Today’s climate crisis demands a crisis-level response. The Inflation Reduction Act (IRA), passed to address the urgency of the situation, goes well beyond tax credits and incentives to also include a first-of-its-kind national Greenhouse Gas Reduction Fund (GGRF). Targeting states, tribal governments, and community lenders, the goal of this $27 billion fund is to address the clean energy needs of “frontline communities” throughout the country – low-income and marginalized communities most vulnerable to the impacts of climate change. It will provide financing and crowd in private capital to support efforts to reduce greenhouse gas emissions, improve health outcomes, lower energy costs, and support equitable access to clean energy. And longer-term, it is hoped these investments will help to mitigate the worst impacts associated with dynamic climatological events.

Operating as a competitive federal grant competition, the Fund is allocated among three sub-programs:

• The $14 billion National Clean Investment Fund (NCIF), created to spur collaboration with private capital providers to scale up climate financing
• The $6 billion Clean Communities Investment Accelerator (CCIA), designed to rapidly build up the clean financing capacity of community lenders in low-income areas
• The $7 billion Solar for All (SFA) program, intended to increase funding and access to solar energy for residential and community solar projects for the lowest-income households

Participants in a panel discussion at a CohnReznick-sponsored event hosted by Companies for Net Zero discussed the Greenhouse Gas Reduction Fund and how its three building blocks are being considered by states, municipalities, lenders, and nonprofits. Contact our team to learn more.

First: The GGRF is a holistic initiative

Each component of the Greenhouse Gas Reduction Fund complements the others, to achieve clean energy goals while mobilizing private capital to stimulate deployment of greenhouse gas-reducing projects and equitable distribution of resources. It focuses on three areas of clean energy to advance environmental justice and combat the climate crisis:

• Generation, distribution, and storage
• Development of net zero buildings
• Promoting zero-emission transportation

Importantly, to make the most of these dollars, each component portion of the Fund needs to be considered in light of the entire federal government ecosystem – including IRA tax credits and incentives, rebates, parallel programs from agencies like the Departments of Energy and Agriculture, the Infrastructure Investment and Jobs Act (IIJA), and other investments – as well as state and local government mandates for clean energy.

NCIF mobilizes private capital

The National Clean Investment Fund portion of the overall fund, at $14 billion, is all about accelerating the accessibility and deployment of clean energy technology through financial assistance. The Fund capitalizes three national nonprofit financial institutions that can work with private-sector investors, developers, community organizations, and other entities to provide financing for qualified clean energy projects – with at least 40% of capital required to flow into low-income and disadvantaged communities. Qualified projects include those that:

• Deliver benefits in reducing greenhouse gas emissions and other air pollutants
• Provide additional co-benefits such as workforce development
• Might otherwise not have been financed
• Leverage private capital
• Support only commercial technologies, i.e., those that have been used in the U.S. for a given timeframe and have proven benefits, such as solar, heat pumps, building electrification, or electric vehicles

In addition to the three priority categories listed above, additional industries and projects may also meet the qualified project tests, such as agriculture, which is a high-emitting sector, and projects related to water.

CCIA uses hubs of community lenders to fund clean energy projects

The Clean Communities Investment Accelerator builds upon expectations of the overall Fund. It provides $6 billion to five entities that will serve as nonprofit hubs and provide technical assistance and financial resources to grow the network of community lenders that will provide funding for clean energy projects. Entities that are eligible for this financing can include community development financial institutions (CDFIs), credit unions, green banks, housing finance agencies, minority depository institutions, and others, helping to ensure that low-income and disadvantaged communities have access to affordable financing for clean energy project implementation. There is a natural synergy between the NCIF and CCIA programs; both focus on the same types of eligible program activities. However, whereas the NCIF provides an on-ramp for large national capital providers to invest, the CCIA is explicitly local by design: local lenders leveraging community capital to deliver hyper-local solutions and community impact.

