detailed mapping of both public and private derelict allotments in its vicinity. Such information should be uploaded into the local government’s website for public view. This website could serve as a platform to help the community members who are in the pursuit of derelict allotments for urban agricultural purposes. Farmer’s Markets Urban agriculture wouldn’t reach its optimum potential if urban growers weren’t provided an avenue to market their fresh produce to the public. The local government can designate an avenue as a “Local Fresh Produce Market” or a “Farmer’s Market.” This would enable the urban growers to market their products directly to the consumers. Not only would this ensure critical interaction among the consumers and producers, it would also remove the need for a middleman who will market the fresh produc-

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es in behalf of the producers. This would prevent unnecessary inflation in the prices of fresh produce and also bring about the reduction of food distribution cost. On the part of the consumers, they would not need to travel miles just to obtain fresh food supplies. Education Since the local government is the closet form of government to the people, it should seize this advantage by working with the relevant parties to organize local workshops that could act as means to disseminate the necessary skills and knowledge to the public. Alternative form of urban agriculture such as hydroponics and aeroponics could also be taught to the public. Additionally,, these workshops could be used as a forum for interaction between the people and their elected officials. For example, Hawkesbury Harvest at the McMaster Family Centre in Toledo invited David Mason, a Churchill Fellow who specializes in urban agriculture, to deliver a talk. This event drew a crowd of 40, including Congresswoman Marcie Kaptur. In these public workshops, the local government with the local business owners can distribute vegetable seeds and organic fertilizers for free. This would further encourage those reluctant and indifferent community members to wet their feet in this arena. Conclusion This article attempts to provide a holistic spotlight on a growing phenomenon that deserves more attention than it now receives: urban agriculture. It is a simple yet practical solution to a variegated problem. All it needs is for relevant stakeholders to get on their feet, roll up their sleeves and get to work. Notes This article acknowledges that there are some subsets of the community that regard the lottery system as an indirect taxation on the public. There has not been a consensus on this issue 2 The approximate average vegetable urban farm is 2.5ha and average fruit farm is 1 ha (Food Train 2006). Since there is an absence of a universal measurement, large-scale urban farms are regarded as more than 2.5ha for vegetables and more than 1 ha for fruits. 3 The definition of abandoned buildings varies from one municipal to another. Some cities regard a building abandoned if it has been unoccupied from 60 days or more. In the US, there is no formal or standardized definition of vacant land. 1

Sources BCC, Bloomberg, UN Food and Agriculture Organization . Global Issues. 2008. http:// www.globalissues.org/article/758/global-food-crisis-2008 (accessed January 30, 2009). Bellows, Anne C. “Health Benefits of Urban Agriculture.” Community Food Security Coalition’s North American Initiative on Urban Agriculture, 2. Bowman, Michael A. Pagano and Ann O’M. Vacant Land in Cities: An Urban Resource. 2, Center on Urban & Metropolitan Policy, The Brookings Institution, The Brookings Institution, December , 2. Brophy, Mary. City Farm grows jobs, knowledge and tomatoes. August 2008, 2008. http://www.chitowndailynews.org/Culture/City_Farm_grows_jobs_knowledge_and_tomatoes,15388 (accessed January 16, 2009). Brown, Katherine H. Urban Agriculture and Community Food Security in the United

