States eye green banks to spur climate investments

Billions of federal dollars are set to flow into state-run agencies that incentivize private investment in clean energy technologies and infrastructure in an effort to fight climate change at a profit.

The so-called “green banks,” government-run financial institutions that have been established in about 20 states, cities and localities, will see a substantial infusion of capital paid for by the Inflation Reduction Act, signed into law by President Biden earlier this year.

Those governments are taking a cue from Connecticut, which established the first green bank in 2011.

“We came to a realization that climate change is here and it was going to be a huge capital outlay [to deal with it],” said former Connecticut state Rep. Lonnie Reed (D), who introduced the measure. “And what this was about was preventing the renewable revolution from being fully financed by public money.” 

Reed’s legislation established the quasi-public Clean Energy Finance and Investment Authority with the mission of investing in and encouraging clean energy technology in the state. 

Money from the Inflation Reduction Act will be used to for programs in both residential and commercial buildings. States have offered incentives to homeowners who convert to a solar hot water system, developers who construct energy-efficient projects for multifamily affordable housing, or those who add electrical vehicle charging stations to commercial buildings. 

As with a more traditional bank, the state-run agencies expect to see their capital returned.

The Inflation Reduction Act, which passed along party lines as a slimmed-down version of Biden’s Build Back Better bill, will create a national green bank, while also seeding local versions through grants and lines of credit. It sets aside about $8 billion specifically aimed at projects involving lower-income and disadvantaged communities. 

Reed Hundt, founder and chief executive of Coalition for Green Capital, a non-profit that has had a hand in creating seven state-run green banks since 2010, wants to see states take the leap into energy-efficient lending.

Hundt said those programs are no loss leader — they can generate a profit. In Connecticut, $322 million in public funding has been invested in clean energy technology since 2012, according to the Authority’s latest annual report. That investment has attracted $1.9 billion in private dollars, and another $114 million in estimated tax revenue.

The point is for public money to push the private investment in clean energy “to happen faster and at a bigger scale than the market is doing on its own,” said Hundt.

“Our equation is that for every public dollar, we bring in $7.40,” said Reed, the former Connecticut lawmaker who now chairs the Connecticut Green Bank’s board of directors. 

In New York, a green bank established in 2013 is now the largest in the nation. The New York Green Bank committed $438 million in public funding to projects over the last fiscal year, which attracted another $1.7 billion in private investment.

“We know that government funding alone cannot fund the sustainable infrastructure that’s necessary to achieve our climate goals,” NYGB President Andrew Kessler told Pluribus News. “There’s no way we can get to where we need to go as a state, as a country, or as a globe without the participation of the private sector.” 

The projects have won bipartisan support: Nevada’s version was signed into law by then-Gov. Brian Sandoval (R). Michigan’s Republican-controlled legislature increased funding for its green bank in 2020. Reed’s legislation in Connecticut had support from then-state Rep. Laura Hoydick (R), the top Republican on the Energy and Technology Committee that advanced the bill.

“If you are a business owner and you wanted to put in a new boiler or HVAC system because you knew you were spending way too much on utilities, you have to either pull it out of pocket or take out a traditional loan,” Hoydick, now the mayor of Stratford, said in a recent interview. “But a traditional loan may not have worked if you didn’t have equity in your building. This helps [a business be] more efficient and the environment more green.”

Experts and observers say Connecticut and New York offered lessons for other states that may begin experimenting with green banks. Reed said she often heard from critics about how this was creating another level of bureaucracy “separating people from their money.” 

“I mean, it had never been done before. We were the first. And it’s a financial product. It’s not sexy … people didn’t really understand it,” she said. “Those who were suspicious about green energy to begin with became more suspicious when we threw a financial product in there too.”

Hoydick said she faced criticism from climate skeptics who did not believe mounting evidence of a changing world. She emphasized how Connecticut’s bank would help small business owners. 

“That was a practical message… for folks who didn’t believe in climate change. It’s really a [good] business model,” Hoydick said. 

In New York, Kessler said that there has been some skepticism that the green bank might take market share and would compete with the private sector, rather than provide a partner to grow the market. 

“It took a while to convince the marketplace that we were putting together transactions that were meant to be additive and not zero-sum,” he said. “There were certainly some challenges in telling our story, explaining where we fit, and who we are.” 

He added that green banks need the flexibility to adapt to emergent technologies in the future. 

“We designed New York Green Bank to be nimble and flexible that’s a lesson that very quickly became evident,” Kessler said. “You cannot predetermine what the market gap need is.”

Reed, Kessler, and Hundt all emphasized the need for patience and a professional staff that knows their way around setting up a financial institution. 

“I would say to states and entities that are creating green banks to really make sure that you’re not loading it up with political hacks, quite frankly,” Reed said. “Your track record is sacred.” 

Matt Blitz is a journalist in the Washington, D.C., region. Reach him at [email protected].