The Clean Energy Future Blog

By Coalition for Green Capital

Yesterday, the nation’s first local Green Bank, the Montgomery County Green Bank, was designated as the County’s official Green Bank by the Montgomery County (MD) Council. The Montgomery County Green Bank will allow residents and businesses in Montgomery County to access low-cost financing for clean energy and energy efficiency projects.

In response to the official designation of the Montgomery County Green Bank as the County’s Green Bank, Coalition for Green Capital CEO Reed Hundt said, “We are grateful for the leadership of Councilmember Roger Berliner, Council President Nancy Floreen, and County Executive Ike Leggett as Montgomery County creates the nation’s first local Green Bank, the Montgomery County Green Bank. The Montgomery County Green Bank will offer an example for cities and counties across the United States as a way to invigorate local economies with investments in clean energy and energy efficiency technologies.”

Michelle Vigen, Senior Energy Planner at the Montgomery County Department of Environmental Protection, said, “We are pleased to be working with the Coalition for Green Capital to build out the Montgomery County Green Bank as a model for driving investment in local economies. Montgomery County has taken a leadership position in building out a clean energy economy in Maryland, and the nation’s first local Green Bank is a major element of our strategy of achieving our aggressive clean energy goals.”

Last summer, Councilmember Roger Berliner led the charge to pass legislation authorizing the Montgomery County Green Bank. Since the passage of Bill 18-15, the Coalition for Green Capital has worked hand-in-hand with Montgomery County staff to run a working group process to identify opportunities for the Montgomery County Green Bank, perform extensive market research and stakeholder interviews, incorporate the organization within the State of Maryland, and select a Board of Directors for the organization.

The Coalition for Green Capital will continue to work with Montgomery County as it builds the organization and begins to increase investment in the county’s clean energy and energy efficiency industries. The Coalition for Green Capital is a national nonprofit with a mission of accelerating the transition to the clean energy economy by establishing Green Banks at the local, state, federal, and international level.

By Reed Hundt

EVs, CAFE Standards, Gas Tax, Public Transportation

The right goal for reducing the greenhouse gas (GHG) emissions in the transportation sector can be explained in a formula:

(GHGs/Gas-Powered Mile) x Total Gas-Powered Miles = Total GHG.

There are three ways to reduce total GHG in the transportation sector:

1. CAFE Standards increase the gas-powered miles that come from each gallon of gas, while the GHGs from each gallon of gas stay constant. As an example, if CAFE produces a 10% gain in fuel efficiency and if total gas-powered miles driven stays constant, then GHGs drop by 10%.
2. People to telecommute or take public transit, perhaps as a result of gas taxes or attractive public transportation options. Gas-powered miles go down, so GHGs go down (even if the ratio of GHGs to gas-powered mile stays constant).
3. Electric vehicles replace gas-powered vehicles, which reduces gas-powered miles go down. Similarly more hybrid vehicles, which replace a portion of gas-powered miles driven with electric miles driven, would also reduce the gas-powered miles driven.

The formula demonstrates that it is possible, and desirable, to determine the equilibrium between a gas tax and a subsidy for EVs. As an example, if a state gas tax collecting $10 million reduced GHG by the same amount as a $10 million subsidy for EVs (or electric miles driven by a hybrid), then the only difference is who pays. In the case of the gas tax, it is the driver. In the case of the EV subsidy, it is the taxpayer. The gas tax is probably regressive; the EV subsidy, progressive.

The Three Best EV Subsidy Options

The next question is how to maximize the reduction in gas-powered miles that an EV subsidy could produce. The goal is captured in the following formula:

Gas-Powered Miles Reduction/$ = GHG reduction.

So what are the ways that an EV subsidy can lead optimally to gas-powered miles reduced? At least the following methods are possible:

• Award the subsidy per electric mile driven, on the assumption that any such mile driven in an EV substitutes for a gas-powered mile.
• Award the subsidy to vehicles according to the likely number of miles they will drive. For example, a taxi cab will be driven 70,000 miles a year in New York City, whereas the normal passenger car is used 10,000 miles a year. Cars used primarily for ride-hailing services (like Uber and Lyft) are similarly high mileage compared with an average passenger vehicle. Of course the vehicles with high annual usage are better targets for subsidies, as they displace more gasoline use.
• Award the subsidy by auction, picking the winner according to who shows the biggest number of electric miles substituting for gas-powered miles.

A few tweaks in EV subsidy policy can have large effects on emissions in the transportation sector. The current policy of giving the same subsidy to an EV that mostly sits in a garage to an EV that is driven over 70,000 miles per year doesn’t make much sense. The expense to the taxpayer is the same, but the miles (and associated GHGs offset) are very different. If we want EVs to contribute to lower GHG emissions, we would do better to target subsidies to cars that have high annual mileage.

