William & Mary Environmental Law and Policy Review


Joseph Gonyeau


Currently, one of society’s greatest goals is the reduction of greenhouse gases. This goal is generally accepted worldwide, as evidenced by the Paris Climate Agreement, the parties to which agreed to establish frameworks for adopting clean energy and reducing greenhouse gases. After the United States’ controversial decision to withdraw from the Paris Agreement, the federal government’s future in reducing greenhouse gases remains uncertain. Despite this setback, there are existing programs aimed at reducing greenhouse gases in the United States that the government should ensure succeed. One such program is the Warehouse for Energy Efficiency Loans (“WHEEL”).

WHEEL operates as a multistate public-private partnership, sharing resources to provide “unsecured loans to single-family homeowners with credit-score based underwriting and public credit enhancement.” WHEEL’s goal is to “increase the rate of retrofitting of the nation’s single family housing stock” in order to bolster home efficiency and thus reduce greenhouse gases. Such retrofitting includes the replacement and upgrade of energy-efficient heating and cooling systems. To achieve this, WHEEL relies on securitization, tapping into the secondary markets to bolster investments in residential energy efficiency loans.

Despite the benefits of WHEEL, the program has been slow to launch. One major problem hindering WHEEL’s potential is the Credit Risk Retention Rule (the “Rule”) promulgated under Section 15G of the Securities Exchange Act of 1934. The Rule requires WHEEL sponsors to maintain a 5% minimum credit risk interest in any asset they convey to a third party. As a result of this requirement, private WHEEL sponsors will stop providing capital, due to increased risk exposure, and public WHEEL sponsors will continually use their Program Income from WHEEL to ensure that they have adequate capital to meet the risk-retention requirement. This will hinder the growth of energy efficiency loans because WHEEL sponsors would otherwise be able to recycle program income back into WHEEL, ultimately growing the program. Loans secured under the WHEEL program should be exempted from recent Dodd-Frank Risk Retention requirements for three main reasons: (1) WHEEL does not require an additional monitoring incentive; (2) WHEEL meetsthe rationale for exemption under 15 U.S.C. § 78o-11(e)(2); and (3) advanced institutional investors do not require additional protection.