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Farmland is seen with solar panels from Cypress Creek Renewables, October 28, 2021, in Thurmont, Maryland.
President Biden’s Inflation Reduction Act set aside $27 billion to deploy clean-energy technology in buildings across the country. The Environmental Protection Agency (EPA) is now deciding how to set up that Greenhouse Gas Reduction Fund (GHGRF), of which $7 billion will go directly to state, local, and tribal governments. But the spending plan for the remaining $20 billion is up in the air.
At issue is how many organizations will have direct access to the money. Some groups say the EPA should direct funding to a multitude of lenders with a track record in poor neighborhoods that struggle to access banking. Another set says the money should flow through a central source: a new national climate bank.
The Coalition for Green Capital (CGC), an influential group that has advocated for years for regional green banks, is bidding to act as a central hub for the cash, negotiating deals with Wall Street to multiply the public investment.
Over the past decade, an array of state, local, and nonprofit green banks have been set up—many with input from the Coalition for Green Capital—to channel more money into installing clean-energy equipment in buildings around the country. Focused on ensuring that loans will be repaid, many have struggled to strike deals that create “additionality”—that is, making loans that private banks do not already offer.
The IRA’s cash infusion is geared specifically at bringing clean energy to low-income areas, and the Biden administration is aiming through its Justice40 initiative to direct at least 40 percent of climate investments like those in the GHGRF to “disadvantaged communities.” The Coalition for Green Capital argues that a single, national entity is best equipped to bundle those deals and make them attractive to private investors.
“Major sources of capital won’t pay attention to you unless your minimums are in the hundreds of millions or billions,” Reed Hundt, the CEO of the CGC, told the Prospect in an interview. His group plans to ask the EPA for all $20 billion. If CGC is capitalized with that sum, he said, it would start by matching it with another $20 billion from the private sector. A national entity would be better positioned to offer deals at scale, he argued, than a fractured landscape of lenders.
Doubling the initial $20 billion is just the start of how a national climate bank could leverage commercial capital, said Hundt, who previously chaired the Federal Communications Commission (FCC) under President Bill Clinton. When he led that agency in the ’90s, he oversaw a build-out of internet infrastructure that he says has many analogies to the present overhaul of the electric power system.
Sens. Chris Van Hollen (D-MD) and Edward Markey (D-MA), and Rep. Debbie Dingell (D-MI), have joined Hundt in his push, having urged EPA Administrator Michael Regan in October to capitalize “a single, independent, non-profit national climate bank that would maximize the leveraging of private capital investment.”
But in public comments to the EPA, credit union trade groups and community organizations argued that existing local lenders would do a better job creating demand for clean technology in areas that do not have the resources to proactively seek financing for complex rehabilitation projects.
The Coalition for Green Capital, an influential group that has advocated for years for regional green banks, is bidding to act as a central hub for the cash.
“Concentrating all resources into a single national green bank runs a high risk of excluding community development and green finance intermediates and increases the risk that funds will not be deployed on a timely basis and to the populations the GHGRF is designed to serve,” the African-American Credit Union Coalition wrote in its public comment.
Hundt said it would be crucial to work with local lenders to originate deals. But he would prefer that his national entity control the fund, in order to leverage as much private capital as possible, he said, laying out his plan of action: “Centralize the money, borrow at least the amount deposited on day one, and then you distribute it locally.”
Critics of Hundt’s approach say obtaining the financing is the easy part. The real challenge is in technically evaluating loans, on a case-by-case basis. Local entities will lead that underwriting work, making sure engineering and promised cost savings are sound. The question is whether they have the resources to vet deals thoroughly.
“A national climate bank without a track record and local relationships is less likely than local entities to enforce standards and protections for building owners and decent terms from vendors and contractors,” said Joe Morris, lead organizer for the Clean Energy Initiative at Metro IAF, a coalition that has worked on green development.
“A national bank may well be worth building, but it should be built right,” Morris added. “I just don’t see how you can rush a green bank into existence, and expect to protect homeowners from shoddy projects and sales-oriented vendors.”