Financing EV Charging Stations Through Auctions

As to charging stations, unfortunately every charging station installed anywhere today creates direct negative net present value. (There may be indirect benefits, such as more time spent in a retail store, or increased employee loyalty.) Charging stations are complementary products to EVs. They are like shoestrings for shoes—necessary but not valuable in and of themselves. They impose a cost that has to be paid by someone; they are not, in today’s market, a productive investment.

The goal of any economic policy is to reduce costs for the same output, or to reduce the ratio of cost to output. That is tantamount to saying that the goal of policy is to increase productivity. Everyone agrees that national income will not go up over the long run unless productivity goes up.

Therefore the goal as to charging stations is to make sure the smallest possible number are installed that nevertheless suffices to make EVs useful. (One might argue that charging station grids should compete to reduce costs, but where every such grid is net present value negative then the first will be a natural monopoly. Who would enter the market in order merely to lose less money than the first stations installer?) As a result, the right policy is for the subsidy provider to design the minimal station network necessary to make EVs useful. No one needs two pairs of shoestrings for the same shoes; no one needs more than the minimum necessary charging stations.

Whether the subsidy provider is the government, the utility, or the EV industry, in any case the provider should design the optimal network and award a license to build it by means of an auction that selects the lowest cost provider as the winner of the necessary subsidy.

By Coalition for Green Capital

Last week the White House announced an exciting new set of initiatives to accelerate electric vehicle (EV) adoption in the United States. The federal government, working in partnership with state and local governments and the private sector, will take action to increase the number of EVs on the road and, just as importantly, increase deployment of EV charging stations in key locations.

The transportation sector represents 26% of total GHG emissions in the U.S.

The new initiatives include:

• The FAST ACT process to identify and develop optimal corridors for travel and placement of alternative fuel vehicle charging stations
• Making certain kinds of EV charging station installations eligible for federal loan guarantees from the Department of Energy Loan Program Office (LPO)
• The launch of a joint procurement process where state and local government with join the federal government to purchase EVs in bulk at a discounted cost.

Each of these initiatives is a step in the right direction and operate under three essential principles for a successful EV strategy:

• Use the strength of the federal balance sheet to finance state and local activity
• Focus on efficient and optimal deployment of charging stations
• Recognize the complementary nature of EVs and charging stations, deploying both simultaneously

Many state governments have made significant efforts to increase deployment of both EVs and EV charging stations. However state budgets are tight and balance sheets are stretched. Many states use direct subsidies or tax credits to support EV adoption, and similarly pay much of the cost for EV charging stations.

Both efforts have been critical to building an early base of market penetration for EVs, but neither method can scale because of lack of funds. In addition, state subsidies targeting EV purchase, rather than EV usage, are not designed to maximize the desired outcome—EV vehicle miles traveled. And direct payment of EV charging stations misses an opportunity for a more holistic and efficient station network design.

Federal financing is an essential component to EV market growth. The Department of Energy LPO is a good place to start, but more resources that are more easily accessible should be put on the table for state governments. The DOT, the USDA, and the EPA should all make the billions of dollars of funding they have at their disposable for state/local investment available for EV charging station investment. The recently introduced Green Bank Act of 2016 would provide capital to state Green Banks, which in turn could make prudent local investments. A national infrastructure bank could similarly support such efforts.

To maximize the value of public dollars invested, they should be deployed in a manner that takes advantage of network efficiencies. Much like cell phone towers, the location of charging stations can be optimized to serve the most EV drivers with the lowest fixed cost investment. CGC described this approach in a white paper for the New York State Energy Research and Development Authority. States can use innovative reverse auction methods, combined with network optimization to procure EV charging networks from private parties at the lowest cost possible to the public sector. The economics of charging stations today are poor – they are not utilized regularly enough to support debt payments. Therefore public financial support will be necessary, but every effort should be made to minimize that level of support.

And finally, this new set of White House initiatives wisely addresses both the vehicle and the charging station side of the market. This is critical, as both elements of the market must grow together. It is often said the EV market faces a chicken-or-egg problem—unsure of whether charging infrastructure must be built first to reduce range anxiety and enable EV adoption; or if EVs must first be on the road to convince the private sector that charging stations are a good investment. But this framing is inaccurate. Again like cell phones, EVs and charging stations are complementary goods and must exist together, simultaneously. Like a right and a left shoe, there is little value to either an EV or a charging station without the other.

