Cities looking to ‘green banks’ to help fund sustainable infrastructure

Cities are exploring how “green banks” can help fulfil their pledges not only under the Paris Agreement but also under the new Sustainable Development Goals (SDGs). What exactly are “green banks”?

As President Donald Trump this spring moved toward a decision to withdraw the United States from the Paris climate agreement, the mayor of the US capital city made her own announcement: She would seek to earmark millions of city dollars to lend to developers and others who want to bolster building efficiency, invest in renewable energy and undertake other ways to reduce carbon emissions.

In so doing, Washington Mayor Muriel Bowser was proposing to create the country’s first city-led “green bank” — a fast-growing strategy for using public money to reduce risk for private-sector investment in sustainable infrastructure and more.

This month, following Trump’s decision, Bowser was among the first mayors to pledge that her city would seek to uphold the Paris goals — an aim that her green-bank idea would help along.

While Bowser could create the first such entity in the United States, city green banks already are underway in other parts of the world. Notable examples include Amsterdam, London, Melbourne, Sydney, Toronto and Masdar, in the United Arab Emirates.

The idea of the green bank is to take some public money, which would otherwise be used as a subsidy, and try to use it to reduce some of the risks for private-sector players.

Douglass Sims, director of strategy and finance, Natural Resources Defense Council’s Center for Market Innovation 

This week, a meeting in Mexico City is exploring how green banks help fulfil countries’ pledges not only under the Paris Agreement but also under the new Sustainable Development Goals (SDGs).

[See: 4 ways U. S. local leaders are starting to respond to Trump’s climate withdrawal]

So what exactly is a green bank, and what can this strategy offer to city officials intent on bolstering their sustainability initiatives? For a primer, Citiscope’s Carey L. Biron spoke with Douglass Sims, director of strategy and finance at the Natural Resources Defense Council’s Center for Market Innovation in New York.

Sims focuses globally on financing low-carbon, resilient infrastructure in ways that allow the maximum amount of private capital to come to the market, including at the city level. He also is involved in the Green Bank Network, a clearing house of information and technical support on the issue.

This interview has been edited for length and clarity.


Carey L. Biron: What is a green bank, and are they fundamentally different than a traditional bank?

Douglass Sims: The first thing to understand is that a green bank is not a bank. It’s really a term used to indicate that we need to bring financing to the so-called green sectors. By green sectors, I mean in the first case renewable energy and energy efficiency, but also things that stretch into other kinds of investments in infrastructure, like green infrastructure for storm water, stable infrastructure for electric vehicles, advanced water-conservation technologies, waste/sewage-treatment technologies — things that go to either low-carbon resilience or resource efficiency.

So green banks come from the realisation around six or seven years ago that there was a real opportunity to invest in this new infrastructure, but that there wasn’t the kind of response from the private sector that you would expect in something that was actually this important and potentially profitable.

There are a lot of efforts, particularly in the energy space, to provide subsidies for different entities to adopt clean technologies. But there’s also a lot of hesitation to adopt them. In some cases, money isn’t the barrier: It’s a perception of risk, or a perception of whether or not something’s worth doing. Also, even when subsidies do work, they become expensive, and taxpayers and other people get tired of paying them.

[See: Initiative aims to make more green infrastructure projects ‘bankable’]

The idea of the green bank is to take some public money, which would otherwise be used as a subsidy, and try to use it to reduce some of the risks for private-sector players.

That could be homeowners, business owners and other investors — to try out investing and buying or leasing clean energy and green infrastructure, and to understand that it actually is a good investment, and it does improve lives. By using the public money to essentially what we call “crowd in”, you get more money overall applied to these sectors, and you get faster progress in reaching things like carbon-reduction goals and energy-efficiency goals.

Q: What are some examples of where these models have been particularly successful?

A: Big successes have really been in the United Kingdom and the US. The first green bank was established in the UK around 2010 or 2011, called the UK Green Investment Bank. The UK had looked at their national climate targets and realised that they needed to really work on certain areas where there wasn’t enough investment, namely biomass for energy, energy efficiency, waste reduction and offshore wind. The big success story for the UK has been in that offshore wind area, which went from being really low penetration when the UK GIB started getting involved to being one of the leading markets in the world for wind.

In the US, the early success story is the Connecticut Green Bank, which came on the heels of the UK GIB. In Connecticut there was, as part of a big energy bill, a concept that would basically convert an existing entity into the Connecticut Green Bank, which would be a more robust entity and would aim at trying to work in certain specific areas in Connecticut in solar and energy efficiency, and really on the smaller project size.

Small projects like solar and retrofitting homes and buildings have a lot of barriers due to their size: They have high transaction costs. They’re not, in some cases, familiar to people like mortgage lenders and other investors. They sometimes involve technologies which are novel to local banks. They may have high upfront costs.

In its first years of operation, Connecticut Green Bank has seen both the cost of deploying solar in particular go down, and the deployment in-state go up as high as 2,500 per cent. So it’s really a success story.

Q: Have these models sparked additional interest? Are there any broad global trends on this issue?

A: Yeah, there are broad global trends. In the U.S, on the heels of Connecticut, New York decided to form a green bank, which NRDC was involved in designing and incubating. There are also institutions that fulfil some of these same functions that exist in California, like the California Infrastructure Bank. There are some new institutions being formed that are exciting around the country. Montgomery County is doing the first county green bank. Washington, D. C., is forming its own green bank on a city level. New York City has formed what amounts to a specialized green bank called New York City Energy Efficiency Corporation. Rhode Island has a green bank.

This story was published with permission from Citiscope, a nonprofit news outlet that covers innovations in cities around the world. More at Citiscope.org.

 

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