Why We Need the Zero Carbon Renovation Fund ("ZCRF")

By Paul Dale 

Buildings are the second largest source of greenhouse gas (GHG) emissions in Massachusetts, responsible for 35% of statewide emissions in 2020. “Given the complexity and diversity of the Massachusetts buildings sector, a reduction of 47% by 2030 represents a dramatic and rapid transition, well beyond anything experienced in the sector to date. The Commonwealth anticipates that achieving this reduction will require an additional 500,000 residential homes and roughly 300 million square feet of commercial buildings to utilize energy efficient electric heating by 2030.” This transition has started but will not be linear.  The dramatic ramp up required in the years ahead will require enormous capital and robust and accessible financing options. Climate Chief Melissa Hoffer writes, “Over the next three decades, the investment required to achieve economy-wide decarbonization in the Commonwealth will be substantial.”

The Zero Carbon Renovation Fund (ZCRF) is a key piece of the funding puzzle. This is a proposal in front of the Massachusetts legislature ( S.2365 / H.3232) that would create a grant program with initial funding of $300 million for building efficiency and electrification with a focus on low income housing and municipal buildings such as schools. 

There are other bills and programs that also strive to address the very large challenge of getting our existing buildings off of fossil fuels. At first glance they may seem to be duplicating each other, but this is not the case – each one complements the others. As an example, the ZCRF complements, not duplicates, the MA Community Climate Bank that Gov. Healey announced in July (the “Climate Bank”). This blog post shows why the ZCRF is distinct from other bills and programs and is key to achieving building decarbonization.

The ZCRF. This fund is intended to jumpstart the market for zero carbon renovations in existing buildings.  It sets aside $300 million from the state’s remaining federal COVID-19 relief funds (under the federal ARPA program) to provide grants to retrofit existing buildings, prioritizing affordable housing, public housing, homes rented or owned by low- and moderate- income households, municipal buildings such as public schools and BIPOC and women businesses, and buildings located in Environmental Justice communities. Funds can be used to cover energy efficiency measures, electric hot water and cooking, heat pumps, on-site solar PV and the use of low-embodied carbon materials.

The ZCRF is to be administered by the Massachusetts Clean Energy Center (MassCEC). The bill has wide support from 194 organizations, 65 House sponsors and 25 Senate sponsors. 

The Low- and Moderate-Income Housing Decarbonization Grant Program (“Decarb Program”). Governor Healey created this program in February 2023 with $50 million in initial funding. Like the ZCRF it is a grant program that will fund decarbonization retrofits of existing low- or moderate-income residential buildings as a first step in the Administration’s commitment to support the electrification of buildings and prioritize the people most deeply impacted by fossil fuels. Compared to ZCRF it:

  • Has a narrower scope.  It is limited to decarbonization retrofits of existing low- or moderate-income residential buildings only.
  • Will be administered by the Dept. of Energy Resources (DOER), not MassCEC.
  • Has significantly less funding ($50 million) than the proposed $300 million in ZCRF.
  • Is funded differently. $25 million is from DOER’s receipts of Alternative Compliance Payments.  $18.5 million is from the Massachusetts Department of Environmental Protection (DEP) Climate Protection and Mitigation Trust and just the final $6.5 million is from the American Rescue Plan Act (ARPA).

The Decarb Program and ZCRF complement each other because:

  • In the challenge to decarbonize as much building stock as possible as quickly as possible we should tap all available funding sources.
  • The Decarb Program is accepting grant applications now. As such it leads the way and can provide early guidance to the broader, larger ZCRF program administration when it becomes a reality.

The Massachusetts Community Climate Bank (the Climate Bank). In June 2023 Governor Healey created a climate bank focused on affordable housing with $50 million in seed funding. “Generally speaking, a green bank provides a better deal for borrowers than the market would otherwise offer. The goal is to help borrowers afford to build certain types of projects — fossil fuel-free affordable housing, for example — or nudge them to do so. … This could mean offering loans with low-interest rates and long repayment periods. It could mean financing projects that other lending institutions might consider too risky. Or it could mean assuming liability if a borrower can’t pay back the money.”

A primary goal is to attract private sector capital and federal funds available under the Inflation Reduction Act to finance building retrofits aligned with the state’s long-term climate objectives and new construction of decarbonized buildings. “The state is “seeding” the bank with $50 million from the [DEP], which … puts it in a good position to apply for millions more from the federal government.”

