There’s no green bank at the federal level in the US, but a handful of states and cities — including Connecticut, New York, and Washington, DC — have been running them for years. In 2020, nearly $2 billion of green bank funds generated $7 billion of investment in projects around the country, without federal investment. But that could soon change. President Joe Biden included $27 billion for a “Clean Energy & Sustainability Accelerator” (a longer name for a green bank) in his $2.25 trillion American Jobs Plan. Biden’s proposal is modeled on a bill from Rep. Debbie Dingell (D-MI) and Sens. Ed Markey (D-MA) and Chris Van Hollen (D-MD) calling for $100 billion of federal investment over 10 years — projecting it could grow to over $800 billion by leveraging additional private funds. A green bank isn’t government grants, and it’s not tax credits — which are the primary federal drivers of clean energy development in the United States. Instead, these banks typically take the form of either a government-owned or quasi-public bank that takes a set amount of government money to launch and then leverages private money to fund different projects. And like private banks, green banks expect to be paid back.
“It’s a hugely promising strategy, both for deploying clean energy, and especially in the communities that need those benefits,” US Energy Secretary Jennifer Granholm said earlier this month. Clean energy development in the US is typically funded by production and investment tax credits, which — as the name suggests — encourage companies to either invest in wind, solar, and other clean technology or to produce more clean energy in exchange for reducing their taxes.
How green banks work Green banks work much more like a regular bank — lending money for clean energy or energy-efficiency projects with an expected return on investment. Green banks essentially use a combination of public and private money, taking a smaller amount of public funds and leveraging private dollars to grow projects.
“It’s not an either or, it’s an and both,” said Sam Ricketts, cofounder of the climate policy group Evergreen Action and a senior fellow at the Center for American Progress think tank. “You add to what is an unrivaled federal government power of the purse — you could make these projects go zoom.” The next few weeks and months will determine what can make it into an infrastructure bill and what can pass through Congress. If the US embraces the green bank concept at the federal level, it could be a game-changer for how clean energy is financed as well as the rate the US could develop new projects. This is especially true if the green bank was coupled with more investment and production tax credits in a final infrastructure bill.
“ 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.” 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.
“You want to think about a green bank as being a double incubator,” Kauffman said. “It can both incubate financing structures and also demonstrate that by scaling up a loan product, it can become financially attractive for the private sector.” One state over, New York Green Bank founder Richard Kauffman’s experiences managing the loan portfolio in Barack Obama’s Department of Energy shaped what he wanted to do — and not do — for a green bank at the state level. One thing Kauffman wanted to avoid was giving out government subsidies for projects that might have happened without help from the government. He instead wanted the bank to find projects that were struggling to attract private money, the kind that could really benefit from a green bank loan. 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.
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