Will a National Green Bank Act Win Support?

A number of senators and representatives led by Sen. Chris Murphy (D-Conn.) and Rep. Elizabeth Esty (D-Conn.) have cosponsored The Green Bank Act of 2017 (PDF) (S. 1406. H.R. 2995). The act is expected to support the establishment of a national green bank capitalized with $10 billion in treasury-issued green bonds. This is the third time legislators have proposed it.

Negotiations have surrounded the history of this idea at the federal level. Legislators seek to limit the ability of the proposed bank to fund projects directly. They have preferred a solution involving an intermediate organization at the regional, state or local level. The legislation has changed in response to this idea.

Some legislators also have expressed skepticism about whether a federal green bank would fulfill functions best left to the private market.

History

In 2009, a national green bank was first brought up as part of some broader energy reforms and legislation (The American Clean Energy and Security Act of 2009). It did not make the cut, as it passed through the lower House but was unable to make it through the Senate.

Then, the Green Bank Act of 2014 was introduced as a standalone act by Sen. Chris Van Hollen (D-Md.), who was a member of the United States House of Representatives at that time. At the time, Senate co-sponsors included Murphy and Sen. Richard Blumenthal (D-Conn.). By this time, the concept of a quasi–public financing institution focusing on clean energy projects had taken off. A number of states had taken the initiative to pass legislation setting up similar institutions.

Fast-forward to July 2016. Van Hollen was again at the forefront of the campaign to get the act to sail through Congress with the introduction of H.R. 5802, the United States Green Bank Act of 2016. In September, Murphy introduced a companion bill to the Senate (S. 3382).

Late last month, Esty and Murphy, with co-sponsors from across the country, reintroduced H.R. 2995 and S. 1406, The Green Bank Act of 2017, an updated version of the 2014 and 2016 proposals.

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Negotiation

This bank initially was conceived as a national bank with an initial capitalization of $10 billion and a mandate to underwrite and provide a comprehensive range of financing support to qualifying clean energy projects and clean energy-financing institutions. A number of changes have since taken place which redefine the objectives of the bank, limit the mechanisms available to it and set the level of risk it can underwrite.

A key change made in 2016 took away the bank’s ability to directly finance projects. Instead of that, the bank would be able to lend only to regional, state or municipal green banks or clean energy-financing authorities that meet certain criteria. These local institutions would then directly underwrite qualifying projects.

Another major change involved adjusting the lending limits to state clean energy-financing authorities. Previously the limit to individual institutions capped at $500 million, the current bill seeks to peg this lending at 20 percent of the initial funding requirements of the institutions.

The most recent version of the legislation also removes nuclear-energy projects from the definition of "Qualified Clean Energy Projects" that are eligible for funding.

Some of these changes reflect the constantly changing clean energy-financing landscape and the evolving role of the green banks in soliciting and leveraging private capital. In 2009, when the idea of creating a national green bank was originally conceived, there were no state green banks yet. Now, about eight such institutions exist across the country. Notable success stories have taken place in Connecticut and New York.

Gathering cross-party support has been challenging, Murphy said during an interview with Clean Energy Finance Forum last year. He said the Republican argument was that "the private market can fill this [financing] gap adequately."

The recent reintroduction appears to be facing some headwinds given the current administration’s energy policy priorities, which do not tend to favor clean energy. That same month, the president announced that the United States would be pulling out of the Paris Agreement.

It remains to be seen how the Paris Agreement decision may affect the prospects for clean energy in the United States. The domestic solar industry’s growth has slowed this year. But much of that challenge is attributable to financial roadblocks encountered by individual solar companies. It is unclear to what extent net-metering controversies at the state level have affected the growth of the industry.

Energy efficiency investment has not taken off at a rapid rate the way that solar investment has. A national green bank might accelerate the expansion of both of these markets.

Note: Esty's spouse is employed at Yale University.

This article was edited on 8/28/2017 to add source references and clarify the current legislative situation.

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