ImpactAlpha, Jan. 14 – After toiling away for the past several years at the state level or in developing countries, green bank advocates are back in Washington – and scoring wins.
Green banks are public or nonprofit financial institutions focused on mobilizing capital for clean energy, green infrastructure and emissions reduction projects.
The legislative framework unveiled last week by the U.S. House of Representatives aimed at reaching net-zero emissions by 2050 calls for the creation of a national green bank. So, too, does the National Climate Bank Act introduced in the Senate in July, which would create an independent non-profit climate bank capitalized with $35 billion of federal funds over a six-year period.
The bill sponsors have their eyes on 2020, and Democratic presidential contenders including Pete Buttigieg and Elizabeth Warren have adopted green banks in their planks.
Similar legislation has been floated in the past. But with interest rates at historic lows – and global temperatures at historic highs – the timing may be right.
“We saw a window of opportunity in the 2020 election and surge in popular interest in doing something about climate change,” Jeff Schub of the Coalition for Green Capital (CGC), a green bank advocacy group, told ImpactAlpha.
Green banks use concessionary capital and other means to marshal private capital for projects that might not otherwise attract financing due to their size, difficult economics or novelty.
Fourteen U.S. state have launched green banks launched since 2011, including Connecticut, Michigan, New York, Nevada and Hawaii. Together, they’ve catalyzed $3.67 billion in clean energy investment with $676 million – a more than 3 to 1 ratio.
A U.S. climate bank funded with $35 billion could activate a total $1 trillion via co-investment, capital recycling and balance sheet leverage, according to CGC.
South Africa and Australia are among the two-dozen or so countries that have established green banks to help meet their national climate goals. At COP25 in Madrid last year, nine nations including India, Peru, and Rwanda announced similar plans.
Green banks are part of a broader wave of public sector financial innovation. Last fall, California enacted a law allowing for city-owned public banks that serve the common good.
Neither green banks nor public banks are true banks. They don’t take deposits; instead they work with private sector investors, lenders or commercial banks to spur investment. A key difference: public banks serve as a government’s bank account, holding funds such as pensions that must be preserved. Green banks, in contrast, are funded with appropriations and therefore have more flexibility in how the capital is deployed.