Could the U.S. benefit from a national green bank?
A number of senators and representatives led by Sen. Chris Murphy (D-Conn.) and Rep.Elizabeth Esty (D-Conn.) have cosponsored The Green Bank Act of 2017 (PDF) (S. 1406. H.R. 2995). The act is expected to support the establishment of a national green bank capitalized with $10 billion in treasury-issued green bonds. This is the third time legislators have proposed it.
Extensive compromises have surrounded the history of this idea at the federal level. Some decision makers have sought to limit the ability of the proposed bank to interact directly with stakeholders. They have preferred a solution involving a middleman at the state or local level.
Legislators also have expressed skepticism about whether a green bank requires the creation of more government bureaucracy to fulfill functions that would best be addressed by the private market.
The question of whether this bank could fund nuclear power also has been controversial.
In 2009, a national green bank was first brought up as part of some broader energy reforms and legislation (The American Clean Energy and Security Act of 2009). It did not make the cut, as it passed through the lower House but was unable to make it through the Senate.
Then, the Green Bank Act of 2014 was introduced as a standalone act by Sen. Chris Van Hollen (D-Md.). At the time, Senate co-sponsors included Murphy and Sen. Richard Blumenthal (D-Conn.). By this time, the concept of a quasi–public financing institution focusing on clean-energy projects had taken off. A number of states had taken the initiative to pass legislation setting up similar institutions.
Fast-forward to July 2016. Van Hollen was again at the forefront of the campaign to get the act to sail through Congress with the introduction of H.R. 5802, the United States Green Bank Act of 2016. In September, Murphy introduced a companion bill to the Senate (S. 3382).
Late last month, Esty and Murphy, with co-sponsors from across the country, reintroduced H.R. 2995 and S. 1406, The Green Bank Act of 2017, an updated version of the 2014 and 2016 proposals.
This bank initially was conceived as a national bank with an initial capitalization of $10 billion and a mandate to underwrite and provide a comprehensive range of financing support to qualifying clean-energy projects and clean-energy-financing institutions. A number of changes have since taken place which redefine the objectives of the bank, limit the mechanisms available to it and set the level of risk it can underwrite.
A key change made in 2016 took away the bank’s ability to directly finance projects. Instead of that, the bank would be able to lend only to state or municipal green banks or clean-energy-financing authorities that meet certain criteria. These local institutions would then directly underwrite qualifying projects.
Another major change involved adjusting the lending limits to state clean-energy-financing authorities. Previously the limit to individual institutions capped at $500 million, the current bill seeks to peg this lending at 20 percent of the initial funding requirements of the institutions.
The most recent version of the legislation also removes nuclear-energy projects from the definition of "Qualified Clean Energy Projects" that are eligible for funding.
Some of these changes reflect the constantly changing clean-energy-financing landscape and the evolving role of the green banks in soliciting and leveraging private capital. In 2009, when the idea originally was conceived, just one state had a green bank. Now, about eight such institutions exist across the country. Notable success stories have taken place in Connecticut and New York.
However, stakeholders may be getting worried about the delays in the passage of this critical legislation. They also may be concerned that the eventual impact of the act on the initial objectives of job creation and growth might be limited.
Gathering cross-party support has been challenging, Murphy said during an interview with Clean Energy Finance Forum last year. He said the Republican argument was that "the private market can fill this [financing] gap adequately."
The recent reintroduction appears to be facing some headwinds given the current administration’s energy policy priorities, which do not tend to favor clean energy. That same month, the president announced that the United States would be pulling out of the Paris Agreement.
It remains to be seen how the Paris Agreement decision may affect the prospects for clean energy in the United States. The domestic solar industry’s growth has slowed this year. But much of that challenge is attributable to financial roadblocks encountered by individual solar companies. It is unclear to what extent net-metering controversies at the state level have affected the growth of the industry.
Energy-efficiency investment has not taken off at a rapid rate the way that solar investment has. A national green bank might accelerate the expansion of both of these markets.
Note: Esty's spouse is employed at Yale University.