States: Farming from the City Center To the Urban Fringe. Urban Agriculture Committee of the Community Food Security Coalition, Urban Agriculture Committee of the Community Food Security Coalition, 2002, 11. Bureau of Labor Statistics. Regional and State Employment and Unemployment Summary. January 29, 2009. http://www.bls.gov/news.release/laus.nr0.htm (accessed January 30, 2009). Environment Committee. A Lot to Lose: London’s disappearing allotments. Greater London Authority , 2006, 2. Food Train. Eat The City: Models Of Urban Agriculture & Their Relevance To Milton Keynes. 2006. (accessed February 22, 2009). Hansen, Alicia. Don’t bet N.C. tax system on the lottery. Tax Foundation. November 17, 2004. http://www.taxfoundation.org/news/show/91.html (accessed February 25, 2009). Mason, David. “Urban Agriculture.” The Winston Churchill Memorial Trust of Australia, 2006, 7. Michigan Food Farming Systems -MIFFS. MIFFS Newsletter. September 15, 2008. http:// www.miffs.org/news34.asp (accessed January 18, 2009). National Resources Inventory, the Census of Agriculture and Farmland Information Center. Farmland Information Center Statistics. 2006. http://www.farmlandinfo.org/ agricultural_statistics/?RequestTimeout=999 (accessed January 19, 2009). Petra Jacobi, Axel W. Drescher and Jörg Amend. Urban Agriculture - Justification and Planning Guidelines. City Farmer. May 2000. Urban Agriculture - Justification and Planning Guidelines (accessed February 1, 2009). State Of Michigan Office of the Governor. The Importance of Michigan’s Cities. 2008. http://www.michigan.gov/documents/gov/Cities_223198_7.pdf (accessed February 1, 2009). Testa, Bill. The Economic View from the State Budget Trenches. December 22, 2008. http://midwest.chicagofedblogs.org/archives/2008/12/mattoon.html (accessed February 25, 2009). The Weekly Journal of Rural America. Detroit Urban Agriculture. Iowa Public Television. July 9, 2004. http://www.iptv.org/mtom/archivedfeature.cfm?Fid=249 (accessed February 25, 2009). UN Food and Agriculture Organization. Global Issues. 2008. http://www.globalissues. org/article/758/global-food-crisis-2008 (accessed January 30, 2009). Urban Farming. Urban Farming. http://www.urbanfarming.org/ (accessed January 18, 2009). US Government Census. Population: 1790 to 1990. http://www.census.gov/population/censusdata/table-4.pdf (accessed January 17, 2009).

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Feed-In-Tariffs in Michigan

and

State Level Implementation

J. Cory Connolly, Michigan State University The Midwestern region of the United States has the opportunity to set an example for the country and make a concerted shift toward environmentally sustainable practices. Within this region, Michigan specifically has much to gain from this environmental movement. The automotive industry is faltering and simultaneously, notions of the inexhaustibility of the environment are shifting. A shift toward renewable energy production could rejuvenate the economy and simultaneously maintain the natural resources that are so integral to Michigan culturally, recreationally, and aesthetically. The most effective way to drive growth in renewable energies is through renewable energy feed-in-tariffs. The state of Michigan has already begun investing in renewable energy technology. In 2008 the State of Michigan passed a Renewable Portfolio Standard (RPS) mandating that utilities obtain 10 percent of their energy from renewable sources by 2015. In addition to this Michigan is undertaking a new net-metering policy, which is meant to allow small consumers to produce their own energy from renewable sources. These policies should serve as stepping-stones toward more ambitious policy toward renewable energies in the state. To become a leader in renewable energy consumption (and eventually production) the state must stimulate a demand for renewable energy. Michigan should pursue feed-in-tariff (FIT) policies, which will guarantee that small energy consumers effectively become energy producers. Feed-in-tariffs mandate a set price per kilowatt-hour that utility companies must pay consumers for the energy that they generate. The price per kilowatt must be high enough to increase investment in renewable energy, as this investment will lead to actual profit. In this way, FITs can provide major incentives for disaggregated renewable energy production. This increased production of energy from renewable sources will create a market for renewable energy manufacturing in Michigan, increase the amount of energy we receive from renewable sources, and allow consumers to make a profit off of energy production. In order to make this policy a reality, Michigan must pursue a modified version of feed-in-tariffs, which take into account consumer and utility company opposition. The initial investment in renewable energy is extremely large; for example, a wind turbine project has an initial investment accounts for approximately 80 percent of the overall costs. This start up cost makes the investment in renewable energies unattractive, particularly for small producers. With this in mind it is imperative to develop policies that can ensure a secure investment and a profit for eligible electric generators

(EEG). The most successful policy in achieving this end has been the European model of the feed-in-tariffs (FITs); however, such a model is not necessarily directly transferable to the United States. Renewable energy FITs are essential to the growth of the markets and use of renewable energies, but adjustments must be made on a state-by-state basis. Feed-in-tariffs bind utility companies to purchase energy produced from renewable energies at a rate higher than the market rate. FITs guarantee access to the electric grid – or the complex of transmission and distribution lines which utilities use to transfer energy to consumers – for small producers . The tariff is the price per kilowatt guaranteed to the producer, usually for 20 years. This rate makes investment in renewable energies profitable for communities and homeowners. FITs have evolved to incorporate a wider range of sources of energy and EEGs. As a general rule FITs include differential prices based on technology—meaning that the price guaranteed for wind energy is different than that for solar, biomass, and other renewable sources. More controversially, recent policies have included differential rates based on the project size and energy source, a policy that more readily includes all potential generators by making all investments possible. An example of such a policy is given with wind energy; if an eligible electric generator erects a wind turbine at their home, but has very low wind resources they will receive more money per kilowatt hour (kwh) than a wind turbine in a windy area—under this system both projects would be profitable. The tariffs paid to the EEGs are spread across the entire consumer base, making the average cost per person minimal. FITs are the most effective tool for the development of the U.S. as a world leader in green technology and environmental protection, yet they remain predominantly unknown within the US. Renewable Energy in the United States Currently the predominant policy mechanism in the United States is the Renewable Portfolio Standard (RPS), which has currently been passed in 32 states and a similar standard has been passed in Michigan . The RPS technique mandates that a certain percentage of energy be from renewable sources by a certain date; for instance California has targeted 20 percent from renewable sources by 2010. A policy tool often implemented in tandem with the RPS is net-metering; a policy intended to allow small consumers to produce their own energy from renewable sources. Net-metering can be understood through three basic principles. First is interconnection, which guarantees access to the electric grid via the utility company. Second is credit, which provides credits at avoided cost for EEGs. The utility company is required to credit individual consumers for the excess energy that they produce from renewable energy sources. For example, if a household erects a turbine and produces more energy than it consumes in one month, the

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household is credited the net amount of energy. This effectively reverses the meter so that it is affordable for entities such as households, businesses, farms, and other small disaggregated consumers to produce their own renewable energy. Third, net-metering is intended to offset energy costs, not entitle disaggregated energy sources a profit. Those taking part in the net-metering program are meant to account for their energy consumption Net-metering is a common technique throughout the United States and while a positive step, net-metering cannot encourage the level of renewable energy production that the United States needs. Net-metering is intended to provide the option for eligible electric generators, but is not meant to stimulate extraordinary growth in the industry. A FIT is intended to rapidly increase energy generated from renewable sources. The best way to do this is to make investment in renewable energy profitable. In the United States feed-in-tariffs appear to be a foreign concept to many. While FIT legislation receives intense opposition from consumers who fear higher prices and from utilities who oppose the set prices that feed-in-tariffs mandate, the concept is not actually foreign at all. In 1978 the United States enacted PURPA (Public Utilities Regulatory Policies Act) which guaranteed that utilities would buy back energy production. US progress in this field had, seemingly stagnated but in recent years discussion of FITs is intensifying on both the state and national level. In the United States six states (including Michigan) have proposed FIT legislation, while seven others have considered this type of mechanism. In 2008 a national feed-in-tariff bill was introduced in the United States known as a performance-based incentive (PBI). The type of progress that is occurring nationally will be encouraging to Michigan legislators and make the policy a more acceptable prospect for consumers and utility companies as the policy becomes more understood. The United States has made progress in proposing this legislation, but Europe – particularly Germany – has proven that this strategy successful. The German Model The FIT is most popular in Europe, successfully enhancing—most notably—the renewable industries of France, Spain, Denmark, and Germany. FIT has made Germany the world leader in wind and solar energy. Germany is reducing emissions by approximately 100 million tons of CO2 annually . Germany met its goal of obtaining 12.5 percent of its national energy from renewable sources three years ahead of schedule. Feed-intariffs have led to 2,500 MW of on-site solar capacity and 20,000 MW of wind capacity. The increased production in photovoltaic technologies and wind turbines, 2,500 MW and 20,000 MW respectively, has jumpstarted the German economy providing nearly a quarter million jobs. Germany, it must be noted, possesses wind speeds and solar capabilities that are comparable to Michigan’s.

