It should not come as a surprise that some new financial innovation developed in the USA will be adopted by Canadians and other countries. However, what will come as a surprise is that this time the new innovation is unlikely to create catastrophic financial failure.
The innovation is PACE Bonds. PACE stands for "Property Assessed Clean Energy". The process is very simple. Owners of homes, commercial properties and industrial properties looking to install new energy efficient heating, ventilation, lighting systems or other capital intensive energy saving modifications are able to access long term loans to do so. Often with little or no cash outlay of their own. The principal and interest is amortized over the expected life of the upgrade, typically 20 years, and the payments are simply added to the owner's tax bill.
So why is this go great? Well there are many reasons. First, the owner has little capital outlay and therefore upgrades that can cost a significant amount get done instead of deferred. Second, because the payments are simply added to the annual property tax bill it is efficient and means that loans get paid because they are secured by a tax lien on the property. Third, the investment is an incredibly secure one for insurance companies, pension funds, or other long term investors because it is secured by property tax liens and if you look at the Canadian property default history (very good) you will understand how safe they are. Lastly, the owner obtains very high ratio loans that are paid off with the extras saving from energy efficiency gains from lower power bills.
Now those benefits are direct but there are indirect benefits as well. Like the strengthening of the local economy, renewal of the energy efficiency of the national housing stock which is a MAJOR greenhouse gas emitter, and the ability for civic pension funds to invest in secure bonds locally with better returns than traditional bonds.
So finally a financial innovation coming from the USA that just might be worthwhile and not end up blowing up world financial markets. And the multiple benefits that derive from the structure just make it that much more appealing. All this from the land of the LTCM, Internet Bubble, Sub-Prime, and soon to be High Frequency Trading fiascos. Who would have thought?