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How can a national 'green bank' help disadvantaged communities go green?

The most innovative aspect of the newly passed Inflation Reduction Act (IRA) might be its establishment of a $27 billion Greenhouse Gas Reduction Fund, aka, a national green bank.

Green banks can be best understood as regular, private banks. Money is put in, taken out, and expected to be paid back. The main difference is that green banks are just that, green.

The money taken out is used for projects that invest in the mitigation of climate change, sustainability, and decarbonization efforts. These projects are community-centric and can look like reducing energy consumption and water usage or creating energy autonomy and alternative sources.

Green banks are seen by governments as a public service. The funds put into a green bank are not government grants or tax credit incentives. As seen in the IRA—as it concerns the mass adoption of electric vehicles and other renewable energy and green alternatives—grants and incentives are the primary way the United States funds clean energy projects. Green banks do it differently.

Instead, these banks are either government-owned, publicly-owned, or semi-publicly-owned. The money they sit on is a set amount of government money used for its launch and then an ongoing stockpile of private money used to leverage green projects.

Green banks then lend this money, with an expected return on investment, wielding their modest amount of public funds for projects like community solar arrays, and making these projects more attractive to private investors.

Proponents of green banks refer to them as “accelerators” for clean energy technology. The model is successful in other countries. Australia’s green bank, which is the largest in the world, helped to scale investment in energy-efficient homes and bioenergy, as well as wind, solar, and hydrogen energy development, accelerating the country’s commitment to net zero emissions by 2050.

Underwater view of sunlight filtered through ocean waters illuminating green coral.
Image Credit: Wix

The Australian green bank, known as the Clean Energy Finance Corporation, also invests in key sectors of the economy like agribusiness and sustainable transport, as well as specific projects like ensuring the health of the Great Barrier Reef.

Similarly in Africa, green banks and national climate funds, most notably in South Africa, have played a large role in mobilizing funds for low-carbon and climate-resilient development. Before the UK government sold its green bank in 2017, it was responsible for much of the country’s rapid offshore wind development.

As of 2020, the British government is considering bringing it back and building it back “better.” Why? To simultaneously revive an economy and reach climate targets. In reviving that economy, it should strive to be “net-zero,” the UK’s minister said. In America, the same can be done for the nation’s neglected communities.

Among the IRA’s lofty investments in low and zero-emission products, technologies, and services, $27 billion is reserved for a national green bank. At least $8 billion of these funds will be used to target projects in low- to medium-income communities.

Moreover, within the green bank, states and tribes can apply for $7 billion worth of grants and loans “to enable low-income and disadvantaged communities to deploy or benefit from zero-emission technologies,” the legislation says.

While some environmental justice advocates and groups argue that the scale is inadequate, most notably when compared to other investments within the IRA and outside, such as the national defense budget, taking advantage of the available resources provided by the bill’s green bank could prove useful in aiding disadvantaged communities.

Notably, it could equip them with the resources needed to cope with climate events and funding for people-of-color-led grassroots organizations that will likely play a leading role in the implementation process.

Before the IRA, no green bank existed at America’s federal level. However, states and cities across the country have been running them for years all without federal investment.

State Policy Opportunity Tracker, or SPOT, an information hub built by The Center for the New Energy Economy and The Nature Conservancy, rates state clean energy policy on a five-point scale in order to serve as a planning tool. Of the 50 states, 10 have fully established green/infrastructure banks that are funded and accurately financed. Another four are well on their way.

Two key examples include Connecticut and New York, which are the most mature of the green banks, established in 2011 and 2013 respectively. Since, several states and cities established them including California, Nevada, Florida, and Hawai’i.

But are they working? The proof is in the $$$.

According to the National Renewable Energy Laboratory, as of 2016 Connecticut and New York’s have collectively invested nearly $575 billion in total clean energy investment. Reportedly, these investments have mobilized the private sector to invest three to six times the amount of public dollars at work.

These numbers are further backed up by the American Green Bank Consortium; the 2021 industry report shows for every public/federal dollar invested in a green bank returned $3.70 in overall investments into the American clean energy economy. That type of mobilization could happen nationwide. If the federal government’s $27 billion is plugged into that equation, nearly $100 billion is expected to return in clean energy investments and projects.

All of that money may sound good, but what type of tangible projects have these green banks jump-started?

“What green banks have done over the last decade is help finance the pieces of the clean power transition: heat pumps, distributed solar, microgrids, electric vehicles, and much more,” Reed Hundt, chairman and CEO of the advocacy group Coalition for Green Capital, told The Washington Post’s Climate 202.

With just two years under its belt, the D.C. green bank financed $56 million across 36 projects.

The most recent of these projects is Green Compass, an initiative established in 2021 that supports stormwater diversion and green infrastructure projects to improve air and water quality, lower electricity bills, and provide green jobs in D.C.’s Wards 5, 7, and 8. The project increased the community’s resilience to flooding and addressed neighborhood-specific issues such as continuous flooding of a historical Jewish cemetery in Ward 8.

A similar project in 2020 invested green bank money into the Solar For All initiative, providing low-cost electricity to moderate and low-income households. The wards targeted represent the lower half of D.C.’s income bracket. D.C.’s green bank is only in Phase 1 and will likely play a huge role in making the district carbon-free by 2050.

Like D.C., other states and cities use their green banks to prioritize communities most in need. For example, the Hawaiian Green Bank was established to “democratize clean” energy and prioritize these households, renters, non-profits, and small businesses.

In its first nine months, the program has funded $6.6 million in solar PV projects with 78 percent going to low-to-medium income customers. To put that into perspective, the 1.6 megawatts of installed PV has avoided 12,000 metric tons of projected greenhouse gasses over the lifetime of the panels. Imagine that on a national level.

Since 2011, American green banks generated $7 billion in clean energy investment, with $1.7 generated in 2020 alone, the Consortium’s 2021 report said. A federal bank could be even more effective, spurring about $10-100 in private capital for every dollar of public investment Reed Hundt estimates in an Inside Climate interview.

“It’s the biggest amount of money dedicated to public-private investing in energy infrastructure of any capitalist country in the world,” Hundt told the publication. “We need to go from words to reality, and all across the country. But we needed money to do it, so, this is pretty dramatic.”

It’s important to note that if successful, the green banks may be self-perpetuating and not require additional appropriations from Congress, streamlining the funding process.

Outside of the United States, green banks are emerging and existent around the world, dotting the globe in Asia, Africa, Europe, Australia, and other parts of the Americas. According to a report by the non-profit Rocky Mountain Institute (RMI), 61 exist across 36 countries as of 2020.

Nevertheless, like many clean energy projects on the world stage, the makeup is uneven, with green banks subsisting in countries that make up 43 percent of global CO2 emissions. 42 percent of countries with emerging green banks are lower to middle income.

By region, the emerging institutions exist the least in North America. But, the U.S.’s establishment of a national green bank could change that, not only by potentially sparking more institutions worldwide and helping lower global emissions but by providing more climate resilience and mitigation back home.

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