What You Need to Know About the Greenhouse Gas Reduction Fund
The Inflation Reduction Act (IRA) created the Greenhouse Gas Reduction Fund (GGRF), a $27B investment to mobilize financing and leverage private capital for clean energy and climate projects that reduce pollution across the country with special focus on ensuring these benefits reach low income and disadvantaged communities (LIDAC).
The Environmental Protection Agency (EPA) will distribute GGRF financing to green banks and financial intermediaries, who will then redeliver those funds to cities for climate action projects, using innovative financing mechanisms such as:
- Direct lending for projects to demonstrate their potential to generate risk-adjusted returns
- Credit enhancements, like loan loss reserves or loan guarantees
- Aggregate loans into portfolios that are more attractive to investors with greater risk diversity
- Co-investment as subordinated debt, meaning that in the event of a loan default the green bank would be repaid last
- Issuance of green bonds
GGRF consists of three separate, but complementary, programs.
National Clean Investment Fund*
The National Clean Investment Fund (NCIF) provides $14B in funding through three (3) nonprofit, national green banks that are partnering with private capital providers to deliver financing at scale directly to businesses, communities, and consumers for clean technology.
NCIF recipients include –
Climate United Fund ($6.97B)
A nonprofit formed by Calvert Impact along with two Community Development Financial Institutions (CDFIs), Self-Help Ventures Fund and the Community Preservation Association, with the goal of driving funds to “harder-to-reach” markets within low-income/disadvantaged communities, including small-businesses and farms, schools, community facilities and individual consumers.
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Coalition for Green Capital ($5B)
Since its founding, CGC has been responsible for catalyzing over $20B in work with green banks. CGC’s NCIF funds will focus on public-private investing, leveraging their growing national network of green banks as a key distribution channel, with at least 50% of their investments going to low-income communities/disadvantaged communities.
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Power Forward Communities ($2B)
A coalition of five national nonprofits: Enterprise Community Partners, LISC, Rewiring America, Habitat for Humanity and United Way, that will focus its NCIF award on alleviating financial strain of decarbonization for homeowners and renters. Power Forward Communities’ $2B award will dedicate 60% of funds to low-income communities/disadvantaged communities.
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Clean Communities Investment Accelerator*
The Clean Communities Investment Accelerator (CCIA) funds five (5) hub nonprofits that are focusing on moving existing community lenders into clean and climate lending – this includes CDFIs, credit unions, housing finance agencies, existing green banks, and other small-scale lenders – enabling these community lenders to use their existing infrastructure and expertise to provide capital for clean technology projects. The CCIA provides $6B toward the goal of ensuring that households, small businesses, schools, and community institutions in low-income and disadvantaged communities have access to financing for cost-saving and pollution-reducing clean technology projects.
CCIA recipients include –
Opportunity Finance Network ($2.29B)
A CDFI Intermediary that provides capital and capacity building for a network of over 400 community lenders. Opportunity Finance Network (OFN) developed the “Climate Lending Investment Mobilization Assessment Tool” (CLIMAT) which assigns points for four elements to assess community lenders’ capacity to execute clean finance transactions. Per OFN’s CCIA application, the four elements are clean finance record and execution capacity, underwriting capacity, technical assistance capacity, and reporting capabilities.
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Inclusiv ($1.87B)
A nonprofit CDFI intermediary with a national network of 900+ credit unions that will use its funds to provide capacity building and TA to credit unions that can direct affordable green loan capital and community development expertise to further a range of decarbonization projects, such as expanding access to consumer loans for residential solar, at-home charging stations, and energy-efficient appliances.
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Justice Climate Fund ($940M)
A purpose-built nonprofit, backed by a large coalition of technical assistance providers and a network of 1,200 community lenders, that is designed to enable community lenders to have the technical knowledge and capital necessary to deploy affordable and responsible financial products for LIDACs. Justice Climate Fund will do this, in part, by standing up a “Community-Based Green Lender Certification Program” that will ensure that community lenders are appropriately assessed, trained, and certified before receiving funding.
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Appalachian Community Capital ($500M)
A CDFI Membership organization that is launching the Green Bank for Rural America, a purpose-built program to deliver critical investments in coal, energy, underserved rural, and Tribal communities across the United States.
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Native CDFI Network ($400M)
The Native CDFI Network serves as a national voice and advocate for the 63 Native CDFIs in 27 states, including both rural reservation and urban communities. The Native CDFI Network will use their award to provide capital and technical support to their constituent lenders, enabling financing for distributed energy generation, net-zero buildings, and zero-emissions transportation projects in Native communities nationwide.
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*Summaries of award recipients for NCIF and CCIA are sourced from the EPA’s website and relevant press releases; they are subject to change pending award negotiations.
Solar for All
The Solar for All program will provide up to 60 grants totalling $7B to states, tribal governments, municipalities, and nonprofits to expand the number of low-income and disadvantaged communities that are primed for investment in residential and community solar. Awardees are expected to be announced in July 2024.
