By Carolina Herrera, Sarah Dougherty and Douglass Sims
The passage of the Inflation Reduction Act (IRA) is a long-overdue step toward establishing a national green bank that will unleash tens of billions of public and private dollars for investment in clean energy and climate-resilient infrastructure in underserved communities. In addition to supporting economic development, these investments will reduce air pollution and improve the health and safety of communities. The law empowers the EPA to fund nonprofit organizations designed to finance the rapid deployment of low- and zero-emissions products technologies and services, particularly in disadvantaged communities. Using this funding to establish a nonprofit national green bank will enable bold climate action across the country that puts underserved communities first. This is a major win following over a decade of advocacy by NRDC and its partners for the establishment of a federal green bank.
Establishing a National Non-Profit Green Bank Will Ensure Maximum Impact
The IRA includes $27 billion for the Environmental Protection Agency to establish the Greenhouse Gas Reduction Fund to allocate:
- $7 billion to make grants available for states, municipalities, Tribal governments, and eligible recipients to invest in projects that enable low-income and economically, socially, and environmentally disadvantaged communities to deploy zero-emissions technologies and carry out other emissions-reducing activities
- $20 billion to make grants available to eligible recipients that invest in projects that reduce greenhouse gas emissions
- Of the $20 billion for grants to eligible recipients, $8 billion, or 40%, will be dedicated to projects benefiting low-income and disadvantaged communities.
While not explicitly required by the law, the IRA allows for the Greenhouse Gas Reduction Fund to capitalize a national green bank. The text of the IRA defines eligible recipients of the funds as “a nonprofit organization designed to provide capital, leverage private capital, and provide other forms of financial assistance for the rapid deployment of low- and zero-emissions products technologies and services.” The law does not specify a minimum number of grantees or a maximum grant amount. It is NRDC’s view that the EPA should allocate $20 billion of the Greenhouse Gas Reduction Fund to capitalize the first national green bank. The additional $7 billion should be utilized by states, municipalities, and Tribal governments, in close coordination with the national green bank, to ensure deep impacts in these communities.
Using the Greenhouse Gas Reduction Fund to capitalize a national green bank would be the most efficient use of the grant money for several reasons. From a financial standpoint, a national-level green bank can operate at a scale that lowers the cost of capital, effectively negotiate with private sector partners, and direct funding to local institutions who can coordinate projects in the communities that need it most. On the operational side, the existence of a national green bank would centralize back-office functions and impact metrics, reducing non-core expenses for local or state lending institutions. In addition to its role as a project financier, a national green bank would also be able to operate on a wholesale basis to fund state and local intermediaries, such as green banks and community development financial institutions (CDFIs), in perpetuity. This would allow the federal green bank to operate in conjunction and as support for the growing network of state and local green banks.
Expanding Investment in Low-Income Communities
The Fund’s ability to galvanize investment in clean energy and other green technologies will drive job growth, particularly in disadvantaged communities, and save consumers money on their energy bills. The Coalition for Green Capital estimates that a $20 billion national green bank will create more than 2 million jobs over the next decade. According to a White House fact sheet, a federal green bank could implement an electrification program to secure “energy bill savings of up to $750 per year for nearly 12 million American households (75 percent of which are low- to moderate-income).”
Over 50 percent of the Greenhouse Gas Reduction Fund is dedicated to investment in low-income and disadvantaged communities. This makes the Fund an important tool to provide wide-ranging benefits to low-income and disadvantaged communities in a law which includes some provisions that hinder environmental justice goals, such as the expansion of investment in and leasing of federal land for domestic oil and gas exploration and production. To overcome the shortcomings of the law, it is necessary to distinctly define which communities are considered low-income or disadvantaged under the law so money flows to areas that decrease inequities.
A Proven Model for Leveraging Private Investment in Climate Action
A national green bank would invest public money to stimulate additional private investment in projects such as renewable energy, energy efficiency retrofits, energy transmission and storage, clean transportation, sustainable agriculture, and other climate-resilient infrastructure. As NRDC’s Amanda Levin points out, “every $1 invested in the GHG Reduction Fund could leverage between $5 and $9 in total public and private sector investment, depending on the project use.” In addition to reducing greenhouse gas emissions and other forms of air pollution, these investments would drive economic development in underserved communities.
Existing green banks have shown success in spurring new private investment in climate solutions that benefit local communities. Recent transactions completed by Green Bank Network members in the United States demonstrate the green bank model’s value creation at the state and local level.
Connecticut Green Bank
In June 2022, Connecticut Green Bank (CT Green Bank) provided $5 million in loan facilities to Connecticut based company, Budderfly, that has provided energy and cost-saving services to over 80 Connecticut businesses. With CT Green Bank’s support, Budderfly has raised over $100 million in capital to scale its business and support its customers to improve their energy efficiency.
New York Green Bank
In November 2021, NY Green Bank (NYGB) provided a $2.6 million predevelopment loan to support the development of an all-electric multifamily building planned for construction in Brooklyn’s Broadway Triangle, which will provide 140 units of housing to low-income New Yorkers.
Rhode Island Infrastructure Bank
In April 2022, Rhode Island Infrastructure Bank (RIIB), a leader in financing and developing climate-resilient infrastructure, announced $4.9 million in grants for their Municipal Resiliency Program, which will help communities fund climate resiliency projects, particularly nature-based solutions and those benefiting disadvantaged communities.
DC Green Bank
In May 2022, DC Green Bank closed a $7 million deal to accelerate the deployment of solar across the District of Columbia for low-to-moderate income (LMI) residents. The installations are expected to create hundreds of green jobs and reduce emissions by 2,500 tons of CO2 annually. A similar program financed by DC green bank to expand community solar is expected to cut electricity costs for qualified residents by as much as 50%.
Building Capacity Among Community Lending Facilities
The law will also build on the progress being made by community lenders such as community development financial institutions (CDFI) and minority depositary institutions (MDI). These lenders have deep experiences and roots in low income and disadvantaged communities – lending to small businesses, homeowners, and nonprofits – but often lack the technical expertise and experience to do energy lending.
A recent analysis by the Inclusiv Network examined 3,975 credit unions, representing 99% ($1.708 trillion) of U.S. credit union assets, and found that only 241 (6%) were engaged in green lending. In FY19, 26 (7.4%) of Opportunity Finance Network (OFN’s) 350 members, who manage $27.5 billion in assets, reported energy-related financing in the amount of $444 million. This hints at the enormous potential for CDFI and community development credit union energy investments, given a small fraction of them are lending in this space. With investment capital and technical assistance from a national green bank, these financial institutions can use their extensive networks in LMI communities across the country to deliver the benefits of the clean energy economy to all.
Advancing Climate and Equity Goals
The passage of the Inflation Reduction Act, even with its flaws, will help the U.S. get back on track to meet its climate goals. The Greenhouse Gas Reduction Fund can play a large part in accomplishing this feat while advancing environmental justice and equity. To maximize its impact, it will be necessary for the EPA to clearly define which communities are eligible to benefit from the Fund, prioritize racial equity, and align with existing complementary federal programs. In developing program criteria, the EPA should also ensure the board and senior management be competent, qualified, diverse, and representative of LMI communities as well as requiring that the governance structure be inclusive and protective of them. Funding a national green bank can help efficiently direct much-needed capital to existing local project development pipelines, such as state and local green banks, CDFIs and MDIs.
The article has been sourced from NRDC and can be accessed here