EPA’s new $20B ​‘green bank’ will benefit disadvantaged communities most

How can $20 billion in federal funding unleash hundreds of billions of dollars in private-sector financing for clean energy, transportation and housing — and expand access to all of those things for disadvantaged communities across the country?

Jessie Buendia, vice president of sustainability for nonprofit Dream.org, has spent the past year and a half working with environmental justice groups and clean investment experts to come up with ideas for how to accomplish that. This week, as part of the Inflation Reduction Act’s green bank program, the coalition Buendia works with got the money to start putting those ideas into practice.

On Thursday, the Biden administration named eight groups that will receive a total of $20 billion in funding from the Greenhouse Gas Reduction Fund, the official name for the green bank program. The structure is largely modeled after the green banks that now operate in 17 states — government-backed and nonprofit entities that offer low-cost loans and other financial support for rooftop solar, efficiency retrofits, electric heat pumps, EV charging and other carbon and pollution-reducing projects, with a focus on low-income and disadvantaged communities.

The biggest winners of the federal green bank program may be the residents of low-income and disadvantaged communities, who people like Buendia can now more easily help access clean energy and other climate-focused upgrades. The Environmental Protection Agency, which administers the program, has set requirements for green bank fund administrators to dedicate 70 percent of the capital, or more than $14 billion, toward these communities.

These requirements have been built into the agreements between the EPA and the groups receiving the funding, Buendia noted. ​“It’s a win for democracy and oversight for government watchdogs like us,” she said. ​“We’ll be able to hold the EPA accountable to delivering the projects and jobs we want to see.”

Of the $20 billion awarded Thursday, $5 billion will go to the entity Buendia is working with — the Coalition for Green Capital. The coalition is made up of state and local green banks and environmental advocacy groups like the one Buendia is national director of, called Green For All.

The Greenhouse Gas Reduction Fund represents ​“a historic opportunity to create an inclusive green economy,” Buendia said — ​“one built around the principles of greenlining rather than redlining.”

Redlining is the discriminatory practice of refusing to lend to residents of non-white communities — a practice that has been baked into government policy and private-sector practice since the New Deal. Greenlining refers to reversing that discrimination by offering loans with more forgiving terms in historically excluded communities.

Today that task is taken on by the more than 1,200 nonprofit community development financial institutions (CDFIs) that have been certified by the U.S. Treasury Department to work in underserved communities, as well as other ​“local trusted lending partners in communities that are the most impoverished and most polluted,” Buendia said. But ​“community development lenders who have expertise in working with disadvantaged communities lack expertise in green lending,” she said.

That’s where green banks can come in, partnering with communities to provide not only much-needed capital to build crucial climate and clean energy infrastructure, but the expertise and experience needed to make those investments pay off.

The green bank multiplier effect

Green banks focus on clean energy and climate projects that they see as promising targets for private-sector lending, but which lack the track record to convince conventional lenders to invest.

Since the first green bank opened in Connecticut in 2011, that process of making loans, getting them paid back, and then using those success stories to draw in private-sector lenders has successfully enabled $21.8 billion in public-private investment to date, according to data shared by Coalition for Green Capital in January — the majority of it from private-sector lenders.

The EPA has set a goal of achieving a ​“private capital mobilization ratio” of seven-to-one for the $20 billion in public funds, equating to a total of $150 billion of public and private investment. In an April 2023 analysis, consultancy McKinsey forecasted that the program could ​“mobilize more than 12 times the GHGRF’s public investment over ten years,” or up to $250 billion in private-sector investment.

That would be a welcome outcome: Demand for climate and clean energy financing well exceeds the $20 billion available from the EPA program, said Reed Hundt, co-founder and CEO of the Coalition for Green Capital. Hundt, the former U.S. Federal Communications Commission chair under the Clinton administration, was one of the earliest champions of the green bank concept.

Green banks in the coalition currently have ​“a $30 billion pipeline” of projects they’ve vetted and would like to finance, Hundt told Canary Media. The $5 billion the coalition received ​“isn’t going to make a big dent in the pipeline. But we’ll be able to skim the cream in that pipeline and get this money to work.”

Who is in charge of the green bank funds?

The EPA picked groups to manage two separate sets of funds that fall under the new federal green bank umbrella. The first is the National Clean Investment Fund (NCIF), a $14 billion program that requires the funds to adhere to the Biden administration’s Justice40 Initiative, its pledge to direct 40 percent of federal climate-related funds to historically disadvantaged communities.

All three of the awardees for this program have pledged to exceed the Justice40 requirement in their lending. Besides the Coalition for Green Capital-led group that was awarded $5 billion, the EPA picked two other consortiums out of at least five competing for the funding.

The largest amount — $7 billion — was awarded to Climate United, a partnership between investment firm Calvert Impact, multifamily affordable housing financier Community Preservation Corp. and community development financial institution Self-Help.

Climate United stated in a Thursday press release that it has committed to deploy at least 60 percent of funds in low-income and disadvantaged communities, at least 20 percent in rural communities and at least 10 percent in Native communities.

The third award of $2 billion was won by Power Forward Communities, a partnership led by pro-electrification nonprofit Rewiring America, community development financial institution Enterprise Community Partners, Habitat for Humanity, the Local Initiatives Support Corporation (LISC), and United Way. The partners plan to provide financing to homeowners and apartment building owners to upgrade appliances, weatherize homes, and make them more energy efficient and less expensive to operate.