The Climate Bank seeks to leverage its funding by lending directly to building owners and by attracting and de-risking lending and investment by private lenders through innovative finance products. “The Connecticut Green Bank has been able to bring in about $7 of private money for every $1 of state money it puts up.”

The Climate Bank will be located within MassHousing

Compared to ZCRF, the Climate Bank:

  • Has the potential for a much larger impact toward achieving the Commonwealth’s building decarbonization goals by leveraging federal and private money. 
  • Does not provide grants. It lends money and seeks to eventually recover its money. This is a key difference. “Experts caution that even an accessible green bank is not a panacea to the state’s building decarbonization problems. It may help tackle a big portion of its housing and climate goals, “but it's an open question how much it will be able to impact the people who really just need free money,” said Caitlin Peale Sloan, the vice president of the Conservation Law Foundation in Massachusetts.”

PAYGO Capital Investment and Debt Reduction Fund. On Oct. 19 Governor Healey filed S.2482 An Act to provide for competitiveness and infrastructure investment in Massachusetts which sets up a fund for the purpose of providing the Commonwealth with the ability to readily provide matching funds as part of many proposals to the federal government as the administration aggressively pursues the historic levels of federal funds now available to Massachusetts through federal legislation including the Infrastructure Investment and Jobs Act (IIJA), the Inflation Reduction Act (IRA), and the CHIPSand Science Act (CHIPS). 

In S.2482 the Governor writes, “It is critical that Massachusetts submit competitive applications to leverage these once-in-a-generation federal resources. A ready pool of funding and the ability to rapidly deploy those resources when opportunities arise will make the difference in giving Massachusetts an edge over the competition. Showing the availability of match funds dramatically strengthens our applications for federal grants.”

The PAYGO Fund will receive the interest payments on the Stabilization Fund and will be administered by the Secretary of Administration and Finance. 

The potential uses of the Fund are very broad.  Yes, proposals to federal agencies related to building decarbonization may benefit from the availability of matching funds, but many other proposals (for infrastructure, resilience, etc.) may draw on the funds as well.

In essence, this is a proposal larger than the Green Bank to obtain federal funding. Depending on the federal proposals that the Commonwealth might have awarded it could lead to significantly increased funding for the programs discussed above. 

Inflation Reduction Act (IRA). President Biden's signature climate legislation will provide billions of dollars for weatherization and electrification to states across the country. To a significant degree, the IRA operates by offering tax credits that taxpayers can claim directly. In addition, Massachusetts expects around $145 million for the Home Efficiency Rebates Program and the Home Electrification and Appliance Rebates Program, only the latter of which takes income into account and is targeted at low- and moderate-income residents.. The Hoffer report estimates that the federal programs of “IIJA, CHIPS, IRA will contribute somewhere in the range of 8-30 percent required decarbonization spending, which means that around 70-90 percent will need to be financed by other means.” In addition to this funding gap, many benefits come in the form of tax credits, whichax credits are not meaningful to residents with little or no tax liability. and the Efficiency Rebates Program is not income based. By contrast, ZCRF prioritizes affordable housing, public housing and homes rented or owned by low- and moderate- income households and thus complements the IRA.

One Final Note – We Need a Clearinghouse. A core recommendation of the Commission on Clean Heat report is, “Additional programs, resources, and reforms, including reconstituting Mass Save under a new Building Decarbonization Clearinghouse, will be needed”. This is an insightful comment.  All of the above programs help advance our building decarbonization goals. However, as an individual or an entity seeking state assistance, where do you start? Where and how do you apply?  Each program has different requirements, and is administered by a different state agency (e.g. MassCEC, DOER, DEP, MassHousing). The financing products available at a Climate Bank can require significant expertise to understand and determine their applicability and desirability for a particular applicant. The Hoffer report has now officially announced that EEA is procuring a consultant in 2024 to create a clearinghouse. The clearinghouse must be effective in serving low-income and environmental justice families, streamline as many funding streams as possible, and provide transparency and accountability for its spending.

Summary. The Zero Carbon Renovation Fund deserves attention now, in this legislative session, because it provides direct assistance in the form of grants for those who have no other means of participating in the transition to clean, non-emitting, efficient buildings and leads Massachusetts and its workforce toward our clean energy transition.