California State Treasurer Bill Lockyer Leverages State Investment to Spur Green Economy

Bill Lockyer

As the treasurer for one of the world’s largest economies, and as a boardmember at two of the country’s largest public pensions, CalPERS and CalSTRS, California State Treasurer Bill Lockyer remains committed to reforming the way that the state does business in the name of sustainability despite the recent failures of the financial markets. In the following speech, exceprpted here by VerdeXchange News and delivered in December to the Los Angeles Business Council Sustainabilty Summit, Treasurer Lockyer details the ways in which the state’s fiscal practices are still encouraging the growth of the green market.


Bill Lockyer: Let me start with a comment that Woody Allen made several years ago: “More than any time in history mankind faces a crossroads. One path leads to despair and utter hopelessness, the other to total extinction.” That’s a bleak assessment, but obviously we wouldn’t be here engaged in this discussion if we weren’t much more optimistic about what our future looks like. There is going to be an extraordinary explosion of green sector investing. There’s going to be a variety of new jobs, advances in material sciences, and expansion of solar, wind, and other power generation. I will admit to being particularly enthusiastic about nuclear power, and that’s the nuclear power that takes eight minutes to get here in wireless transmission—solar. We’re going to see extraordinary things happening in California as a sort of hub for solar research and deployment. We can anticipate a number of advances. One thing I’m going to talk about today, which includes some of the state activities that are relevant to this convention, is building and energy use in our buildings. Buildings are the largest single sector of energy use in our country, 7 percent of all the electricity. And more than half of all the natural gas is consumed in our buildings. There are smart ways to save significant amounts while reducing our footprint, saving money, and conserving energy for the future. I’m hopeful that California will be the hub and that the L.A. region will be one of the great leaders of the deployment of these new technologies.

I ask myself what is needed to make it all happen. Obviously, a partnership of the public and private sectors is absolutely critical. And I think we’re going to see a lot of transaction work that goes on in many different ways. There are sort of thousands of flowers blooming in alternative energy and green technology domains, but it’s more than just “spray and pray.” It’s transformational as well as transactional. We also need, of course, the entrepreneurial insight and energy and for people to understand that they can both do well and do good with respect to this sort of new investment. When you look at the history of venture capital and investments in California over the last decade or so, it’s fairly extraordinary to see the amount we have in this California hub. Just a dozen years ago, greentech venture capital investments in our state were only $130 million a year. Now, we estimate this year at more than $2 billion invested in these ways. Another interesting thing: Californian businesses and individuals hold more than 45 percent of the nation’s solar energy technical patents and more than 37 percent of the wind energy patents. So, again, we see various ways that we can count on our state being a leader. There are a lot of things happening.

Obviously at the state level, we are getting many new laws. Most notably, of course, Fabian Nuñez, Governor Schwarzenegger, and others worked out the AB 32 agreement. But there are literally dozens of those proposals every year that are being advanced to try and kick start this movement. L.A.’s leadership, both in the private and public sector, is very committed to progress in this area. There are national level trends. Ceres is one. Ceres is a non-profit that has pulled together 60 large institutional investors, private companies, insurance companies, banks, and $5 trillion in collective assets. Their goal is to try and integrate sustainability into the capital markets. They are having a lot of success in that. A couple of their specific goals include investing an additional $10 billion more in the next two years. That was a goal that was established before the recent downturn and the question that keeps coming up is, “To what extent will the current bad market conditions set renewable energy investments?” While there may be some temporary dip, most think that it will be very robust again in the near future. Those 60 investors have a goal of $10 billion more for this sector in the next two years. They hold a lot of real estate assets in their portfolios and their promise is to reduce energy consumption in their core real estate holdings by at least 20 percent in the next three years. They consistently engage companies and regulators to try to factor carbon costs into operational and capital planning decisions. Ceres is one example. They are having their West Coast conference next spring to advance these discussions in our state, but they are now international participants.

In California, I take particular interest and pride in what our pension funds are doing to make a difference. We have the two largest pension funds in the country, CalPERS and CalSTRS. They were early adopters of the green tech strategies. One of the things we found is that in the world of pension funds, when CalPERS and CalSTRS engage in some new initiative of that sort, there are many others that are willing to follow along. Their investments tend to be amplified by about ten whenever they make these kinds of decisions. CalPERS has so far committed $1.1 billion to a variety of green investing strategies—CalSTRS, so far $700 billion. That amounts to, collectively, $1.8 billion, which is further magnified by other pension funds around the country making similar investments.

