Green Bank Financing Driving Climate Transition Globally

For more than a decade, green bank financing has directed public funds towards private investments in green energy and climate transition worldwide, including within the United States at the state and local levels. The chosen model for distributing $20 billion from the Greenhouse Gas Reduction Fund (GHGRF) under the Inflation Reduction Act of 2022 (IRA) is also based on this approach. Well-coordinated and targeted green bank financing can promote environmental justice by investing in disadvantaged communities and mobilizing significant investment capital towards achieving net-zero greenhouse gas emissions by 2050. This financing could play a crucial role in catalyzing the needed climate investments of around $27 trillion over the next decade. By supporting key technologies in decarbonization efforts, the GHGRF can reduce emissions, benefit marginalized communities, and generate additional investments.

To achieve net-zero emissions, substantial funding is needed for these 11 technologies. Over a decade, disadvantaged communities require $200 billion, while the total investment exceeds $1 trillion. This includes $215 billion for solar deployment in households and communities, $100 billion for businesses to adopt solar energy and develop charging infrastructure, and $700 billion to boost offshore wind power, energy storage, transmission, and repurpose coal plants.

Reaching the $1 trillion goal will take time. This analysis suggests that leveraging green bank financing can mobilize over 12 times the public investment of the GHGRF over ten years. By combining $20 billion in GHGRF funding with public financing and private co-investment, a total of $250 billion can initiate crucial systemwide changes. This funding could drive innovation, direct investments to underserved communities, and contribute to one-sixth of the necessary emissions reductions by 2050. Targeting this leveraged financing towards 11 technologies over a decade could create 380,000 jobs, save $30 billion in costs, and reduce air pollution in disadvantaged communities. These benefits extend across the US, including significant emissions reductions, job creation, and cost savings, helping the nation achieve its climate goals. However, careful governance is necessary to prevent mismanagement and ensure the funds are used effectively.

To ensure and expedite the potential of investments funded by GHGRF to support national climate and environmental justice goals, it is crucial to adhere to the following five principles:

  1. Invest in projects based on their measurable impact potential: By establishing comparable impact metrics and deliberately directing financing towards communities and technologies that offer the greatest emissions reductions and equitable benefits, the effectiveness of each invested dollar can be amplified.
  2. Maximize the leverage of private capital through GHGRF funding: By leveraging extensive financial expertise to attract capital and secure substantial private co-financing alongside the initial GHGRF funding, it is possible to achieve a larger scale of direct green bank financing. It is important to remain mindful of the unique challenges faced by disadvantaged communities in this process.
  3. Foster the growth of markets through flexible financing approaches: Employing disciplined strategies that incorporate ongoing market feedback and strategic evaluation, while adapting to changing conditions and market needs, can facilitate the development of sustainable, large-scale private financing in the future. Sharing insights from successful financing approaches and investment performance can also enhance knowledge and promote replication across different regions.
  4. Establish a distributed financing network aligned with a national vision: Leveraging the local knowledge and expertise of existing institutions to connect with customers, stimulate demand, and encourage investment can enable a broader and faster distribution of funds, particularly to disadvantaged communities prioritized at the national level.
  5. Mobilize GHGRF funding swiftly through established mechanisms: Accelerate the deployment of GHGRF funding by utilizing existing project pipelines and effectively managing liquidity across multiple facilities. This approach can expedite the virtuous cycle of direct investment, private capital leverage, capital recycling, and the iterative learning process that drives market transformation at the necessary scale and pace to achieve the climate targets set by the United States.

The reinforcement of these principles is achieved through the quantitative evaluation and analysis of funding from the GHGRF. These principles are crucial for the GHGRF’s ability to support the White House’s climate objectives, which include reducing emissions, creating jobs, lowering costs, developing green infrastructure, improving health, and promoting environmental justice.

Incorporating environmental justice goals and aiming for net-zero emissions by 2050, the US enables investors to utilize green bank financing. This approach combines bold yet balanced strategies and emphasizes the need for specialized knowledge, proven methods, and careful assessment. The report highlights the substantial potential of green bank financing in achieving climate and environmental justice goals, while also driving greater private investment and fostering collaborations between public and private sectors in the US.