How Cities Can Prepare for GGRF Financing
Given the speed at which GGRF programs are moving into deployment (NCIF and CCIA funds must be obligated by the EPA to recipients by September 30, 2024), it is imperative for cities to quickly assess their project readiness, convene partners, and invest in workforce development programs to fully leverage the potential of the GGRF. The three constituent programs within GGRF (NCIF, CCIA, Solar For All) provide funding and financing through different avenues, including green banks, community lenders, nonprofit organizations, and state or local energy offices. The already-awarded NCIF and CCIA programs operate on different scales, with the NCIF providing a national platform whereas CCIA seeks to leverage and enhance existing infrastructure in local, community lending platforms. From a city perspective, it is important to engage these opportunities based on your project pipeline and climate action plans.
Trenton Allen, CEO of Sustainable Capital Advisors, said that “there are going to be multiple ways to go after [these funds] to be able to ensure the greatest amount of resources get to as many small and medium size communities across the country,” and as such communities should identify the path to financing that is best scaled for them. For example, leadership from smaller cities will likely want to tap into their local community lenders that are part of the CCIA networks, rather than trying to navigate the larger, national green banks where they may lack strong relationships; cities of any size working on a larger regional clean energy project, and perhaps as part of a larger coalition, might look to the NCIF as a likely funding source.
Assessing the City’s Position – Project Pipeline and Workforce Readiness
Cities should start by assessing their climate action priorities – fleet electrification, efficiency in building stock, residential and/or commercial solar programs, etc. – start with the projects that cities have more direct control over from ideation to execution. These projects should be a simpler match with GGRF financing that will likely be disbursed at scale quickly. Concurrently, cities should assess their local green workforce and green workforce development programs to both ensure you have the workforce to meet the growing demand and provide access to training for low income/disadvantaged communities.
For example, a city can undertake a gap analysis to identify local climate action strengths and weaknesses. In Columbus, Ohio, the Columbus Partnership (a nonprofit membership organization of over 70 business leaders representing the regional business community) and the local green bank, Columbus Region Green Fund (CRGF), were able to determine that their building sector was better suited to develop and execute energy efficiency projects, however there was a substantive lack of solar energy adoption and implementation. As a result, CRGF’s Executive Director, Zach McGuire decided to focus on the solar sector, and has since developed and launched programs to support commercial solar and workforce development, and the organization has plans to begin a residential solar program. The funds available under NCIF and CCIA can help support the deployment of this program.
Additionally, Allen noted that while existing climate action plans are not a necessity for leveraging GGRF resources, the process of developing and producing a plan can be helpful in aligning and prioritizing investments. Many communities were part of planning grants for the Climate Pollution Reduction Grants (CPRG) program and recently submitted applications for the implementation grants. The priority climate action plans (PCAPs) developed for those grant opportunities, as well as other existing climate action documents and plans, can and should be used to identify existing pipelines of projects and areas of investment that can be prioritized. The networks built through those grant application processes can also serve as resources as cities assess and develop a plan for leveraging GGRF.
Altogether, the investments and efforts that follow this assessment will need to focus in parallel on identifying and developing a robust pipeline of financeable projects and the workforce that can deliver those projects.
Organizing Stakeholders for Project Development and Delivery
Cities should immediately begin work to develop and strengthen relationships with community lenders who will be using their apparatus to deliver financing for projects in low-income/disadvantaged communities (LIDAC). Particularly for small and medium sized cities, these community lenders, through the CCIA program, will be key sources of green finance. These lenders are likely to be community development financial institutions (CDFIs), credit unions, minority depository institutions (MDIs), community banks, and revolving loan funds. Cities should also look to their own local housing finance agencies as good vehicles for deploying this capital.
GGRF can fund a wide range of projects across a host of sectors, including, but not limited to, municipal fleet electrifications, public and private building efficiency projects, residential and commercial solar arrays, and heat pump installation. Beyond the community lenders, there are a number of stakeholders who must be engaged to organize and coordinate activities that will maximize the impact of projects benefiting from GGRF funds. While the actors who must be engaged will vary by community, categories of such actors include anchor institutions, project developers, community based organizations, other government agencies (including schools districts and housing development entities), and those in the workforce development space. As noted in Accelerator for America’s April 2023 publication, How Communities Can Maximize the Inflation Reduction Act, Mayors have a unique role to play in convening disparate private, non-profit, and public sector players who must work in coordination to maximize the impact of these historic funds. “Cities (in close collaboration with counties and the state) should set a table where intended beneficiaries (e.g., manufacturers, energy project developers, building owners, industry) and helpful intermediaries (e.g. utilities, business leadership groups, skills providers) can work together to design, capitalize, and execute projects while also aligning those projects for maximum inclusive and sustainable impact.”
While cities should focus first on those projects within their control, they also need to be taking stock and developing a pipeline of financeable projects that can follow – particularly those in low income/disadvantaged communities where cities can partner with existing community-based organizations to have a big impact.
