The passage of the Inflation Reduction Act (IRA) is a long overdue step towards establishing a green bank that will free up tens of billions of public and private dollars to invest in clean energy and climate-resilient infrastructure in underserved communities. In addition to supporting economic development, these investments will reduce air pollution and improve community health and safety. The law empowers the EPA to fund nonprofit organizations designed to fund the rapid deployment of low- and zero-emissions product technologies and services, especially in disadvantaged communities. Using this funding to create a national, nonprofit green bank will enable bold climate action across the country that prioritizes underserved communities. This is a major victory after more than a decade of advocacy by the NRDC and its partners for the creation of a federal green bank.
Creation of 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 to 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-emission technologies and carry out other emission reduction activities
- $20 billion to make grants available to eligible recipients who invest in projects that reduce greenhouse gas emissions
- Of the $20 billion in grants to eligible recipients, $8 billion, or 40%, will go to projects benefiting low-income and disadvantaged communities.
Although not explicitly required by law, the IRA allows the Greenhouse Gas Reduction Fund to capitalize a national green bank. The IRA text defines eligible recipients of the funds as “a not-for-profit organization designed to provide capital, mobilize private capital, and provide other forms of financial assistance for the rapid deployment of technology and low- and zero-emission products”. The law does not specify a minimum number of beneficiaries or a maximum subsidy amount. The NRDC is of the view that the EPA should allocate $20 billion from the Greenhouse Gas Reduction Fund to capitalize the first national green bank. The additional $7 billion is expected to be used 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 effective use of grant money for several reasons. From a financial perspective, a national-level green bank can operate at a scale that lowers the cost of capital, negotiates effectively with private sector partners, and directs funding to local institutions that can coordinate projects in communities. who need it most. Operationally, the existence of a national green bank would centralize back-office functions and impact metrics, thereby reducing non-essential spending for local or public lending institutions. In addition to its role as a project financier, a national green bank could also operate on a wholesale basis to finance 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 jointly and support the growing network of state and local green banks.
Increase investment in low-income communities
The Fund’s ability to galvanize investments in clean energy and other green technologies will spur job growth, especially in disadvantaged communities, and save consumers money on their energy bills. The Coalition for Green Capital believes that a $20 billion national green bank will create more than 2 million jobs over the next decade. According to a White House Fact Sheeta federal green bank could implement an electrification program to guarantee “energy bill savings of up to $750 per year for nearly 12 million American households (75% of which have low to moderate incomes)” .
More than 50% of the Greenhouse Gas Reduction Fund is dedicated to investing in low-income and disadvantaged communities. This makes the Fund an important tool for providing far-reaching benefits to low-income and disadvantaged communities in a law that includes some provisions that undermine environmental justice goals, such as the expanding investment and leasing of federal lands for domestic oil and gas exploration and production. To overcome the loopholes in the law, there is a need to clearly define which communities are considered low-income or disadvantaged under the law so that money flows to areas that reduce inequality.
A proven model for mobilizing private investment in climate action
A national green bank would invest public funds to spur additional private investment in projects such as renewable energy, energy efficiency retrofits, energy transmission and storage, clean transportation, sustainable agriculture and other infrastructure climate resilient. As NRDC’s Amanda Levin points out, “Every dollar invested in the GHG Reduction Fund could generate between $5 and $9 of total public and private sector investment, depending on the use of the project. In addition to reducing greenhouse gas emissions and other forms of air pollution, these investments would spur economic development in underserved communities.
Existing green banks have been successful in stimulating new private investment in climate solutions that benefit local communities. Recent transactions concluded by Network of green banks members in the United States demonstrate the value creation of the green banking model at the state and local level.
In June 2022, Connecticut Green Bank (CT Green Bank) provided $5 million in loan facilities to Connecticut-based Budderfly, which has provided energy and cost saving services to more than 80 Connecticut businesses. With the backing of CT Green Bank, Budderfly has raised over $100 million in capital to grow its business and help customers improve their energy efficiency.
In November 2021, NY Green Bank (NYGB) provided a $2.6 million pre-development loan to support the development of a planned all-electric multifamily apartment building in Brooklyn’s Broadway Triangle that will provide 140 homes for low-income New Yorkers.
- Rhode Island Infrastructure Bank
In April 2022, Rhode Island Infrastructure Bank (RIIB), a leader in the financing and development of climate-resilient infrastructure, announced $4.9 million in grants for their Municipal Resilience Program, which will help communities fund climate resilience projects, especially nature-based solutions and those that benefit disadvantaged communities.
In May 2022, DC Green Bank closed a $7 million contract to accelerate the deployment of solar energy in the District of Columbia for low-to-moderate income (LMI) residents. The facilities are expected to create hundreds of green jobs and reduce emissions by 2,500 tonnes of CO2 annually. A similar program funded by DC Green Bank to expand community solar is expected to reduce electricity costs for qualified residents by up to 50%.
Capacity building of community credit institutions
The law will also build on progress made by community lenders such as as community development financial institutions (CDFI) and minority depository institutions (MDI). These lenders have experience and deep roots in low-income and disadvantaged communities – lending to small businesses, homeowners and nonprofits – but often lack the technical expertise and experience to make loans. of energy.
A recent analysis by the Inclusiv Network looked at 3,975 credit unions, representing 99% ($1.708 billion) of US credit union assets, and found that only 241 (6%) were engaged in green lending. In fiscal year 2019, 26 (7.4%) of the 350 members of the Opportunity Finance Network (OFN), which manage $27.5 billion in assets, reported energy-related finance. an amount of 444 million dollars. This hints at the huge potential for energy investments from CDFI and community development credit unions, given that 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 IMT communities across the country to deliver the benefits of the clean energy economy to all. .
Advancing Climate and Equity Goals
Passing the Cut Inflation Act, even with its flaws, will help get the United States back on track to meet its climate goals. The Greenhouse Gas Reduction Fund can play an important role 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. When developing program criteria, EPA should also ensure that the board of directors and senior management are competent, qualified, diverse, and representative of IMT communities, and require that the governance structure be inclusive and protects them. Financing from a national green bank can help direct much-needed capital efficiently into existing local project development pipelines, such as national and local green banks, CDFIs and MDIs.
This blog was written with Peter Trousdale, a consultant at the NRDC Green Finance Center. His work focuses on expanding the green banking model through capacity building programs such as the Green Bank Network (GBN). He previously worked with the Climate Finance team at NRDC’s Beijing office.