In addition to the basic FIT policies outlined earlier, Germany also employs a mechanism called price digression. This policy means that the guaranteed price paid to consumers is decreased each year which encourages immediate investment and long term innovation. Germany has demonstrated that renewable energies can be profitable and can stimulate drastic economic growth; a lesson that Michigan and the opposition to feed-in-tariffs within the state should acknowledge. Opposition to Feed-in-Tariffs In Michigan there are two main groups of opposition to FITs; consumers who believe that the program is too expensive, and the utility companies which oppose a variety of aspects of this type of mechanism. Feed-in tariffs have been identified as the most effective and most expensive renewable energy investment stimulus. FITs cost more and since energy has a low elasticity, consumers are duly concerned when energy prices rise. While it is expensive the cost increase is not outrageous, amounting to an estimated $0.01 per Kwh. In Germany the cost per household amounted to about $1.80 per month—approximately $22.00 per year. This is a small price for the environmental, social, health, and economic benefits that the entire consumer base will receive with FIT policies. FIT is virtually untested in the US, making its success uncertain and creating opposition. If net-metering policies are successful in various states, the opposition to FIT will diminish as the demand for renewable energy is demonstrated. The second major group of opposition is the utility companies. On the state level, utility companies have a regulated vertical monopoly on the electricity market, meaning that the utility companies control each level of the electricity production process. There are three major levels to the electric energy industry in the United States; generation, transmission, and distribution. Generation, is the source of the energy whether a wind turbine or a coal plant. Transmission is the transport of the generated energy in mass quantities of high voltage and requires specific types of transmission lines. Distribution requires that the electricity is reduced to lower voltages and transported along a distribution line directly to businesses, households, and other various consumers. Most critically and obstructively is the fact that utility companies in the United States control the generation, transmission, and distribution of energy in its specific region making them naturally opposed to any form of competition. Under FIT legislation an EEG can connect to the electric grid and is guaranteed a price from the utility company, but this price does not account for the cost of transmission, or distribution of energy. Approximately 45 percent of energy costs are non-generation costs, but the eligible electric generators pay for these services with part of the profit, which they receive from FIT.

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Utility companies are also against purchasing energy from EEGs because renewable energy is often most abundant when it is not necessary. For instance, the windiest days are often at times when energy demand is lowest, like at night and in the winter. This problem can be addressed by varying the rate based on peak time and non-peak time on the electric grid (which can be done through advanced meters). This type of a policy has been proposed in California and could be effective in other situations. Increased demands on infrastructure and the potential costs of upgrades are also major points of contention for utilities. However, these arguments are a façade since much of the infrastructure is already being replaced, such as meters. FITs require advanced meters which are devices that measure energy flowing in both directions; from the grid and to the grid. New meters are already being implemented in many cases and the claim that this will cost extra money is only true if the new meters that are installed are not advanced meters. Utility companies also assert that the increased number of energy sources will require new transmission and distribution lines and will overload the existing infrastructure. While a valid concern, renewable energy sources will not cause an overload in transmission lines and should not disrupt existing infrastructure. Renewable energy by nature is disaggregated throughout the distribution and transmission regions. In fact the dispersal of renewable energy sources may actually enhance the grid by limiting line loss. Line loss is the loss of energy as it is transmitted in high voltages from one location to another. The long distance transmission of these renewable energy sources would not be necessary and would potentially make the electric grid more efficient. Pragmatic Model: A Revised Model for Michigan Currently in Michigan changes in renewable energy policies are taking place. Michigan has recently passed a net-metering bill and RPS. The implementation of RPS and FITs are not mutually exclusive, and can be complementary. Additionally net-metering can be used as a stepping stone toward FIT; the potential success of the net-metering program could spell future successes for FIT legislation and ease the public and utility opposition. Michigan has been one of the most progressive states in pursuing FIT policies. House Bill 5218 currently models the German style including differentiated rates based on technology and based on the productivity of the individual operations. If this bill is passed it promises to be effective; however, a more pragmatic approach is required to achieve political support and to appease some of the legitimate concerns of utility companies. Michigan can be looked at as a model for state level implementation of FITs.