EPA also announced awards for the $6 billion Clean Communities Investment Accelerator (CCIA), a fund structured to supply community lenders such as CDFIs and credit unions with funding and technical support for sustainable infrastructure projects. This fund is meant to be directed entirely to low-income and disadvantaged communities, and was organized by the EPA to meet demands from community financing institutions that green bank funds be more widely disbursed, rather than given to a handful of nationwide organizations.

The five groups that received CCIA awards include a set of nonprofit ​“CDFI Intermediaries” that provide capital to community lenders across all 50 states, the District of Columbia, and several U.S. territories. They also include entities standing up a Green Bank for Rural America to work in coal, energy, underserved rural and Tribal communities and a Native CDFI Network with a presence in 27 states across rural reservation and urban communities.

One more set of funds from Greenhouse Gas Reduction Fund — the $7 billion in grants under the Solar for All program — hasn’t yet been awarded. This graphic from the Natural Resources Defence Council explains how the program’s different buckets of funding are organized.

Where green bank funding could go

While the forthcoming Solar for All program is specifically aimed at providing grants to solar installations, the $20 billion in funds for the NCIF and CCIA can be applied to a much broader variety of projects.

This report from the Coalition for Green Capital highlights the diversity of projects under consideration by green banks, ranging from $150,000 loans for a nonprofit group in Houston to replace heating, air conditioning, lights and windows in its headquarters, to a proposal to invest $86 million in multiple community solar and distributed solar projects being developed by communities and multi-family housing.

The financing from this $20 billion pool can also be structured in a variety of ways, including low-interest loans, loan guarantees, loan loss reserves, or even equity investments in projects.

The scope of projects under consideration at U.S. green banks include ​“some wonderful distributed storage projects” and ​“a potentially tremendous idea for a green insurance company,” Hundt of the Coalition for Green Capital said, though he declined to provide more details.

But they also include a long list of repeatable projects in distributed solar, battery storage, clean transportation and energy efficient and electric buildings — what Hundt described as ​“a clean power platform for the whole economy.” McKinsey has found that this class of projects requires roughly $315 billion in investment between now and 2032 to keep the U.S. on track to meet its carbon emissions targets. Of those, about $60 billion must be made in disadvantaged communities.

For most Americans, clean energy and decarbonization means solar panels, EVs and energy efficiency investments in homes and apartments, schools, health care clinics, houses of worship — and other places ​“where people live, work, learn and play,” according to Climate United CEO Beth Bafford.

“This is where these technologies show up in their lives and how they either experience them or they don’t,” she said. ​“And for many communities and organizations, they’re not experiencing them because they’re premium products coming on the market, and if you don’t have access to credit or cash in pocket to pay up front, you’re not going to get the economic and health benefits of being able to access those technologies.”

Putting green bank funds to work, the right way

Government grants and tax credits are a definite boost to making clean energy investments in disadvantaged communities, but often not enough of one to overcome the barriers faced, Buendia noted. Grants are often relatively small or restricted to particular uses. And tax credits don’t solve other barriers like a lack of access to capital to purchase equipment or pay for construction.

“What needs to happen to get projects off the ground is blended capital,” she said. ​“Grants can serve one purpose, loans can serve another purpose, equity can serve another purpose.”

“Most communities don’t have the expertise to do that kind of blended capital — and they might end up using grants for things they should have used loans for, or infrastructure bonds,” she said. Nor do disadvantaged communities have access to the private-sector financing sources that the groups set to manage the EPA’s $20 billion in funds do, she noted.

Green banks aim to provide this financial expertise to communities — but it only works if communities play a leading role in how the money is spent to provide the jobs, economic development and environmental improvements most important to them, she said.

Buendia cited the example of Fresno, California, a city in California’s Central Valley that has the highest level of concentrated poverty in the state. Dream.org has been working with local government, nonprofit, environmental justice and community organizations in Fresno over the past year to plan how to make the best use of a $1 million grant from the EPA’s $5 billion Climate Pollution Reduction Grants (CPRG) program.

That work has yielded a climate action plan for Fresno, which includes a significant investment in EV charging infrastructure to reduce the transportation emissions that both warm the planet and contribute to some of the poorest air quality in the state.

“Communities have gotten grant dollars to develop plans,” Buendia said. ​“But there are limits around public dollars that won’t allow them to get the projects started.”

Being ​“supported by a national green bank that can double the resources, and bring in private-sector financing,” could ​“begin to raise the visibility of the need of this community, to bring down all this capital that doesn’t know that Fresno existed to build out EV infrastructure.”

Structuring financing for community-developed projects like these in ways that create economic opportunities, while also delivering adequate returns for the lenders involved, is much more complicated than financing a project that treads a more familiar path, like a clean energy power purchase agreement for a big corporate customer. But once it’s successfully accomplished, it can be repeated, and repeated again — and, eventually, what was once considered an unprofitable or overly risky class of project may be transformed by experience into yet another run-of-the-mill investment opportunity.

If that can be done, ​“we’re going to be way more successful at being able to achieve not just greenhouse gas reduction goals, but achieving these really important equity standards, from seeing wealth creation within a community, to creating job opportunities, to creating healthy and sustainable infrastructure,” Buendia said. ​“We can go into communities in blue, red and purple states and say, this transition doesn’t have to happen at a premium. This can actually be cost-effective for you.”