Last year’s climate spending law doesn’t require EPA to pump $20 billion into a national green bank. But the agency could still create something along those lines.
That’s the upshot of an EPA announcement Tuesday that provided details about the agency’s plans for a massive environmental justice grant program created by the Inflation Reduction Act.
The so-called Greenhouse Gas Reduction Fund was born out of a decade-plus push by Democrats and outside groups to create a single national green bank that would funnel dollars into local organizations capable of financing clean energy projects.
But EPA’s announcement yesterday clarified the agency’s position that the legislation does not require it to move in that direction — and instead allows it to entrust two or more outside entities with disbursing the funds. For that reason, the agency said it plans to issue at least two — and as many as 15 — direct grants to outside organizations (Greenwire, Feb. 14).
“The statute is pretty clear that EPA is to award competitive grants, and that’s plural,” EPA Administrator Michael Regan told reporters Tuesday, adding that the structure will provide the agency with flexibility to maximize the funds, particularly for disadvantaged communities.
Regan emphasized that the agency is still in the design process and hasn’t taken any options “off the table.” That leaves the door open to capitalizing a national green bank — in addition to providing dollars to one or more other organizations.
It’s a controversy that has played out since the landmark climate spending package became law in August.
While longtime proponents have maintained that a national green bank would be the best way to leverage public dollars to raise private capital, climate advocates, community development groups and some Democratic lawmakers have acknowledged that relying on a wider set of financial intermediaries may better serve some of the fund’s goals — especially the goal of quickly reaching underserved communities (Climatewire, Dec. 13, 2022).
“Using multiple lenders is a smart approach to ensure the funds reach communities that need this money the most, rural, and urban,” Sarah Dougherty, the director of the Green Finance Center with the Natural Resources Defense Council, said in a statement.
“There was some advocating for all $20 billion to go to one specific entity,” she added in an interview. “This is saying that’s not going to be the case.”
On the other side of the debate is the Coalition for Green Capital, a national consortium of state and local green banks that has championed the idea of a national green bank since it first started circulating on Capitol Hill in 2009.
The group has continued to advocate for that approach since the Inflation Reduction Act passed. The law provides $27 billion overall for clean energy projects across the country — and gives EPA substantial discretion over the best way to make it happen.
A $7 billion chunk of the total will go to states, municipalities and tribal governments. EPA officials said Tuesday that the agency had decided to use those funds to help underserved communities gain access to solar energy — not only to serve the law’s climate aims, but to clean the air and bring ratepayer costs down.
The remaining $20 billion will go to nonprofit entities charged with getting dollars to organizations capable of financing clean energy projects. A whopping $8 billion is dedicated to underserved communities.
Who will control the money?
The Coalition for Green Capital, or CGC, has said a single national green bank would most effectively distribute the law’s funding — and it plans to apply to become that entity.
“Yes, the agency should capitalize at least one America wide green bank. Like CGC,” Reed Hundt, the organization’s CEO, said Tuesday in an email.
“The statute is clear about what an ‘eligible recipient’ must do,” he added. “It must be national and regional. It must invest directly. It must be profitable. It must recycle [financing]. It must create new green banks. It must support other nonprofits … So other than capitalizing one or more national green banks there doesn’t appear to be any other legitimate use of the $20 [billion].”
To be sure, EPA could still create a national green bank. In fact, the Greenhouse Gas Reduction Fund is often referred to as a “green bank” — including by some of the Democratic lawmakers who proposed the program. Sen. Chris Van Hollen (D-Md.) called the fund a “green bank network” on Tuesday.
“I will continue working with the EPA to fully realize our vision of a self-sustaining climate bank that is national in scope, has a substantial multiplier effect, and is composed of diverse stakeholders, including community-based institutions and green banks,” said Van Hollen, a sponsor of the legislation.
But EPA’s announcement Tuesday also says it will make at least two grants out of the $20 billion “general fund.”
Cathie Mahon, president of Inclusiv, a national network of credit unions that lend in underserved communities, called that the right approach. Capping the number of grants at 15 makes sense because the agency likely does not have the time or resources to review and issue hundreds or thousands of grants, she said.
But setting a minimum of two grants is important, she said, because it accounts for the reality that there are a wide range of institutions — with different focuses, connections and expertise — that could get the job done.
A group like CGC, for instance, could funnel cash into state and local green banks, which have a record of distributing green lending but don’t necessarily have deep ties to the communities the fund is intended to benefit.
An umbrella group like Inclusiv, on the other hand, could get dollars to community development financial institutions, which have worked in those communities for decades, but do not have the same caliber of experience with green lending.
“It indicates to us a very clear intention that they recognize the points that we have made and others have made that probably no single one entity can accomplish it all on their own,” Mahon said. “There’s no one magic silver bullet. But there’s a lot of really good collaborations and strategies and approaches that exist and that are forming and evolving.”
Dale Bryk, a senior attorney at the Harvard Law School Environmental and Energy Law Program, said in a recent interview that relying on entities with roots in disadvantaged communities would be the best way to ensure that they receive investments and technical assistance.
“You would go to established lenders, because they’re already in the communities lending for people’s houses and local businesses, and to the affordable housing lending industry,” Bryk said.
“I would focus on buildings,” she added. “That is the hardest nut to crack with the most co-benefits in terms of quality of life.”
While electric vehicle infrastructure and large-scale renewable energy projects might find private capital— particularly in light of the Inflation Reduction Act’s expanded tax credit programs — poor communities may not attract investment without dedicated federal funding streams.
EPA — which is required by the Inflation Reduction Act to finish making grants by Sept. 30, 2024 — said it expects to open two grant competitions early this summer. The agency will be holding community roundtables across the country to talk with organizations and community members about how the fund could play a role in addressing local clean energy needs.