There are some modest initiatives in my office. To mention a principle one—and a lot of people are doing this within the public and private sector—is to green state buildings. I know the L.A. Community College District is going a wonderful job advancing that locally. There are various other local ordinances with respect to LEED certification requirements for new buildings. There is a lot that can be done in the building space. The state of California is the largest owner or leaser of real estate in California—202 million square feet of office space. Much of it would benefit from simple retrofitting, this is not yet going to solar, fuel cell, or other such technologies—that will happen—but just the simple things of changing the heating system, changing the ventilation system, and so on. The amount of energy that can be saved by making those retrofitting changes is extraordinary. We could save, in California, hundreds of millions of dollars in our energy bills along with the carbon footprint associated with that energy. We can save a lot of money if we can figure out how to make those retrofitting investments.

I proposed a $2 billion bond, and one of the interesting things about this bond proposal is it’s the only one I’ve ever seen where taxpayers actually make money. Typically, with bonds, for every dollar of real investment that occurs, there is an additional one to two dollars cost for every dollar you get of hard investment, because of bond costs. This is the only instance where I’ve seen that the cost of financing is lower than the cost of the savings of electricity that is achievable by retrofits. It works out to save the taxpayers money. Well, the proposed bond didn’t pass the Legislature this last year. Unfortunately, to editorialize a little, the core competency of the Legislature seems to be deferral. It got to the last committee and stalled, unfortunately, because there were other bonds for libraries and other things. They couldn’t decide, so they just didn’t do anything, even though this was the only bond that actually saved the general fund and taxpayers money.

We’re trying to figure out alternative ways to enact this green building initiative that so we don’t have to go through another yearlong argument to accelerate these efforts. There are a variety of ways to do it: subsidies with existing revenue bonds or the expansion of power purchase agreements. L.A., the Bank of America, and numerous others are very active in these deals, which basically allow for bonding or paying for those immediate retrofitting expenditures built into future bills. It could be “on-bill financing” with utilities. There are a lot of ways to do it. What I’d like the most to see happen is to have on-bill financing mechanisms worked out that are easy for people to do, not just with their business, but at their homes and other places where the cost of financing the retro is integrated into the electric bill and hopefully it nets out still to be a reduction in costs for the consumer because of the reduced energy use. That’s beginning to happen in various places.

Berkeley has pioneered a different model, which is to actually have the property tax bills increase on the property in order to pay for, and securitize, the investments in retrofitting. That would be another way to do it. I like the on-bill financing and I know that some of these utilities, like Edison, are very interested in trying to see that happen.
We know that this is potentially a great job generator. In our nation we need to have a new source of a lot of jobs every five to ten years. We’ve missed this greentech opportunity during recent years. But it’s ripe, and we still can. There may well be, currently, somewhere between 800,000 and 1 million jobs that are in this green tech space. Probably about half of those are professional and technical jobs. About one fourth of them are associated with renewable power efforts, but it’s an expanding area and one that we can rely on for a lot of great jobs.

I do want to very quickly mention one of the tools in my office, which is a financing mechanism called the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA). Their ability to waive sales tax on new energy saving and manufacturing equipment went unused this year. When you save 8 to 10 percent on someone’s investment because of our capacity to waive those costs, it is a substantial benefit to the state to create jobs and for those businesses to expand. We’ve only used it so far with Tesla Motors, trying to make sure they are building those cars in our state and not New Mexico. I hope we can figure out ways to expand that, particularly to the solar area.
I have another thing that to me is a high priority. It’s a little unrelated to what we’re doing, but it needs to be a part of our efforts—rainforest protection. All of the things we talk about—the investments in greentech, the new technological breakthroughs, the cap-and-trade systems, and the carbon tax systems—they are necessary, but not sufficient to save the planet. If we don’t figure out how to stop the 26,000 square miles of rainforest that gets extinguished every year on this planet, the other things won’t work. If we don’t do them—if we don’t figure that out—we might as well just have a party and shut off the lights. One of the things I’m doing is knitting together the 10 largest pension funds on the planet to try to figure out the economics with what is collectively trillions of dollars—make fiduciarially defensible investments as well as environmentally sound policies.
I conclude by suggesting that there are lots of potential things for people to work on, but particularly the one I would most energetically recommend to folks in L.A. is that we have to change the transportation system to get off of dirty fuels. We’ve done it, basically, with the energy system, although we still have to figure out coal, but we’ve made wonderful progress in the last 20 years with electricity. We have to do it in transportation. The way to do it is to develop a whole network, a system, for plug-in hybrids and take the system to the large urban areas like L.A. There are gas stations everywhere, but there has to be a similar capacity for people to use plug-in hybrids. An entire new system needs to be built out. It’s a challenging task, but it’s one we’re up to. California can provide the essential leadership to get this done, not just for California, but also for the planet.

Thank you for the chance to visit with you. I encourage you to continue your efforts, both publicly and privately. Congratulations and thank you for having me. •••