Hopefully this is just the beginning of a major cross-department effort by the federal government to support EV and charging station deployment at the local level. Resources need to be deployed efficiently. Charging station network design needs to be optimized. And federal-state collaboration is essential. These pieces together can draw private investment and bring the EV market to scale.

By Coalition for Green Capital

Democratic Bill Would Launch $50b National Green Bank

“Democratic Rep. Chris Van Hollen unveiled legislation yesterday that would set aside up to $50 billion for a national green bank, buffing his environmental credentials in the race for Maryland’s open Senate seat.

Van Hollen’s H.R. 5802, the “United States Green Bank Act of 2016,” would provide loans, loan guarantees and risk management to developers of clean energy and energy efficiency projects and leave discretion for project selection and management with local green banks.

The Coalition for Green Capital, Natural Resources Defense Council and Connecticut Green Bank are backing the bill.” (http://bit.ly/2aez77B)

Obama Administration Announces Clean Energy Savings for All Initiative

“Through the Clean Energy Savings for All Initiative, the Administration will work to ensure that every household has options to choose to go solar and put in place additional measures to promote energy efficiency. To continue along this track, the Administration, in collaboration with state agencies, is announcing a new catalytic goal to bring 1 gigawatt (GW) of solar to low- and moderate- income families by 2020.” (http://bit.ly/2a8fgK9)

FHA To Begin Insuring Mortgage Loans with PACE Financing

“The Federal Housing Administration will soon begin insuring mortgages that also carry liens created by energy retrofit programs, as long as the energy lien remains subordinate to the mortgage, the Department of Housing and Urban Development announced Tuesday.” (http://bit.ly/29O6zDK)

Victoria Becomes First Australian Government to Tap Green Bond Market

“Victoria’s state Labor government has become the first government in Australia to issue its own green bonds, with the launch of a triple-A rated $300 million issuance to finance a range of new and existing low-carbon projects.

The Victorian Green Bonds, issued by the Treasury Corporation of Victoria (TCV) on Monday and fully subscribed in just over 24 hours, are also the first state or federal government-issued bonds anywhere in the world to receive international Climate Bond Certification.” (http://bit.ly/2axn3gv)

Lack of Small-scale ‘Bankability’ Harming Clean Energy Progress, Finds IIED White Paper

“Traditional forms of climate financing are unsuitable for the transition required to ensure clean, low-cost and low-carbon energy access for all, argues a new white paper published by the International Institute for Environment and Development (IIED). The report’s chief argument is that, while investing in projects such as large-scale wind farms offers an undeniably more attractive guarantee of profits, a lack of similar funds for more decentralized, small-scale projects undermines clean energy progress globally.” (http://bit.ly/2afQwOo)

By Coalition for Green Capital

As we reported earlier, Rep. Chris Van Hollen has introduced the Green Bank Act of 2016 in Congress. Sen. Chris Murphy intends to introduce companion legislation later this session in the Senate. (Update 9/22/16: the Senate bill has been introduced). At the request of Sen. Murphy and Rep. Van Hollen, CGC provided advice on bill. We believe this legislation represents a significant step for Green Banks across the country. This post provides a summary of the bill and CGC’s analysis of what it means for Green Banks around the country.

Overview of the National Green Bank

• Total capitalization of up to $50 billion
• Would provide loans, loan guarantees, or other forms of financing to eligible institutions on a competitive basis
• Would solely be a pass through for funding qualified institutions; the Bank would not have its own projects
• Regional, state, and local Green Banks are eligible to receive funding from the National Green Bank
• Institutions that receive funding from the National Green Bank must provide matching funds equal to at least 20% of any federal funds
• After receiving initial funding from the National Green Bank, institutions may request up to two times the amount capital committed by

Read the full text of the bill

What this means for state and local Green Banks

In short: great news. Although Green Banks are designed to operate at zero cost to taxpayers over time, states still need to provide initial funding to capitalize Green Bank activity. From CGC’s work, we know that states large and small are interested in forming Green Banks, but often face difficulty in coming up with these initial dollars. The National Green Bank would provide up to five federal dollars for every local dollar used to fund a Green Bank—an enormous boost for states looking to overcome that early hurdle.

States across the country are also figuring out how to comply with the Clean Power Plan. Green Bank are effective resources for meeting efficiency and renewable targets. Since its founding in 2013, the New York Green Bank’s closed transactions are estimated to have increased renewable energy capacity by 128MW and saved up to 1 million MWh. The Green Bank Act enables states to leverage federal dollars in meeting Clean Power Plan goals through their local Green Banks.

To take advantage of this funding opportunity, states and municipalities should begin laying the ground work for Green Bank creation now. This involves stakeholder engagement, analysis of energy markets and existing programs, (frequently) new legislation, and more. CGC is a nonprofit that provides advice, tools, and other resources for undertaking the Green Bank formation process. Get in touch with us to learn more.

