Green banks being prepped for the U.S. national stage (again)

ImpactAlpha Editor

Amy Cortese

ImpactAlpha, Jan. 14 – Green banks are operating in two dozen countries and more than a dozen U.S. states, but establishing a national green bank in the U.S. has proved a stubborn challenge.

With interest rates at historic lows – and global temperatures at historic highs – the timing may finally be right. Green banks are public or nonprofit financial institutions that mobilize capital for clean energy, green infrastructure and emissions reduction projects.

A legislative framework for reaching net-zero carbon emissions by 2050, unveiled last week by a committee of the U.S. House of Representatives, calls for the creation of a national green bank. The National Climate Bank Act, introduced by Democratic senators in July, would capitalize a non-profit bank with $35 billion of federal funds over six years. Presidential contenders including Pete Buttigieg and Elizabeth Warren include green banks in their planks.

“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 told ImpactAlpha.

Catalytic capital

Green banks use low-cost capital, subordinated debt, credit enhancements and other tools to marshal private capital for projects that might not otherwise attract such financing due to their size, difficult economics or lack of performance data.

The 14 green banks that have launched since 2011 in Connecticut, Hawaii and other states have spurred leveraged $676 million into $3.67 billion in clean energy investments.

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 the Coalition for Green Capital.  

Global club

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. 

Public banks

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.