What is a National Climate Bank?
Despite the name, it isn’t really a bank in the traditional sense of the word because it isn’t a depository institution. Rather, it’s a non-profit 501(c)(3) created for the sole purpose of leveraging limited public funding (through financing instruments such as market term loans, soft loans, equity investments, and guarantees) and risk-sharing models to encourage private investment for projects that either reduce greenhouse gas emissions or promote resilient infrastructure. The goal is to recognize that the global economy, with US leadership, must change course toward a clean energy economy to abate worsening climate change impacts.
How does it work?
Through proposed federal legislation, a National Climate Bank would be created through an initial capitalization from the federal government in the amount of $35 billion from Congress and about $70 billion in bond issuances, e.g., Liberty Bonds. Based on real world experiences of existing regional, state, and local green banks, additional crowdsourced private co-investment for financial modeling for a National Climate Bank is expected at levels between $2.40 to $6.50 per public dollar invested. This shared investment strategy would help develop bankable projects that ordinarily might be considered too risky for private investors who seek safer returns.
Just as the UNECE International PPP Centre of Excellence model and PPP units around the world have done over the years to enable public-private partnerships, a National Climate Bank would help regional, state, and local green banks (16 in the US to date) pool capital resources, coordinate project stakeholders, and offer financial expertise and quality control; standardize processes, contracts, and desired criteria for long-term sustainability; streamline the administration of deal flows to lower transaction costs; facilitate the sharing of lessons learned; and provide technical expertise on things like newer technologies or efficient ways to bundle smaller projects for return on investment, as examples. In other words, a National Climate Bank could help support a network of green banks that would enable a deeper project development reach as well as help build a broader network across the country to accelerate a clean energy transition which, in turn, creates certainty and legitimizes the market for climate mitigation and adaptation projects.
Why are green banks and an authorizing national institution important to design firms?
Design firms are a valuable connection point
The timing of such a proposed national framework for pooling resources to propel sustainable project development—when our country is in the midst of a historic pandemic and crippled economy that has caused unemployment numbers to skyrocket in the range of 25 million Americans—is compelling not just because it will help jumpstart the US economy, but also because it has great potential for securing a steady pipeline of funded work for design and construction firms. One of the bigger challenges for scaling the green bank model hasn’t generally been a supply issue (capitalization), but a demand creation issue, i.e., connecting investment money to a consistent flow of valuable climate mitigation and adaptation projects. This gap could be filled and green banks could scale by institutionalizing a reliable network of design and construction professionals that is lock-step with a credible process for identifying and planning relevant projects.
And what an opportunity this presents for leaders in design who have long-standing relationships with clients (schools, universities, municipalities, state entities, and developers) and who tend to be the first point of contact for the obvious reason that projects have to be planned and designed before they can be built. Most importantly, design firms know their clients’ current and future project needs—be it new construction, renovation, or retrofits. Unquestionably, design firms can play unique roles in leading this effort by facilitating current pipeline gaps for green banks.
Alignment of design professionals as leaders of sustainability
What is particularly momentous about a National Climate Bank’s mission is that it falls directly in line with the aspirations behind movements such as Architecture 2030, whose mission since 2006 has been to transform the global built environment from being a large part of the cause of climate change to being part of the solution through energy efficiency, clean energy sourcing, and resilient design and construction or SE 2050, an organization of dedicated engineers intent on reducing embodied carbon in structural systems. Likewise, the Carbon Leadership Forum, a collaborative effort between architects, engineers, contractors, materials suppliers, building owners and policymakers is purpose-driven to reduce carbon and transform the built sector.
Pooled capitalization means more projects and more work
A sound process for pipelining projects that aim to support a clean energy transformation are two very important parts to the trifecta benefits of green banks; the third being increased capitalization. Shared models of project funding make sense regardless of project type or project owner (public v. private). Governments, for example, consistently run short on money to fund all of their infrastructure needs. This persistent shortfall has become acute with the COVID-19 pandemic as many state and local governments are facing soaring costs of unemployment and healthcare, with some states facing even greater financial stress due to natural disasters. These financial stressors at the state level will inevitably impact its citizens and local economies with increased layoffs, furloughs, and fewer funded projects, to name just a few issues. Crisis-level problem solving is therefore needed, not just for the sake of local and state economies, but the national economy overall.
It is estimated that enabling the creation of a National Climate Bank could stimulate 5.4 million jobs in various sectors ranging from clean transportation (electric vehicles, buses, charging stations), building energy efficiency (rooftop solar, upgraded efficiency systems, grid-interactive efficient buildings), grid modernization (energy storage and smart meters) with renewables, and industrial decarbonization, all of which require the expertise of licensed design professionals such as engineers, architects, surveyors, landscape architects, and interior designers.
When might we see passage of authorizing legislation?
Here’s where the National Climate Bank legislation has been to date. It was introduced in the US Senate and House of Representatives in 2019 and passed in the House as part of the $1.5 trillion Moving Forward Act. This legislation is recommended by both the House Select Committee and the Senate Special Committee on the Climate Crisis. Notably, presidential candidate Joe Biden’s campaign plan calls for the development of an “innovative financing mechanism[s] that leverages private sector dollars to maximize investment in the clean energy revolution.” Senator Kamala Harris, the chosen running mate of Biden, was also a co-sponsor of the Senate version of the bill so it appears that Democratic support is consistently favorable. Not all support, however, leans Democratic. The House Climate Solutions Caucus, a bipartisan group, supports this legislation as well. Depending on the outcome of the November election and the composition of the Senate, this federal legislation may be voted on and passed in January 2021.