How a National ‘Green Bank’ Could Help Advance Biden’s Climate Agenda
The concept has roots in other federal financing programs.
Addressing climate change is clearly a top priority for the Biden administration. Besides rejoining the Paris Climate Accords and directing federal agencies to employ “green” considerations in their procurements and strategies, Biden has selected a Cabinet of leaders committed to a “whole of government” approach to the problem, making leadership on climate change a central theme of the president’s earliest initiatives.
A key initiative is creation of a national “green bank” to help drive investment in the renewable energy and technology innovation market. The concept has roots in other federal financing programs that have been created to address gaps in available market funding. Private financial institutions may view the return on investment for new or untested technological innovations as too high risk, regardless of the downstream societal benefits.
In the area of clean energy technology, significant government and private equity grant and award programs exist to fund early phases of research and development activities. Moving beyond this stage, however, becomes problematic, as the journey from pilot or demonstration project to commercialization and market deployment can present substantial hurdles. As private financial institutions require evidence of profitability for funding, promising pilot projects often wither on the vine without the necessary financial backing to demonstrate viability. This early and critical phase is where federal action, through targeted loan offerings, can be impactful.
Congress has an important role to play, too. Lawmakers on the House Energy and Commerce Committee recently introduced The Clean Energy and Sustainability Accelerator Act, which would direct $100 billion to a “clean energy and sustainability accelerator,” a nonprofit entity intended to to fund renewable power, building efficiency, grid infrastructure, industrial decarbonization, clean transportation, reforestation and climate-resilient infrastructure.
By supporting promising or proven energy innovation initiatives with limited access to capital, government action could attract additional private investment and create millions of new jobs, proponents argue.
Federal, state, and local government programs with similar goals exist today, albeit in smaller models with limited scope and varying financing offerings. Each of these provide important lessons for deployment. Green banks established in New York, Connecticut and California, among others, have collectively invested more than $5 billion in clean energy initiatives, with efforts frequently catalyzing the private sector to invest significantly more.
The Energy Department’s Loan Programs Office, led by newly-appointed clean energy pioneer Jigar Shah, offers several financing programs for market innovators and has issued more than $35 billion in loans and loan guarantees supporting the development of solar, wind, geothermal, and electric vehicle technologies, among others. Beyond offering access to capital and flexible project financing, LPO supports borrowers with an in-house team of financial, technical, legal and environmental experts.
Likewise, the Agriculture Department’s Rural Utilities Service program leverages credit assistance to finance infrastructure improvements in rural communities, including water and waste treatment, electric power and telecommunications services.
Green banks have demonstrated an ability to develop innovative financing instruments to spur private sector activity worldwide. The UK Green Investment Bank was the first publicly funded bank designed to mobilize private finance into the green energy sector. From 2012-2017, it supported financing of more than £12 billion of UK green infrastructure projects before its acquisition by Macquarie Group. Though not exclusively a green bank, the European Investment Bank has financed over €53 billion in clean energy infrastructure since 2015, drawing from a capital base pooled from its 27-member state shareholders and weighted by GDP. In Australia, the government-owned Clean Energy Finance Corporation has deployed $7 billion (Australian dollars) in cleantech innovation, energy storage and other sectors since 2013.
Addressing climate change will require mobilization of agencies well beyond a national green bank, of course. Agencies as diverse as Energy, Treasury, Transportation, Environmental Protection Agency and USDA all need to play new or extended roles. The unprecedented level of cooperation needed could be facilitated through the use of a portfolio budgeting approach that shifts focus away from disparate programs and towards a coherent and coordinated strategy for addressing climate change, cutting across agency boundaries and congressional committee jurisdictions. With coordinated leadership and focus, these agencies could have an exponentially greater impact.
The Biden administration has been clear in its pledge to act boldly and quickly in pursuing a climate agenda. The federal government will play a critical role in covering market funding where needed to advance energy innovation, and the best approach will be to learn from existing models to maximize impact. There is plenty of evidence that a well-designed green bank can unlock innovation and investment toward a cleaner climate.
Kathleen Sifer, Managing Director, and Phil Kangas, Principal, are with Grant Thornton Public Sector LLC, where they focus on federal financial and regulatory issues. Kyle Reid, Managing Director, is with Grant Thornton LLP, where he focuses on the renewable energy market.