The US Environmental Protection Agency is setting up the first US national ‘green bank’ targeting green projects to benefit low-income and disadvantaged communities.
- The US Environmental Protection Agency (EPA) has set up the Greenhouse Gas Reduction Fund with $27 billion in funding, part of the Inflation Reduction Act (IRA).
- The fund will target clean energy and decarbonisation projects specifically aimed at helping low-income and disadvantaged communities.
- Part of the Biden administration’s commitment to environmental justice, the fund is intended to further mobilise funding for decarbonisation projects by leveraging private finance.
The first national green bank in the US will deploy $27 billion by September 2024. The EPA will distribute the funds via grants for green projects, with an emphasis on benefiting low-income and disadvantaged communities, which are also allocated 40% of federal funds as part of the Biden administration’s Justice40 initiative.
In the coming years, this initiative will benefit from funding from several legislative acts passed by the government, many with the potential to leverage additional funding from private investors. Ensuring it continues for an extended period of time will ultimately depend on US voters.
Hailed as first of its kind but not the first US green bank
The Greenhouse Gas Reduction Fund (GGRF) is being hailed as “first-of-its-kind”. This is true for two reasons: firstly it is the first national green bank in the US, and secondly because it is focused on environmental justice. The US Government is calling it a fund, but because of its remit it can be considered a green bank.
It is not the first green bank in the country. A report by the Green Finance Institute estimates there are 26 so-called green banks in the world. According to the report, the first such bank was founded in Bulgaria in 2004. The US has 15, the most in any one country, which are largely states-based public investment funds.
Ten other countries have one each, including Malaysia, India, Switzerland, Australia, Japan, Norway, Dubai, South Africa and New Zealand. The UK’s Green Investment Bank was sold to Australian financial services group Macquarie (ASX:MQG) in 2017.
Leveraging private finance could more than double available funding
The ability to leverage finance is a key feature of green banks. According to the report by the Green Finance Institute, existing green banks have a median leverage ratio of 2.3 times. This means that the median green bank can attract $2.30 for every $1 it invests.
Many of the banks in the report said they aimed for leverage ratios of between three and five times. Nysno, Norway’s state climate investment agency, said it was able to attract nearly seven times as much private investment, as public funds invested. A major reason for this is its independence and having a flexible mandate.
Almost all of the green banks, according to the report, are involved in financing green projects. These range from financing renewables, clean transportation, waste management, and addressing agriculture and land use. None, however, were specifically targeted towards helping disadvantaged, or low-income communities.
US green bank aims to delivering on the Biden-administration’s commitment to environmental justice
One of the first executive orders signed by President Biden led to the Justice40 initiative, which mandates that 40% of certain federal investments are directed towards disadvantaged communities that have been underserved and marginalised, and overburdened by pollution.
The $27 billion GGRF will be deployed in the form of grants by the EPA by September 2024. The funds will be used to finance clean energy and climate-related projects that reduce greenhouse gas emissions, with over half in disadvantaged communities.
The ability to leverage private investment will further boost the funding available to these projects. The $15 billion aimed at low-income and disadvantages communities could also attract a further $30 billion from private investors, based on the calculations by the Green Finance Institute. This could support these communities in adopting new technologies, providing them with access to low-cost energy.
Additional levers to drive investment where it is needed most
Several acts and legislation passed by the Biden administration will facilitate the Justice40 initiative. Besides the GGRF, part of the IRA, the Infrastructure Investment and Jobs Act (IIJA), and the American Rescue Plan (ARP) will also drive funding to benefit disadvantaged communities.
The IIJA’s announced contracts worth $2.8 billion, could add up to $9 billion with further investment by the private sector. While these contracts are aimed at battery production for electric vehicles and storage, building up capacity to scale will require an expansion in mining activity. Acting in accordance with the Justice40 initiative may provide tribal communities with some hope of fair treatment and economic opportunity.
Benefits of the ARP are expected to continue until March 2025. This was announced by the Department of Health and Human Services in June 2022, extending the program by a year. This provides an extension on home and community-based services to people on Medicaid. In all US states, Medicaid provides health coverage to low-income families, the elderly, and people with disabilities.
The Biden administration appears to be making serious attempts at keeping to its promises. Whether they endure will be a matter for voters in 2022 and 2024.
