If the legislation does manage to pass Democratic muster, the green bank is slated to be funded with $27 billion to provide financing so lower-income households can acquire efficient heat pumps, rooftop and community solar, and electric cars. States, tribes, municipalities can apply for grants for clean energy purposes. Of the total, $8 billion would be specifically designated for investment in disadvantaged communities.
If the IRA legislation does emerge from Congress intact for Biden’s signature, the United States will once again be better late than never to the party. The UK started a green bank in 2012, privatized it in 2017, and is now looking into taking over again. Australia’s green bank is the world’s largest.
So what is a green bank? From State of the Green Banks 2020:
A green bank can take several forms, but all green banks are motivated by a public purpose—accelerating low-carbon, climate-resilient, and sustainable development. A green bank is most often a publicly owned, commercially operated,specialized financing institution or facility that acts as a focal point for scaling up domestic, climate-friendly, sustainable projects. Most, though not all, green banks surveyed in this report have public ownership and are largely funded with public capital.
As the focal point for a country’s climate finance, a green bank can tap into new sources of domestic capital (such as pension funds and sovereign wealth funds) and international capital (like multilateral development banks and climate funds). Analysis in this report shows that existing green banks have been able to use their relatively small amounts of seed capital to mobilize many multiples of additional investment.
Contacted by Peter Behr at EnergyWire, Reed Hundt, the CEO and co-founder of the non-profit Coalition for Green Capital, expressed surprise the proposal had managed to get included in the Inflation Reduction Act. It had been one of President Joe Biden’s campaign promises and was included in versions of the proposed Build Back Better Act. But Hundt figured it had died along with everything else when Manchin bailed on the act. “It’s amazing,” he said, “I didn’t think we’d be in this space.,” adding that he hopes “many local nonprofit lending institutions participate.”
Hundt, a prominent Democrat who chaired the Federal Communications Commission during the Clinton administration, has been involved in climate issues for nearly 30 years. In 1993, he authored the first serious U.S. attempt at a carbon tax. It failed in the Senate. At the Coalition for Green Capital, he has been pushing for a federal green bank since 2010 and building a network of state green banks—the American Green Bank Consortium. Twenty-three states have already established such banks, and several others have one in the works.
Since it got going, the consortium’s members have raised and provided $2.5 billion in clean energy loans. These were matched by $9 billion in private investment. Hundt hopes that the government picks the consortium as the place to invest a big chunk of that green bank money.
The usual approach to spurring clean energy in the United States has been to provide production and investment tax credits—like those in effect right now—to spur companies to invest in renewables or other clean technology. Tax credits mean less government revenue. This does get projects built—wind and solar wouldn’t have happened at the pace they did without them.
Green banks, on the other hand, are banks with a stated mission to lend money for clean energy projects with an eye to the return on investment. Green banks take advantage of the public capital to leverage private investors as a means to build otherwise difficult to green-light projects. Existing banks are more shy of lending in underserved communities, but that government money gives them the boost they need. However, the profit motive isn’t every green bank’s fundamental reason for being. Ella Nilsen at Vox reported last year:
Green banks are set up in a variety of ways. The New York Green Bank is a division of the New York State Energy Research and Development Authority. Michigan’s green bank is a nonprofit. Connecticut’s is quasi-public, created by a bipartisan state legislature bill in 2011. Australia’s green bank — the largest in the world — is owned by the government. Still others like California’s are part of state infrastructure banks, which fund local infrastructure projects like roads, bridges, schools, and municipal buildings as well as clean energy development.
“[In Connecticut,] we’re an intermediary between the policy objectives of the state and the private markets,” Connecticut Green Bank president and CEO Bryan Garcia told me in an interview. “We use private-sector discipline to achieve public sector goals.”
Since it was started in the mid-aughts, the Connecticut Green Bank has ushered in $1.94 billion worth of investment into the state’s economy. The vast majority has been from private investment, a full $1.65 billion — and for every dollar of Connecticut Green Bank investment, the state is able to attract $6.60 of private investment in projects. It’s estimated that this has not only reduced energy cost savings for over 55,000 families and close to 400 businesses in the state, but it’s also resulted in the installation of 434 megawatts worth of clean energy.
Should have happened decades ago, but it is what it is.
Some additional reading: