From Watts Up With That?
Essay by Eric Worrall
If renewables are almost always cheaper than coal, as most greens repeatedly claim, why are special government funded banks required to drive investment?
Using green banks to solve America’s affordable housing crisis – and climate change at the same time
Published: July 18, 2023 10.30pm AEST
Tarun Gopalakrishnan Research Fellow, Climate Policy Lab, Tufts University
Bethany Tietjen Research Fellow in Climate Policy, The Fletcher School, Tufts University
Seth Owusu-Mante Research Fellow in International Development, Tufts University
Green banks are starting to draw attention in the U.S., particularly since the federal government announced its first grant competitions under a national green bank program to bring clean technology and more affordable energy to low-income communities.
But installing more solar and wind electricity generation isn’t the only way green banks can help.
Massachusetts is launching an innovative new green bank that could become a model as states try to manage two crises at once: lack of affordable housing and climate change.
While most green banks focus on clean energy, the Massachusetts Community Climate Bank is specifically designed to boost the state’s stock of sustainable, affordable housing. It comes at an opportune time: States can now tap into billions of dollars in new federal funding for green banks under the Inflation Reduction Act.
If you’re wondering exactly what a green investment bank is, the OECD provides this less than helpful explanation;
Green investment banks
To leverage the impact of relatively limited public resources, over a dozen national and sub-national governments have created public green investment banks (GIBs) and GIB-like entities. GIBs are using innovative transaction structures, risk-reduction and transaction-enabling techniques, and local and market expertise to channel private investment, including from institutional investors, into domestic low-carbon, climate-resilient infrastructure.
POLICY PERSPECTIVES: GREEN INVESTMENT BANKS: LEVERAGING INNOVATIVE PUBLIC FINANCE TO SCALE UP LOW-CARBON INVESTMENT
Investment is growing in renewable energy and energy efficiency, but not quickly enough to get the world on track to achieve zero net greenhouse gas emissions globally by the end of this century. Mobilising investment from the private sector will be essential to meet climate change goals. Governments can find ways to make efficient use of available public funding to mobilise much larger pools of private capital.
The OECD report Green Investment Banks: Scaling up Private Investment in Low-carbon, Climate Resilient Infrastructure aims to provide policy makers with the first comprehensive study of publicly capitalised green investment banks (GIBs), examining the rationales, mandates and financing activities of this relatively new category of public financial institution.
It provides a non-prescriptive stock-taking of the diverse ways in which these public institutions are helping to leverage and catalyse private investment in domestic green infrastructure, with a spotlight on energy efficiency projects. Highlighting the role of GIBs within a broader policy framework to mobilise investment, the report also provides practical information to policy makers on how green investment banks are being set up, capitalised and staffed.
A GIB is a public entity established specifically to facilitate private investment into domestic low-carbon, climate-resilient (LCR) infrastructure. Using innovative transaction structures, risk-reduction and transaction-enabling techniques, and local and market expertise, GIBs are channelling private investment into low-carbon projects. GIBs are facilitating investment in such areas as commercial and residential energy efficiency retrofits, rooftop solar photovoltaic systems and municipal-level, energy-efficient street lighting. Download the PDF version
Many of the investments GIBs mobilise are undertaken in urban areas where 54% of the world’s population lived in 2014, and where 66% is projected to live by 2050.
Governments tailor their GIBs based on their unique national and local contexts. GIBs and GIB-like entities have diverse rationales and goals including meeting ambitious emissions targets, supporting local community development, lowering energy costs, developing green technology markets, creating jobs and lowering the cost of capital. Using a range of metrics, GIBs are measuring and tracking their performance. These metrics generally focus on emissions saved, job creation, leverage ratios (i.e. private investment mobilised per unit of GIB public spending), and – for those GIBs that are required to be profitable – rate of return.
GIBs are typically established in countries that do not have national development banks or other entities that are actively promoting private investment in domestic LCR infrastructure. They are relevant for both developed countries and emerging economies as a tool to help meet emissions, technology and infrastructure deployment and green investment targets. The creation of a GIB can send a signal to the marketplace and other countries that a country or region is seeking to become a leader in scaling up private low-carbon investments. To mount a serious effort to mobilise low-carbon investment and get on a path toward zero net emissions by the end of this century, governments need to consider how institutions like green investment banks can help them pick up the pace.
FURTHER READING
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Source: OECD (content reproduction terms and conditions)
Is Massachusetts short of access to private banks which encourage sound commercial investment? Are US banks not providing the capital to drive forward the economically compelling green revolution? Or is Massachusetts spending all this money just to “send a signal”?
If private banks and private financiers don’t want to touch green investments now, at anything like the required scale, how will creating a green investment bank change their minds? Or are Green Investment Bank enthusiasts just assuming private companies need a little leadership from government, to understand what a great opportunity green investments are? What happens if that “leadership” falls flat, and private companies fail to respond the way public sector green bank enthusiasts hope they will?
I sure hope Massachusetts taxpayers are paying attention to what their state government is doing with their money. Because someone is going to have to pay for all this.
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