It could dwarf the Cash for Clunkers program, but, according to its backers, taxpayers won't have to pick up the bill.

PaceNow has launched an effort to popularize PACE – or property assessed clean energy – loans for retrofitting homes and commercial buildings. Unlike conventional loans, the money gets paid back through supplemental property tax assessments, a twist that provides a host of benefits.

Fifteen states including Florida, Texas and Maryland as well as 30 municipalities have already passed PACE programs. Berkeley, Calif. became the first governmental body to issue PACE bonds in January. The House and Senate included provisions inside their versions of Waxman-Markey that would permit the federal government to guarantee the bonds, which would enhance their marketability. If the complete bill fails, the housing provisions along with other sections popular on both sides of the aisles could be segmented into a separate bill. (PaceNow was created by UC Berkeley professor Dan Kammen and Cisco DeVries, an expert on alternative energy financing.) But if the federal government passes pending proposals to guarantee PACE bonds, the market could cause consumer demand to explode.

"With a federal guarantee it grow from a hundreds of millions to a $400 to $500 billion program," said Jack Hidary, who runs the Jack D. Hidary Foundation, one of the several organizations associated with Pace, and one of the drivers behind the car trade-in law. "It can also help the 1.5 million people out of work in the construction industry."

Once a national program is established in the states, PaceNow wants to take it overseas.

Perhaps the key selling point about PACE programs is that they satisfy different constituencies. Homeowners, for one, get a fairly inexpensive source of financing. Ideally, the savings on utility bills will be larger than the tax assessment spread out over 20 years, thereby converting a potentially expensive construction project into a cost-cutter for a family. Tying the repayment to the tax assessment also lowers any risk that a homeowner will have to bear the brunt of the expenses: The remainder of the 20-year repayment plan transfers to the new owner with the deed.

Cities and states, meanwhile, get a mechanism to boost jobs. Tax liens are senior to mortgage assessments, which lower the risk of defaults, a bonus to bond issuers. Additionally, it gives the housing and construction industry something to do other than lay off employees and wait around for work. Green building startups, of course, will likely find new markets in these programs. Johnson Controls, the Solar Electric Industries Association and some financing organizations have joined PaceNow.

And if enough retrofits occur, the nation as a whole can start to curb energy consumption and reduce the growth of greenhouse gases. Building operations consume about 40 percent of the energy in America and most buildings aren't particularly efficient. The state of California says it will dedicate $3.1 billion to energy efficiency from 2010 through 2012, a 40 plus percent hike over the current three year efficiency plan. At the federal level, of course, both President Obama and Energy Secretary Steve Chu have emphasized building efficiency.

The problems? Interest and gains on these bonds are not tax exempt. Thus, it's unclear how big or liquid a market for these kinds of securities will be. A federal guarantee could change at least part of that picture. Municipalities and states will have to enlist a financing organization to handle the loans.

The math also needs to be proven. Anyone who has lived through a home retrofit knows that cost estimates often climb once the hammers and saws start flying. Consumers may approach this guardedly until enough homeowners validate that utility bill savings are greater or are very close to supplemental tax payments. Fraud? It's a possibility. Car prices are relatively fixed transparent with cars coming from a handful of manufacturers. Contractors range wildly in pricing and thousands live and compete in the same areas.

Fannie Mae and Freddie Mac initially "raised concerns" about the program, said Hidary. The mortgage agencies, however, have become more amenable as studies have shown that green retrofits increase the value of a building. A report in January from the University of California and Maastricht University showed that rental rates on green commercial buildings were 6 percent higher and the buildings achieved a sales price 16 percent higher than normal.

"The kicker is that it enhances the creditworthiness," Hidary said.

Kammen will deliver a keynote speech on Thursday at West Coast Green in San Francisco. The Hidary Foundation isn't exactly a household name, but you probably know its handiwork. The Cash for Clunkers, program which boosted car sales over the summer emerged from a presentation at the Clinton Global Initiative by Hidary last year and an article written by Hidary and Bracken Hendricks of the Center for American Progress. (Here's the inside story of how it went from a couple of guys with an idea to a short-lived, but heavily used national program).

A presentation on PaceNow was made at the Clinton Global Initiative this year.

Image via Trebosc / Creative Commons