Trusted community organizations, such as faith-based organizations, neighborhood associations, or community centers, can help program administrators build trust with end-users, particularly in the residential context. Zach McGuire, executive director of CRGF, highlighted the challenges in building trust in some of these communities, noting it may take “18-26 touchpoints” to build the trust necessary with low-income households before they will agree to install a solar array on their property, even when the upfront costs are borne wholly by the community green bank. McGuire suggested that deploying clean energy technologies, like solar, at these community organizations can have a great effect as their constituents then see the efficacy of the investment and the organization becomes a natural advocate for the program. To ensure equitable deployment of clean energy technology, particularly in nascent and unfamiliar financing programs, cities must engage with trusted community based organizations to reach those historically left behind.
Developing the Clean Energy Workforce
Having the workforce to deliver these projects in communities across the country is critical for ensuring that the GGRF resources can meaningfully accelerate the climate transition. However, building that workforce can be a challenge as contractors and installers need a guaranteed stream of projects in order to commit to training and certification programs. Furthermore, disadvantaged businesses in low-income and underserved communities will likely need targeted outreach and support to be able to engage with workforce development programs.
In St. Louis the Electrical Connection, a decades long partnership between the International Brotherhood of Electrical Workers (IBEW) Local 1 and the St. Louis Chapter of the National Electrical Contractors Association (NECA), which can trace its roots to the first commercial use of electricity, has hosted an Electrical Industry Training Center since 1941, which was the nation’s first registered electrical training program. In recent years, they have introduced a green training program, part of a $140M investment by IBEW and NECA national investment for green workforce development. In Missouri, both IBEW apprentices and journey workers have benefited from a “green curriculum” that has grown to 75 courses which include solar, fuel cells, energy efficiency, wind turbines, and building automation.
A city-led model for clean energy workforce development can be seen in Madison, where the city engineering division runs the GreenPower program, which focuses on preparing participants for employment opportunities in solar energy and electrical industries. The program will be supporting the engineering division’s work in installing electric vehicle charging infrastructure for the municipal fleet electrification project. Through their approach, the program is increasing the capacity of the engineering division to both accelerate the clean energy transition locally and provide high-quality training and skills to participants preparing themselves for a shifting labor market.
In Philadelphia, the city’s Energy Authority has partnered with the local school district, workforce development programs, a local utility, and others to develop Bright Solar Futures, a 3-year, 1080-hour solar energy Career and Technical Education vocational program that trains students in solar and battery storage installation, design, sales, weatherization, construction basics, and job site safety. The course pushes students to understand the practical, hands-on aspects of solar energy, and become the innovators of solar technology in the future. The course will help students gain the necessary competencies to obtain industry certifications.
IMPACT Community Action, one of 1,100 Community Action Agencies nationally, hosts the Empowered! program with support from the city of Columbus. This program serves as an entry point for young people to explore careers in the clean energy sector that will improve air quality, increase the comfort of homes, and strengthen infrastructure. Through the program, individuals can get the needed certifications to be able to work in solar. To provide a guaranteed stream of projects upon completion of the program, CRGF is having solar installers agree to hire from the workforce development program.
Meanwhile, in Denver, their Climate Protection Fund, previously featured on the Local Infrastructure Hub, offers funding to organizations with workforce development programs that focus on green jobs. In the past two years, Denver has enrolled nearly 1,000 residents in workforce development programs through the Climate Protection Fund. Through this, the Fund is able to provide participants with livable wages and benefits, skill development and certifications, and opportunities for advancement in the growing sectors, all while deploying green energy technology through Denver.
Beyond launching new workforce programs, cities can also play a role in connecting existing contractor networks, workforce training programs offered by partners, and relevant project opportunities to provide a roadmap of the necessary stream of projects over the coming years to incentivize those hesitant to invest in workforce development.
Eligible Projects
The EPA has identified three project priority categories to achieve programmatic objectives – distributed power generation and storage, decarbonization retrofits of existing buildings, and transportation pollution reduction. GGRF recipients are not limited to these three project categories, and can utilize funds for other projects meeting the requirements outlined below.
Per EPA’s Implementation Framework for the Greenhouse Gas Reduction Fund, qualifying projects must:
- Reduce or prevent greenhouse gas emissions or other air pollution in line with U.S. goals,
- Work with and receive funding from the private sector, or help communities in their efforts to reduce greenhouse gas emissions or other air pollution,
- Benefit American communities by addressing at least two burdens, as identified by Climate and Economic Justice Screening Tool, from categories like climate change, energy, health, housing, pollution, transportation, water, and workforce development, and
- Utilize technology or activities that are already available commercially.
Funds awarded must be used to support projects that might not have been funded otherwise. The criteria and requirements are subject to change, and those considering using GGRF finance resources should review the latest EPA guidance and that from the GGRF selectees.