Michigan Feed-in-tariff Policy Recommendations In addition to the classical model for feed-in-tariffs laid out earlier, Michigan should take the following steps to appease opposition and stimulate growrth in renewable energy: 1. Mandate for Advanced Meters: this policy should be implemented as soon as possible because advanced meters are essential to both FIT and net-metering. 2. Time-based metering: Prices for renewable energies should vary in relation to peak or non-peak hours of consumption. This policy can only be implemented through advanced meters. This has been proposed in California as a way to best appease utility companies’ concerns. 3. Project size limit: A limit of 20 MW must be set on individual projects. This is to prevent monopolies on such energies, to ensure that the sources of energy are disaggregated, and also to prevent large companies from other states taking over Michigan’s renewable energy industry. 4. No upper limit on total amount of electricity from renewable energies: This will encourage increased renewable energy generation and encourage all to invest. This is a clear issue in regard to the current legislation in Michigan. If there is an upper limit set on energy production this will diminish the effectiveness of the feed-in-tariff, since it is meant to maximize production of renewable energy. 5. Digression of tariffs: Each year that a person waits to enter the system the tariff should decrease. This policy will be critical in Michigan and the United States; because currently the investor climate is weak. This policy causes immediate growth because there is incentive to invest now. This also leads to innovation in the industry because renewable energy technologies must compensate for the decreased rate. This is important because it will lead to the eventual easement off of FITs and allow renewable energies to be competitive in the long run. These policy options would enhance Michigan’s foundation on FITs making it more pragmatic, accounting for concerns from utility companies and the current economic crisis that grips the United States. If Michigan can achieve a feed-in-tariff the production of renewable energy could create jobs for installation, manufacturing, and improve environmental standards. Feed-in-tariffs and these six recommendations should not be seen as a replacement for the recently passed RPS. These policy recommendations can be used as a means of achieving and eventually surpassing the 10 percent requirement. Conclusion Renewable energy feed-in-tariffs have proven to be the most effective policy at stimulating rapid growth in renewable energies in other countries and little prevents that from being the case in Michigan. FITs stimu-

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lates disaggregated production, innovation, economic growth, environmental quality, and preservation of natural resources. While relatively expensive the benefits far outweigh the costs—particularly considering the economic benefit that a state economy could receive through job creation and a new economic market. Outlined above is an example of state policy that advocates the use of FITs while attempting to appease the opposition. It is essential that Michigan policymakers build on former energy accomplishments such as RPS or net-metering policies to move toward a FIT based future. Feed-in-tariffs are invaluable for the future growth of the renewable energy sector in the United States and serve as an effective vehicle for economic and environmental progress. Michigan has been behind the curve economically for years and continues to be hit hard as the economic crisis in the United States grows. This is an opportunity for Michigan to be an innovator once again. If Michigan’s goal is to promote renewable energy then the implementation of renewable energy feed-in-tariffs is essential. By adopting a comprehensive FIT policy that will benefit both the environment and the economy, Michigan can establish a foothold in renewable energy production and manufacturing—and growth that could curtail Michigan’s economic woes. Sources “Distributed Energy Program: Electricity Grid - How the Grid Works.” U.S. DOE Energy Efficiency and Renewable Energy (EERE) Home Page. 19 Feb. 2009 . “Renewable Portfolio Standards Fact Sheet.” Combined Heat and Power Partnership. 15 Oct. 2008. US Environmental Protection Agency. 24 Nov. 2008 . Blue, Dan et al. “Michigan Wind Energy Assessment & Future Policy Implications.” Roosevelt Institution: Great Stakes for The Great Lakes (2008): 13-21. Gipe, Paul. “Electricity Feed Laws.” Wind Works. 24 Nov. 2008 . Hoexter, Michael. “Feed-In-Tariffs: Getting of the Renewables Roller Coster.” Renewable Energy World. 27 Feb. 2008. Californians for a Feed-in Tariff Working Group. 24 Nov. 2008 . Macendonca, Miguel. “Energy, Ethics and Feed-In-Tariffs.” Renewable Energy World. 30 Apr. 2007. World Future Council. 24 Nov. 2008 . Maedl, Marcus. “The German FIT for Renewable Energy -- A Bargain!” 14 Apr. 2008. 24 Nov. 2008 . New Rules Project - Designing Rules As If Community Matters. 19 Feb. 2009 . Proudfoot, Paul. Michigan’s New Energy Legislation. 2008. Michigan Public Service Commission. 5 Feb. 2009 . Rickerson, Wilson, James Bradbury, and Florian Beenhold. “The Outlook for Feed-in Tariffs in the United States of America.” World Wind Energy Conference (2008). Sterzinger, George, and Matt Svrcek, comps. Wind Turbine Development: Location of Manufacturing Activity. Sept. 2004. Renewable Energy Policy Project. 30 Mar. 2008 .

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therooseveltinstitution

new leadership through progressive policy

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