Chris Kenrick is a Research Assistant at the Environmental Finance Center and is pursuing dual master’s degrees in information science and public administration.
If any of you are like me, then you probably spent a good portion of last Monday waiting to hear what President Obama would make the centerpiece of his second inaugural address. After a few incredible performances, and a couple glimpses of funny looking hats, we heard, among other priorities:
“The path towards sustainable energy sources will be long and sometimes difficult. But America cannot resist this transition; we must lead it.”
This was the first of many quotes from President Obama that set the environmental tone of his inaugural address and really caught my attention. Granted my job may have a little bit to do with the environment and perhaps I was listening more for this type of rhetoric, but certainly, his address signaled probable changes to come.
Indeed changes are already happening, and it’s not only the president who has been leading the way. While President Obama is hinting at his vision of the future, Governor Cuomo of New York is the latest public official to take on the issue of clean energy finance. On January 9, Governor Cuomo delivered his 2013 State of the State Address, in which he proposed creating the NY Green Bank. The Green Bank would leverage $1 billion in public dollars with a match from the private sector, to assist New York in becoming a leader in the “Clean Tech Economy.”
Governor Cuomo seems to be taking a page out of Connecticut’s book with their distinctive Clean Energy Finance and Investment Authority (CEFIA). CEFIA is the “nation’s first full-scale clean energy finance authority.” The organization is the first of its kind in creating a public-private partnership to address the lack of adequate funds in the area of clean energy. As described on their webpage, they work with “homeowners, companies, municipalities, and other institutions to support renewable energy and energy efficiency.”
CEFIA is unique in that the Connecticut legislature granted it authority to raise capital by issuing up to $50 million in special obligation bonds, and provided access to the state’s Special Capital Reserve Fund in order to leverage low interest funds for attracting private business investments. By having the ability to issue bonds and offer low interest funds guaranteed by the state, CEFIA can more easily find private businesses to match funding for clean energy projects. Private businesses obtain the benefit of earning guaranteed long-term interest payments, and local governments, as well as other businesses, have the benefit of increased low-cost funding for future projects.
The proposed NY Green Bank and CEFIA are best understood as public-private banks investing only in clean energy projects. Obviously, banks operate differently than Federal or State spending which has decreased from $44.3 billion in 2009 to $13.6 billion in 2013 for clean energy technology. They are different because the funders (clean energy banks) share in the success of projects by receiving interest payments, which the recipients of clean energy funding pay out of successful clean energy project savings. As it is becoming relatively less politically salient in congress and state governments to finance clean technology, it is becoming more economically salient in the business community to finance clean tech because of the possible return on low risk investments. The relatively low risk for banks on clean energy projects is further mitigated by the state’s support for low interest funds.
While CEFIA is not the only model of a successful state green bank, it is changing the way many people view the future of clean energy finance. Coming out of the Great Recession, some local governments are struggling to maintain momentum in environmental endeavors funded by the American Recovery and Reinvestment Act (ARRA). Public-private partnerships are one of many ways to leverage public resources to fund a greener tomorrow, today.