Other community groups echoed those views in public comments.
“As capillaries of the financial system, CDFIs [community development financial institutions] reflect and understand the communities they serve,” wrote the Rural Community Assistance Corporation, a nonprofit that works on development in rural and tribal areas. “Funding cannot be deployed to CDFIs and other mission lenders only as subrecipients. Direct recipients of GHGRF dollars will be making some of the most important governance decisions about what types of projects are funded, which end users receive funds, and the terms of the capital.”
The challenge of originating a high-quality “project pipeline” is a frequent complaint among green entrepreneurs. “I’m less worried about finding the money than finding the deals,” one solar financier told researchers for a study at the University of New Hampshire.
The Kresge Foundation and the Schmidt Family Foundation, two philanthropic foundations that have been involved in financing clean energy, argued in a comment to the EPA that the majority of the funding should be aimed not at lowering the cost of zero-emission technologies, but at technical assistance for low-income communities to design deals.
“There are vast potential sources of private capital for CDFIs, green banks, and other financing intermediaries. Private investors (including banks, insurance companies, and corporations) want to invest in the transition,” the foundations write. “And yet, they share our experience of seeing too few opportunities to do so at scale. The conclusion seems clear: if we can build demand in communities, the financing will follow.”
The Connecticut Green Bank, the first state green bank in the country, which was designed and launched with help from the Coalition for Green Capital, made the opposite case in its public comment, arguing that access to capital markets remains a challenge.
A national climate bank could attract “vast pools of private-sector investment capital,” the bank argued, including funds from “Wall Street and global banks, private equity, institutional investors such as pension funds, endowments, insurance companies and family offices, and public and private capital markets. All would be attracted to the NCB’s clean energy, climate, and sustainability purposes, substantial capital base, market reach, collaboration with an array of green finance entities (i.e., green banks, CDFIs, CDCUs, Minority Depository Institutions (“MDI”), etc.) and anticipated AA/AAA credit rating.”
A further virtue of a national climate bank, the Coalition for Green Capital argued in its own public comment to the EPA, is standardization: Private-sector investors are looking for “reasonable returns” on homogenous loan products that can be aggregated and securitized.
One might expect that Hundt would make the case that there are political advantages to creating a new public institution with a stake in continued support for the clean-energy transition. But he steers clear of arguing that capitalizing a national green bank creates a new vested interest for more funding.
“We get this funding, and we don’t ask Congress for any more money. This is it,” he told the Prospect. “It was designed to be independent.”
Unlike multilateral lenders like the World Bank, or housing financiers Fannie Mae and Freddie Mac, the Greenhouse Gas Reduction Fund can’t rely on “callable capital” (that is, the guarantee of a government bailout) to leverage up its balance sheet more aggressively. Since the fund’s own portfolio is the security, it must make prudent and diverse loans to remain solvent.
Hundt would like to keep it that way, in order to insulate it from the whims of congressional funding. If the government ever proposed to back the loans with the full faith and credit of the U.S. government, Hundt said, “that would be a disaster.”
“If you ran into a Congress that didn’t want to raise the debt ceiling, which is right now what you’re seeing, then you could be put out of business,” he said.
Given Hundt’s larger-than-life role in the growing green-capital scene, many consider him the presumptive leader of a national climate bank. Now that the EPA has received public comments, Hundt said, he hopes it will put out a Request for Proposal by mid-February so that his group can formally ask for the $20 billion. The coalition is in search of a CEO, who he says would decide his own role at the provisional bank.
As FCC chair, The New York Times reported, Hundt had “notoriously bad relations with Congress.” (He retained government access through his “soulmate” and St. Albans prep school classmate, Vice President Al Gore.)
In the ’90s, Hundt also designed unusual schemes for raising private cash—for example, auctioning licenses for television broadcasting, which were seen by entrepreneurs in 1994 as a way to “grab a stretch of the information superhighway.”
“If you want to build the information highway through private investment, you have to let private investors make the decisions,” Hundt told The New York Times at the time. “We provide opportunities, we don’t provide guarantees. There are absolutely no guarantees.”
