Issue Brief

Green Banks and the Inflation Reduction Act

Region

Federal, National

NCEL Point of Contact

Ava Gallo
Climate and Energy Coordinator

Contact

Overview

This Issue Brief is intended to give an overview of green banks as tools to accelerate the transition to clean energy and fight climate change, with a specific focus on their connection to the recently enacted Inflation Reduction Act (IRA). The full Issue Brief includes a green banks overview section, information on the connections between green banks and the Inflation Reduction Act, sample state green bank legislation, steps state lawmakers can take to create a green bank, and additional resources.

What Are Green Banks?

Green banks are mission-driven institutions that use innovative financing to accelerate the transition to clean energy and fight climate change. Despite the word “bank” in the name, green banks do not take deposits. They function like loan or investment funds, using a wide array of financial tools to support investment in clean energy infrastructure. Green banks differ in governance from state to state. Some are fully public entities, some are “quasi-public” entities with independent governance structures, and some others are fully independent entities without formal ties to the state. Green banks aim to be financially sustainable, but they are not profit-maximizing. They focus instead on using their capital to mobilize as much overall investment as possible to achieve their goals.

The Connection to the Inflation Reduction Act

How does the Inflation Reduction Act support green banks?

The Inflation Reduction Act creates a new grant program entitled the Greenhouse Gas Reduction Fund (GHGRF). The GHGRF allocates $27 billion to the EPA to make grants for the use of financial tools to support clean energy investments. $7 billion in the fund is accessible directly to cities and states to provide financial support for deployment of zero- emissions technologies in low-income and disadvantaged areas. $20 billion is accessible to non-profit entities that have the qualities of a green bank.

Recipients of these grants must engage in both “direct” investment (investment directly in projects) and “indirect” investment (investment in state and local institutions doing mission-aligned work) at the state, local, and national levels.

How are state green banks important to the implementation of the Inflation Reduction Act?

$20 billion of the funds allocated to the Greenhouse Gas Reduction Fund must be given to nonprofit entities. These nonprofit entities must in turn invest indirectly in green projects through other local financing entities. State governments that have not created green banks (or similar public entities that fulfill a very similar function) will struggle to access this $20 billion. 

While EPA has not yet decided the details of how it will administer the GHGRF, it is likely that states without green banks will defer responsibility for administering these funds in their state to nonprofit and not-for-profit financing institutions (such as CDFI loan funds, CDFI credit unions, and independent nonprofit green banks) while states that have created green banks will be able to influence decisions about how the funds will be used.  

Green Bank Legislation

  • Colorado SB21-230 (2021): Directed the state treasurer to make an immediate, one-time transfer of $40 million from the general fund to the energy fund administered by the Colorado energy office (CEO). The legislation instructs the CEO to make a grant to the Colorado Clean Energy Fund (Colorado’s green bank) of $30 million. 
  • Illinois SB2408 (2021): Designated the Illinois Finance Authority as the “Climate Bank” to aid in all respects with providing financial assistance, programs, and products to finance and otherwise develop and implement equitable clean energy opportunities in the State.

Resources

NCEL Resources

Online Resources

Coalition for Green Capital

CGC creates and supports green banks and is leading the charge to create a national green bank.

Go to resource
American Green Bank Consortium

The American Green Bank Consortium is a membership organization for green banks, capital providers, developers and other clean energy supporters to work together to expand and accelerate innovative clean energy investment

Go to resource
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