The National Climate Bank Act introduced this year is based in part on successful projects in Connecticut and New York.
Even as previous attempts to win bipartisan support for a national green bank have failed to gain traction, advocates are continuing to promote the concept, this time with an even more ambitious proposal based in part on successful projects in the Northeast.
The National Climate Bank Act, introduced earlier this year by Sens. Edward Markey and Chris Van Hollen, aims to build on the growing network of state and municipal green banks, but at a much bigger scale.
Green banks are financial institutions focused on stimulating private investment in clean power goods and services. Whether public or nonprofit, they use various financing techniques to lower investor risk on clean energy projects, thereby making them more attractive. They don’t provide subsidies — as loans are paid back, the capital is recycled into other projects.
The national proposal would create an independent nonprofit climate bank that would be capitalized with $35 billion in federal funds. Using proven techniques pioneered by the Connecticut Green Bank, the nation’s first, and New York Green Bank, one of the largest, the bank would be authorized to directly finance an array of clean energy projects, as well as to direct capital to state and local green banks.
Earlier proposals over the past few years called for setting up a fund in the Treasury Department as a pass-through mechanism to provide capital to state and local green banks. That model was also introduced again this year.
The Climate Bank proposal comes as the number of green banks around the country continues to grow. Since Connecticut established the first such entity in 2011, an additional 13 green banks have formed at the state and municipal level, together driving just under $4 billion in investment, according to the Coalition for Green Capital, a nonprofit that advocates for green banks.
Jeffrey Schub, the group’s executive director, said that, given the current deadlock in Washington, they aren’t expecting the climate bank legislation to go anywhere right away. Instead, he said, “the strategy is to build support and put the Climate Bank into the blueprint for what climate policy would look like in 2021.”
His organization is working on signing on as many sponsors as possible, as well as selling the idea to Democratic presidential primary contenders.
He estimates that $35 billion in federal funds could leverage as much as a trillion dollars in total investment over 30 years.
While the national bank could direct badly needed capital to state banks helping to fund investments in localized projects like distributed energy, community solar, and energy storage, it could also directly leverage finance on its own in “projects that are more politically or practically complicated,” Schub said. Those projects might include transmission lines carrying renewable power across states, and very large utility-scale renewable energy projects.
“There’s a need to put our foot on the gas,” he said.
Robert Klee, a lecturer in the Yale School of Forestry and Environmental Studies and a former commissioner of the Connecticut Department of Energy and Environmental Protection, has reached the same conclusion. In a recent series highlighting state climate-goal policies that can be used as a blueprint for a national decarbonization plan, Klee cited a national green bank as crucial to unlocking the level of private capital that will be needed to fund rapid clean energy deployment.
What Connecticut and New York have shown in particular, Klee said in an interview, is how their funds can be used within the framework of existing capital and financing markets to focus investors’ attention on the clean energy projects most needed, and make them comfortable with funding new technologies by lowering their initial risk.
“Given the size and scale of the challenge we face, this is something that a handful of leading states can’t do alone,” he said. “It should be a no-brainer — it’s about stimulating markets and encouraging private capital activity.”
Klee estimates that a federal investment well beyond $35 billion is required, however. He’d like to see a national green bank funded at $50 billion annually for 10 years.
State-level green banks are hungry for that capital. While the Connecticut Green Bank is able to attract seven private dollars for every public dollar it invests, “from a capital mobilization perspective, we need another order of magnitude per year to hit the targets we are supposed to hit,” said Bryan Garcia, the bank’s president and chief executive. “A national bank would be able to get us that capital to scale up our activities.”
As it is, the bank has had to work hard to stabilize its finances since Connecticut lawmakers, seeking to close a budget gap, raided more than half of the bank’s ratepayer-funded revenues two years ago. In addition to cutting operating expenses, the bank is working on creating new streams of revenue. Earlier this year, it issued its first “green bond,” backed by solar energy credits.
Garcia said they are now working on an innovative “mini green bond” structure that would allow citizens to buy small-denomination bonds of less than $1,000 to support clean energy investments in Connecticut. The return might be around 3% to 5%. Garcia hopes to introduce the product by Earth Day next year.
“It’s a way of raising more capital to reach our goals, but it’s also about engaging citizens, about working together as a society,” he said.
Mary Templeton, the president and chief executive of Michigan Saves, said they too need the additional capital a national climate bank could provide. Since making its first loan in 2010, the nonprofit, independent green bank has supported more than $200 million in energy financing, and is aiming to reach $1 billion by 2023.
Templeton expects that they will soon need to replenish the loan loss reserves they use to lower the risk for the private lenders who finance their home and commercial energy improvement programs. In addition, she said, a national climate bank could help them better serve low- to moderate-income households. While their existing programs are doing that fairly well, there are still gaps — like households with particularly low credit scores — that additional capital could help them cover.
Klee notes that while a national green bank has been slow to catch on in Washington, the U.S. Climate Alliance is focused on developing new banks among its 25 member states, and possibly beyond. The New York Green Bank has pledged to raise $1 billion in private capital to be put into clean energy investment both in and outside of New York.