We need a national green bank to build the green economy

Achieving President Biden’s goal to move the nation to a net-zero energy economy by the year 2050 will require a massive change in how we as a nation produce and use energy. Essentially this will mean that the amount of greenhouse gases produced will be equal to the amount we remove from the atmosphere. This represents an important and necessary goal to end climate change.

Reaching net-zero by the year 2050 will not be simple or quick and will require significant investments in expanding solar and wind production, closing coal plants and retrofitting the commercial and residential built environment, representing possibly the single greatest investment opportunity since the telecommunications revolution.

One tool that has been recommended by the administration has been tested in 22 states: a national green bank. The purpose of the bank is not to take deposits and make mortgages but rather to specifically make loans and provide incentives to facilitate private investment into low-carbon, climate-resilient infrastructure. Green banks focus on investments where the private sector has been reluctant to provide low cost capital because of concerns about perceived risk, new technologies that have not been in the market long enough to meet strict reliability criteria for lenders, smaller deal sizes, and areas with complicated financing structures like low income housing.

The administration’s proposal, called the “Clean Energy and Sustainability Accelerator”, would begin with $27 billion and use those funds to increase the investment of capital in the key green energy sectors: renewable energy, grid technology, residential and commercial building efficiency, industrial decarbonization, clean transport and agriculture. Funding for the accelerator will have a multiplicative impact on total real-world investment in clean energy, because the accelerator will leverage private capital, recycle its own capital for repeat investment of the same dollars, and then borrow additional private capital to expand its own lending capacity.

Some have argued that the green bank will duplicate existing work being conducted by the private sector. While this might be the case for large corporations with deep pockets and resources, it’s less true for smaller companies that have more limited resources to capitalize their investments. Also, buildings that house low income residents often have multiple layers of financing and few banks have the expertise to tailor specific solutions to provide green financing for those complicated situations.

While there is strong congressional support for a national green bank, there is still no guarantee that the administration’s proposal will be enacted. The House has passed the plan, while the Senate is still considering the “National Climate Act” proposed by Sens. Chris Van Hollen (D-Md.) and Ed Markey (D-Mass.). Both the House and Senate bills would capitalize their version of the green bank with $100 billion, which has been projected to generate $880 billion in clean energy investments.

To address low income concerns, the House, Senate and the administration green bank proposal all specify that 40 percent of the funds invested by the federal government must be deployed in low-income and disadvantaged communities. Many of these communities suffer from high energy burdens due to history of neglect in their building infrastructure, which has led to deferred maintenance and older, less energy-efficient buildings. The result is that low-income families pay amounts two to three times higher than the median energy burden across the country. The accelerator would help to support reducing energy burdens by investing in energy efficiency, renewable energy and weatherization thereby reducing energy use and the carbon generated to create the energy used in the first place.

A national green bank would also support state-based green banks that have been leading the way in using innovative transaction structures to channel private investment into low-carbon projects in such areas as commercial and residential energy efficiency retrofits, rooftop solar photovoltaic systems and municipal-level, energy-efficient street lighting.

One only has to look as far as Tesla to see how government-financing can address green financing needs that the private sector isn’t ready to meet. In 2010 Tesla applied for and received a $465 million U.S. Department of Energy loan from the Advanced Vehicle Manufacturing Loan Program to build a new factory to launch its Model S car. After the initial success of the car, Tesla was able raise capital in the private marketplace and pay back the government loan. The loan also helped to set the stage for the broader development and success of electric vehicles.

On a more local level, the Connecticut Green Bank used tailored financing strategies to ensure that low-income homeowners and communities of color have the same access to rooftop solar and efficiency as homeowners with more resources — and with it the benefits of reduced energy burdens and healthier homes. Inclusive Prosperity Capital was spun out of the Connecticut Green Bank and now acts as a resource to other green banks to scale these and other strategies to scale nationally, including a partnership with N.Y. Green Bank to drive green investment in underserved communities in New York State and partnerships with green banks in Michigan, Texas, Washington, D.C. and Philadelphia focused on affordable housing and nonprofits.

Another example is the Florida Solar and Energy Loan Fund, a Florida-based green bank that provides low-interest rate and long-term financing for comprehensive home upgrades meant to lower high electricity bills caused by nearly year-round air conditioning. The financing covers the cost of roof upgrades, which are essential to both hurricane resilience and rooftop solar installation. The net result is that overall household expenses are reduced, even including the loan repayment, because the increased home resilience lowers insurance premiums.

While a national green bank will not solve the problem of climate change on its own, it is a key piece of the solution to helping finance the transition to a carbon-free economy and including low-income families and communities in the process. The President has requested, the House has acted and now the Senate must pass similar legislation to guarantee that the U.S. has a national green bank to help finance the technologies and retrofits needed to achieve broad-based climate goals.

Mark Wolfe is an energy economist who serves as the executive director of the National Energy Assistance Directors Association, representing state directors of the Low Income Home Energy Assistance Program (LIHEAP).