SFA primes residential solar investment for low-income households

The purpose of the $7 billion Solar for All grant program is to drive solar energy solutions to households in frontline and traditionally low-income communities. Grants will be made to 60 selected entities, comprising 49 state-level awards, six awards to Tribes, and five “multistate awards.” Partnerships with state agencies, workforce development agencies, and community leaders will be essential for planning and implementing the various parts of the program, such as single-family home lending, multifamily property readiness, and community solar projects.

For those awarded grants, financing will be not only about implementation, but also establishing a local workforce, coordinating with community resources to train solar installers and engineers to accelerate project deployment. Some funds can even be allocated for building upgrades to make homes “solar-ready,” a critical investment since many low- and moderate-income (LMI) households occupy older housing stock that will necessitate structure upgrades before solar technology can be deployed (e.g., energy efficiency retrofits, roof repair, electrical panel upgrades).

Bringing the capital markets closer to the front line builds more sustainable markets

Several mission-driven lenders and investors have collaborated to catalyze clean energy and environmental justice initiatives to build more sustainable markets at the front line. These financial firms with expertise in capital markets and sustainable investing are dedicated not only to green lending, but to helping local nonprofit lenders and small businesses become more self-sufficient and successful at clean energy deployment. They create financial products and solutions that support direct social and environmental investments in the community, acting as an intermediary to support capacity and scale on the ground. Market segments are broad and nationwide, including:

• Consumer – Single-family mortgages, home upgrades, access to electric vehicles
• Multifamily – Decarbonizing multifamily properties
• Small businesses and farms – Reducing emissions and getting to net zero
• Community infrastructure – Houses of worship, municipal buildings, transport infrastructure, child care centers, health clinics, and other critical community infrastructure
• Schools – K-12 public school building decarbonization, as well as school bus conversion
• Community solar
• Electric vehicle conversion and charging infrastructure

Accelerating investments in clean power through green banks

An innovative new conduit for a portion of GGRF funding is green banks, purpose-driven institutions that use innovative financing to accelerate the transition to clean energy and help battle climate change. Today, there are over 30 green banks of different sizes forming the American Green Bank Consortium, and many were applicants for GGRF funds.

In some states, such as New York and Connecticut, green banks are quasi-state entities and receive funding from sources such as state environmental and energy departments. By pooling those resources, they can provide clean energy programs and products to catalyze market transformation and spur action among the private sector and local governments.

Through the GGRF competitions, green banks give the private sector access to financial resources they would otherwise not have, at rates often better than the market.

GGRF synergies: It’s a “co-op-etition”

• Although the GGRF program is a competition, coordination among applicants for the funds is essential. The programs are structured in a way that is meant to work together to bring different types of capital to the market, to support products and projects that are ready to scale, while also doing the necessary community engagement, outreach, and capacity building.  While NCIF recipients provide projects with financial assistance through balance sheet support, CCIA plays an important role in capacity building, technical assistance, and capitalization of the community lenders to strengthen the ecosystem of institutions that can partner with the NCIF recipients in a way that most effectively transforms markets and communities.
• The SFA awardees bring to the table the understanding of the types of financing and subsidies needed to catalyze the deployment of residential solar across the lowest-income households in the country, as well as engaging in community outreach and workforce development.

While the EPA launched these as separate reportable federal programs, they deal with common beneficiaries, common pools of skilled workers, and common supply chains. Enhanced coordination will help mitigate a variety of operational and compliance risks, from double-dipping and benefits overlap, to providing consistent customer experiences and preventing “beggar thy neighbor” competition over a limited pipeline of domestically produced energy and decarbonization technology. 

Win or lose, there’s always next steps

Whether or not an applicant is awarded funding, there’s always preparation and outreach for the future opportunities. It’s important to develop relationships with people in the community to help stay on top of needs and maintain a project pipeline. In addition, awardees will need to equip and position themselves to procure, diligence, implement, manage, and track the success of their projects, as well as make sure systems and technology can be readily put in place and monitored.

With so much money flowing into clean energy initiatives through the GGRF, and so much potential to change people’s lives, collaboration will be key to making sure that all Americans, at all income strata, benefit from this historic stand on climate change.