The End of the Beginning for US Green Banks

Photo by Andriy Onufriyenko/Getty Images


Last week was big for green bank champions. On Thursday April 4th, the Environmental Protection Agency announced $20 billion of awards from the $27 billion Greenhouse Gas Reduction Fund (GGRF) created under the Inflation Reduction Act (IRA). Three applicants were selected under the $14 billion National Clean Investment Fund, and five were selected under the $6 billion Clean Communities Investment Accelerator. The remaining $7 billion is set aside for the fund’s Solar for All program, which will launch later this year.

It’s the end of a decade-long effort to mainstream the concept of green banks—public development banks designed to finance the net-zero economy. The idea has come a long way fast. Connecticut created the first American green bank in 2011, then New York in 2013, followed by many other states and municipalities largely with the help of GGRF awardee Coalition for Green Capital. Despite years of advocacy and legislative efforts in 2019 and 2021, the potential for a national entity to finance climate initiatives was still somewhat of an Overton-window-pushing idea even in 2020, when I and other scholars from the Roosevelt Institute and elsewhere discussed its role in an ambitious green public investment agenda in the pages of The American Prospect. (Putting theory into practice, my coauthor Douglass Sims is currently leading one of the fund’s awardees, Justice Climate Fund.)  

Thursday’s awards mark the “end of the beginning” for US green banks: Ideas will now be put into practice at a new, national scale. As someone who has cared deeply about this work for the better part of a decade, I wanted to share some thoughts on the GGRF and its promise.

The full potential of green banks can be difficult to pin down. This makes it hard for politicians to get excited about them, and for modelers to point to the greenhouse gases (GHGs) they’ll reduce. They’re an odd duck.

For political expediency, green banks are often reduced to simpler stories about financing a particular technology or group. In the case of the GGRF, this was in fact how the legislative package got over the finish line. The Build Back Better Act, and then the IRA, desperately needed provisions better delivering on the Biden administration’s pledge to serve underserved communities, and a particularly famous Vermont senator was keen to include a provision providing distributed solar financing.

To serve these various goals the GGRF, originally conceived as funding one big national entity working with many state entities, was divided into various components: funding state and municipal green banks and rooftop solar financing programs, and funding national entities to finance clean energy in marginalized communities and decarbonization generally.

The basic mechanics of the GGRF, as outlined in the IRA, were ultimately that Congress appropriate $27 billion in three pots for the EPA to administer:

  1. $7 billion to state, munis, tribes, or “eligible recipient[s]” to support disadvantaged communities;
  2. About $12 billion to “eligible recipient[s]” for them to finance GHG reduction (a) directly or (b) via state, municipal, or tribes, or community lenders; and 
  3. $8 billion to “eligible recipient[s]” as per (2) above, but exclusively for disadvantaged communities.

Although different from the original conception for a federal green bank, the outcome—a few pots funding multiple clean energy financing entities, and emphasizing climate justice objectives—was great. A swiss army knife is fully serving its purpose when the best tool for the moment is put to work! IRA needed to make good on administration promises to prioritize climate justice, and green banks are indeed an excellent tool through which to solve the problem of financing clean energy transformation in historically marginalized communities. 

I also want to point, though, to the greater promise of green banks: Public capital can have a powerful role in steering private capital toward the communities and technologies that need it most. It can take calculated and compensated bets in technologies and markets in which the private sector is slow to act, or by demonstrating the commercial viability of new technologies or business models. (This relates to a larger debate on value of the derisking state I’ve written about elsewhere.)

My friend and fellow green bank champion Dan Adler put it this way: Green banks help bridge the gap between “financeable in the abstract” and “actually financeable.” People often think this gap is minimal, but it is often quite wide. It is much the same way that people mistakenly believe new innovations—if they are truly viable—will cross the financing valley of death and become commercialized. Many don’t. 

Where financing is the bottleneck, this can be because of “first of a kind” financing risks, because a community or market is being overlooked, or because financing terms need to be streamlined and standardized before they can be scaled in the secondary market. Solving these challenges is  the remit of green banks.

With the launch of the GGRF, we have an enormous new pool of financial capital in institutions carrying public missions to close the gap between “financeable theoretically” and “financing in reality” for the clean energy economy. This capital will work for underserved communities where bankable clean energy projects are overlooked because of historic injustice, and it should work to bring near-frontier clean technologies to adoption. 

Green banks will unlock clean energy financing everywhere.

A version of this blog was published for The Roosevelt Institute and can be found here.

Ilmi Granoff

Ilmi Granoff is currently a partner at the strategic advisory firm Climate Technology Group and a senior fellow at the Sabin Center for Climate Change Law. He is also a member of the Climate-related Financial Risk Advisory Committee (CFRAC) of the Financial Stability Oversight Council at the US Department of the Treasury, and a visiting senior fellow at the Grantham Research Institute at the London School of Economics. Ilmi is a non-executive director of Carbon Tracker Initiative, Inc. and a member of the Advisory Board of InfluenceMap.