Delivering impact from US green bank financing

| Report

For well over a decade, green bank financing has channeled public dollars into private investments in green energy and climate transition in nations around the world and at the state and local levels in the United States. It is also the model chosen to disburse $20 billion of the $27 billion authorized in the Greenhouse Gas Reduction Fund (GHGRF), an Inflation Reduction Act of 2022 (IRA) initiative.1 As the analysis in this report illustrates, well-coordinated and strategically targeted green bank financing could advance environmental justice through investment in disadvantaged communities. The analysis also shows this financing can help mobilize hundreds of billions in investment dollars toward achieving net-zero greenhouse-gas (GHG) emissions by 2050.

To reach net zero by 2050, the United States could need an estimated $27 trillion in climate investment.2Navigating America’s net-zero frontier: A guide for business leaders,” McKinsey, May 5, 2022. Green bank financing could play a significant role in catalyzing this investment over the next decade. This report focuses specifically on the estimated need for and impact of investment in 11 key technologies across three themes—household and community decarbonization, business decarbonization, and energy system transformation. Aiding these particular investments could advance the GHGRF’s dual goals of reducing emissions and benefiting disadvantaged communities while also fulfilling its mission to provide “additionality” through investments that would not have occurred without its funding.

As set out in this report, these 11 technologies will need substantial volumes of financing to realize their potential along the country’s net-zero pathway. Over a decade, they would need an estimated $200 billion invested in disadvantaged communities and more than $1 trillion in total investment:

  • $215 billion to decarbonize and deploy solar in households and communities
  • $100 billion for businesses to deploy solar, decarbonize heating, and develop electric-vehicle charging infrastructure
  • $700 billion to boost offshore wind power, deploy long-duration energy storage and transmission, and support the conversion of coal plants to new uses

Building to $1 trillion will take time. This analysis estimates that green bank financing could mobilize more than 12 times the GHGRF’s public investment over ten years through appropriate, balanced leverage and private co-investment. This means that $20 billion in GHGRF funding, leveraged into $250 billion in combined public financing and private co-investment, could kick-start critical systemwide change. This $250 billion could empower innovation and creativity in channeling investment to communities that struggle to access finance, deliver transformational impact in disadvantaged communities, and contribute up to one-sixth of the emissions reductions needed over the next ten years on the pathway to 2050 US emissions goals. 

According to this analysis, in a ten-year period, targeting this volume of leveraged green bank financing toward the 11 identified technologies could create 380,000 direct jobs, realize $30 billion in cost savings (over the expected lifetime of new investments), and avoid thousands of early deaths by reducing air pollution in disadvantaged communities. These benefits accompany broader benefits across the United States as a whole—including 850 metric megatons of GHG emissions reductions (CO2), one million direct jobs, and $100 billion in cost savings—helping the United States make strong progress toward its climate ambitions. Realizing this scale of impact will also require careful governance and management to avoid mismanagement of funds, reduce frictions or waste, and avoid the crowding out of private investment—all of which could divert funding from its intended goals and reduce the impact potential of GHGRF support.

Five principles are critical to ensure and expedite the potential for GHGRF-funded investments to help realize national climate and environmental justice ambitions:

  1. Target investment based on measurable impact potential. Defining comparable impact metrics and deliberately targeting financing to communities and technologies that deliver the greatest emissions reductions and equitable gains can amplify the effectiveness per dollar invested.
  2. Gain optimal leverage of private capital from GHGRF funding. Employing deep financing expertise to raise capital and achieve substantial private cofinancing from the initial GHGRF funding, while remaining conscious of specific challenges in disadvantaged communities, can drive greater scale for direct green bank financing.
  3. Catalyze markets at scale by flexibly deploying a mix of financing approaches. Disciplined approaches that incorporate continual market feedback and strategic review and that adjust to changing conditions and market needs can foster the catalyzation of sustainable, full-scale private financing in the future. Sharing learnings from successful financing approaches and investment performance can also boost knowledge and aid replication across regions.
  4. Galvanize a distributed financing network aligned with a national vision. Tapping into existing institutions’ local knowledge and expertise to reach customers and stimulate demand and uptake can enable broader and faster distribution of investment, especially to nationally prioritized disadvantaged communities.
  5. Mobilize GHGRF funding quickly through a range of established mechanisms. Rapidly deploying GHGRF funding—for example, by using existing project pipelines and managing liquidity across multiple facilities—can accelerate the virtuous circle of direct investment, private-capital leverage, capital recycling, and the “learning by doing” that drives market transformation at the scale and pace needed to achieve US climate targets.

These principles are reinforced by the quantitative assessment and analysis of GHGRF funding’s potential and are critical components of its capacity to help achieve White House climate objectives to reduce emissions, create jobs, reduce costs, build green infrastructure, improve health, and advance environmental justice.

By including environmental-justice objectives in the GHGRF and setting the net-zero deadline for 2050, the United States has set the stage for investors to expand the potential of green bank financing with bold yet balanced and deliberate tactics. Climate transition, as well as equity in the distribution of its benefits, is an essential mission that calls for specialized knowledge, proven approaches, and scrupulous assessment and reflection. The analysis in this report illustrates the strong potential for green bank financing to accomplish climate and environmental-justice goals and to spark wider-ranging private investment and public–private collaborations in the United States.

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