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Practical Magic

How infrastructure is banking on green banks

Green infrastructure

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Quick, what do Alaska, Maine and South Carolina have in common? 

All three U.S. states are seriously evaluating the creation of green banks — financing institutions created with the explicit mission of combining public and private funds to invest in climate solutions and green infrastructure. They would join roughly 20 other U.S. jurisdictions that have used this mechanism to drive more than $5 billion in clean energy investments as of the end of 2019, including Connecticut, Florida, Michigan and Washington, D.C. 

Alaska is so invested in the idea that Rep. Don Young, a Republican who championed Deb Haaland’s nomination as Interior Secretary, last week stepped across the aisle again to become a co-sponsor of the latest legislation to create a national-level green bank. The bill would make $100 billion of public funds available for a nonprofit organization that would provide financing and other support to regional, state and local green banks — an amount the sponsors say could catalyze $884 billion in green infrastructure investments over the next decade and help create 4 million clean economy jobs within the next four years.

The proposed focus of that public-private money: renewables; energy storage; transportation; resiliency measures; efficiency; reforestation; agriculture; and industrial decarbonization.

A national-level focus on green and resilient infrastructure is spurring local interest in projects such as electric vehicle charging infrastructure and microgrids.

"By building on the proven success of state-level green banks, the Clean Energy and Sustainability Accelerator will transform our fight against climate change and intentionally incentivize investments in environmental justice communities," said co-sponsor Debbie Dingell, who represents Michigan, home to one of the longest-standing nonprofit green banks, Michigan Saves. "This accelerator can bridge partisan divides and unite the public and private sector around our shared goal of decarbonizing our country, creating jobs and leaving this world better than we found it."

30-to-1

Even before the latest national green bank proposal — and despite the economic pause precipitated by the COVID-19 pandemic — U.S. and international interest in green banks was on the rise. The model works by leveraging public money to help drive private sector investments, such as through loan loss reserves, credit guarantees or bundling arrangements. Among other things, it makes smaller projects more attractive to commercial banks, leasing companies, credit unions and other traditional lenders. The ratio of investment varies widely. According to RMI research, anywhere from $2 of private-sector money is invested for every public dollar invested — all the way up to a 30-to-1 ratio of private to public sector funding. (The nonprofit’s latest report tracks activity through the middle of 2020.)

"We’re very excited to see over 20 countries interested in this model," said Angela Whitney, manager and co-director of the green bank design platform for RMI. "We see it as an institutional solution for helping companies achieve their climate ambition. It turns policy ambitions into projects on the ground."

In the second and third quarters of 2020, for example, the NY Green Bank committed $166 million in 16 new projects such as wind farms to community solar plus energy storage to energy efficiency projects. That money was expected to spur up to $3 billion in additional funding. 

The Connecticut Green Bank, which will celebrate its 10th anniversary in June, also logged a healthy pipeline last year despite the shockwaves shutdowns sent through the clean energy sector, says president and CEO Bryan Garcia. "Heading into COVID, we were having a banner year … it ended up being a top one." 

Shoring up resilience

State-level green bank pioneers predominantly have focused on small-scale solar development and energy efficiency projects — often with a focus on smaller projects that serve low-income or "unbanked" communities, and always in lockstep with the priorities of local authorities such as renewable portfolio standards. 

The nonprofit Solar and Energy Loan Fund in Florida, for example, started with energy but expanded its lending products in 2019 to include financing for things such as roof repairs, hurricane shutters, septic-to-sewer conversions and other measures meant to improve resilience. Connecticut is seeking projects focused on alternative-fuel vehicles and associated infrastructure, and the governor plans to expand the green bank’s mandate to cover infrastructure meant to shore up resilience — including everything from water, waste and recycling infrastructure to land conservation initiatives and nature-based solutions for carbon sequestration. "It’s an all-inclusive mitigation and adaptation toolset," Garcia said. 

A national-level focus on green and resilient infrastructure is spurring local interest in projects such as electric vehicle charging infrastructure and microgrids, observed Mary Templeton, president and CEO of Michigan Saves. "These are really expensive projects," she said. "Access to low-cost capital could really accelerate that."

According to the Coalition for Green Capital, roughly $21 billion in near-term infrastructure projects would benefit from the national legislation, including $3.1 billion in climate resilience measures, $5.3 billion in building efficiency and upgrade initiatives and $626 million in electrification. Specific opportunities include solar and storage projects on Native American tribal lands, on-bill financing via utility partnerships to upgrade rural homes and resilient infrastructure lending programs.

There oughta be a law

From the private-sector perspective, a national institution could attract a wider variety of lending partners — from massive banks and lenders committed to investing in projects that serve the goals of the Paris Agreement to hyperlocal institutions that can meet the needs of disadvantaged communities that aren’t well-served by the traditional financing system. The federal legislation would require that at least 40 percent of the funds be used for communities that have been most negatively affected by climate change impacts or that that have suffered substantial job losses as a result of the transition away from fossil fuels. 

The latter is particularly important in ensuring that infrastructure investments don’t perpetuate the same system of inequity that built today’s aging infrastructure. "We have to make sure that we’re not just kind of rebranding the old system and that we’re interrogating and transforming the values that underlie those financial systems as well. … If we propagate the idea of green banks without transforming the values that underlie these institutions, it’s just recreating the disparities of the fossil-fuel economy," said Michelle Moore, CEO of nonprofit Groundswell. 

Jeff Schub, executive director of the Coalition for Green Capital, the umbrella organization that manages the American Green Bank Consortium, said a national green bank would help fund and capitalize local banks across the United States and enable regional or multistate initiatives. The only reason there aren’t at least 50 of these institutions already isn’t because of politics — bipartisan support is stronger than ever — it’s because states and local jurisdictions have to compete for public funds, he says. "This is now seen as a tried-and-true model that does what it is supposed to do."

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