By Jeff Schub
A new plan for a National Climate Bank has been introduced in the Senate, renewing the presence of this innovative concept in mainstream American political discussion. The legislation is a blueprint for what Democrats may undertake in 2021.
The Climate Bank would be a specialized finance institution capitalized by the federal government with the goal of solving the climate crisis. A Green Bank or Climate Bank uses finance and investment tools to accomplish three objectives: deliver cleaner and cheaper energy to all Americans; drive as much total investment as possible by partnering with the private sector; and maximize emissions reduction per public dollar. The model is already in use around the world, both in developed nations like the U.K. and Australia, and developing countries like South Africa.
The need for a National Climate Bank is rooted in long-standing differences in attitudes towards spending on energy infrastructure, compared to other areas like national defense. Both areas of investment provide services that are critical to the public good and address existential threats. Yet defense is considered to be squarely in the domain of the public sector, while energy infrastructure has been made the responsibility of the private sector.
The U.S. federal government’s defense budgets are effectively unlimited, and spending is conducted in the form of simple, outright procurement rather than complicated schemes. There is no private sector ownership, return-on-investment requirement or cost-effectiveness test when purchasing an aircraft carrier. With energy infrastructure, the federal government’s role has historically been limited to tax incentives, the occasional loan, and other tools around the margins to encourage the private sector to solve public problems. Today, rural communities have electricity because their utilities received cheap loans from the federal government, not because the government built a public power plant.
This year, the U.S. defense budget is $681 billion – but advocates’ calls for American climate and energy spending equal to the defense budget are likely to go unheeded. Anyone who is serious about modernizing the U.S. energy sector and addressing climate change must meet the situation as it currently exists.
The National Climate Bank provides an answer to reconcile these disparate approaches. It would deliver the outcomes needed to transition to a fully clean energy system, while operating within the constraints of limited public funds, private ownership of energy infrastructure, and an emphasis on cost-effectiveness. And it would emulate the success of institutions around the world like the Green Investment Group in the UK or the Clean Energy Finance Corporation in Australia.
As the National Climate Bank Act sets forth, the Climate Bank would be capitalized with federal funds. However, the financing which it would distribute to clean energy and other projects would be repaid to the Bank. It would offer financing in ways that increase returns to private owners of clean energy, while still delivering cheap power to households. This would open up major new projects and opportunities for private investors, as it takes marginal projects and moves them into the realm where they can cost-effectively move forward.
The National Climate Bank is a practical, yet forceful measure that American political leaders can undertake right away. They should follow the examples of other nations and use the proven Green Bank model and the power of finance to address the crisis, reduce emissions, deliver affordable clean energy to consumers, and open up profitable new opportunities to investors.