What happens next

The National Green Bank concept received bipartisan support when it was last introduced in 2014, and we expect the idea of a more efficient way of funding local clean energy projects will again resonate with lawmakers on both sides of the aisle. Looking ahead to 2017, Hillary Clinton’s policy plans include a $25 billion national infrastructure bank. Clinton praised the Connecticut Green Bank for engaging in the types or projects a national infrastructure bank might fund, suggesting this idea would carry over into her administration.

By Coalition for Green Capital

WASHINGTON, DC: Rep. Chris Van Hollen (D-MD) has introduced H.R. 5802, the United States Green Bank Act of 2016, which establishes a National Green Bank to provide financing to regional, state, and local Green Banks. Seven Democratic representatives are co-sponsoring the bill: Earl Blumenauer (OR), Matt Cartwright (PA), Gerry Connolly (VA), Elizabeth Esty (CT), Jim Himes (CT), Eleanor Holmes Norton (DC), and Paul Tonko (NY). Senator Chris Murphy (D-CT) said he intends to introduce a companion bill during this session in the Senate.

“Creating good-paying jobs, gaining energy independence, and tackling climate change are some of the most pressing challenges we face as a nation,” said Congressman Van Hollen. “To address them all, we need to accelerate the development and deployment of clean energy technologies. This legislation will provide state and local Green Banks the support they need to jump-start innovative renewable energy and energy efficiency projects. Action to prevent the most harmful impacts of climate change is long overdue, and the creation of a national Green Bank is one way we can build a 21st century clean energy economy that spurs growth in industries that create more good-paying American jobs.”

“Connecticut launched the first-ever Green Bank in the country in 2011, and it’s attracted over $800 million of investment in clean energy since,” said Senator Murphy. “Green Banks bring together the public and private sectors to save customers money, create good jobs, and help the environment. The Connecticut model is proof that Green Banks work. I’m glad I get to work alongside Congressman Van Hollen to reintroduce the Green Bank Act and spark billions of dollars of new investments in clean energy.”

National Green Bank legislation was first proposed in 2009 and last reintroduced in 2014. Both bills received bipartisan support. Since then, the number and size of Green Banks have grown rapidly. Green Banks now exist in California, Connecticut, Hawaii, Montgomery County (MD), New York, and Rhode Island. The National Green Bank seeks to accelerate this growth by making it easier for Green Banks to access capital.

“A lack of access to capital is the single biggest barrier for Green Bank growth,” said Reed Hundt, CEO of the Coalition for Green Capital (CGC).  CGC, a nonprofit organization, has consulted on establishing Green Banks for state and local governments across the country. “There is enormous pent-up demand for these institutions, which are designed to be financially self-sufficient, but states and cities face such budget constraints that it’s difficult for them to come up with the funds. The Green Bank Act directly addresses this barrier.”

Green Banks are public finance authorities that use limited public dollars to leverage greater private investment in clean energy. Green Banks accomplish this by providing financing, securitization, and other forms of market development support for clean energy projects and organizations. The National Green Bank would provide a comprehensive range of financing—including loans, loan guarantees, and other forms of risk mitigation—on a competitive basis to local Green Banks. The National Green Bank would solely be a pass-through for allocating funding to qualified institutions, meaning authority over project selection and management would remain with local Green Banks. The National Green Bank would have an initial capitalization of $10 billion, and a maximum capitalization of $50 billion.

“The Green Bank Act of 2016 will use the historically low cost of capital to drive investment in critical infrastructure in the United States,” said Doug Sims, Director of Strategy and Finance and the Natural Resources Defense Council and Co-Manager of the Green Bank Network. “The Act ensures that decisions will be made at the local level to address local needs.  If enacted, the Green Bank Act will spawn green banks all over the country. These banks will learn how to quickly scale green investment from the existing Green Banks that are part of Green Bank Network. The Banks in the network are already demonstrating the many benefits of the green economy.”

“A National Green Bank would be a game changer for accelerating clean energy growth at the state level,” said Bryan Garcia, President and CEO of the Connecticut Green Bank. “In Connecticut, we are seeing more and more private investment in our state’s clean energy economy and the National Green Bank would expand this public-private partnership for energy security, job creation, and climate protection.” According to its most recent financial report, the Connecticut Green Bank sparked $365 million in private clean energy investment in the past year, numbers that could grow with support from the National Green Bank.

Read the full bill text

Contact

Jill Bunting
Program Director, Coalition for Green Capital
jill@cgcstagingsite.wpengine.com
(917) 553-6948
www.coalitionforgreencapital.com