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Decarbonizing the global economy requires replacing stuff that emits carbon dioxide with stuff that doesn’t. At its heart, this challenge is financial: All these high-emitting assets ― coal plants, gas stoves, airplanes ― were at some point financed into existence by investors seeking returns. Climate policymakers’ greatest challenge is not just figuring out how to phase out existing, dangerous capital investments in fossil fuels, but also how to finance into existence new, climate-stabilizing clean assets.
This is all much easier said than done. Central banks’ high interest rates are strangling clean energy and adaptation infrastructure investments in the United States and abroad. Recent struggles to develop offshore wind and small modular nuclear reactors in the United States exemplify how deeply hesitant private developers are to commit to long-term capital expenditures. Investors view these projects as too risky, their expected profits too low to meet their minimum return thresholds. Absent policies to stabilize supply chains and other factors affecting the financing environment for clean energy, the United States ― to say nothing about the rest of the world ― won’t meet its climate goals.
The Inflation Reduction Act is, to its credit, a paradigm-shifting attempt to finance better, cleaner stuff. One of the most potentially transformative initiatives in the IRA is, in fact, financial: the Greenhouse Gas Reduction Fund offers $27 billion in startup capital to state green banks, community development financial institutions, and nonprofits to lend to decarbonization projects primarily in vulnerable communities.
By any standard, the GGRF is an incredible infusion of cash into nascent sectors that might otherwise be neglected by mainstream investors, including community-scale renewable energy and building weatherization. Most of that cash was awarded in early April, including $14 billion divided among three separate clean energy financing coalitions made up of green banks, impact investors, and CDFIs; and $6 billion divided among various technical assistance providers for project development in low-income areas. GGRF funding recipients can use their awards to finance all kinds of community improvements ― not just through grants, but also through debt and equity. In the process, they will make a market for investments in local climate mitigation and resilience, particularly in vulnerable communities.
The GGRF is about more than simply using this seed funding to make private projects profitable. The truth is, there aren’t that many private investors rushing to structure local decarbonization projects ― not even because they don’t want to enter these market segments, but because they’re really just too busy to try anything unconventional. Some markets, like those for rooftop solar assets, are fairly standardized and liquid, insofar as investors can tranche and trade rooftop solar loans like government bonds or mortgages.
But the nascent markets for many other kinds of mitigation and resilience investments like home retrofits are illiquid. Making them liquid — and getting investors interested — requires GGRF awardees to underwrite, structure, and sequence project development themselves. They must set lending guidelines, standardize financial products, and create architectures for risk management where none exist.
If GGRF recipients build up significant financial and legal capacities to finance community decarbonization, not to mention the technical and regulatory expertise needed to coordinate state and federal funding sources in the process, then they will position themselves to help alleviate significant constraints on the flow of financing toward local decarbonization projects. This is how the IRA promises state and local governments the chance to provide unprecedented liquidity to green investments.
Cities and states currently get the liquidity they need to fund most of our public infrastructure and services through the American municipal bond market. Why not use this market to finance decarbonization, too?
It’s a good idea — except that municipal bond markets are dysfunctional. Cities and states rely heavily on private banks to structure their municipal bonds and sell them to private investors, and on credit rating agencies to certify them; these dependencies have historically forced local governments to tailor their bond issuances to the interests of a few private buyers, which are skewed against spending on longer-term priorities with lower expected returns.
Borrowing big is more often punished than rewarded, especially where governments already have smaller tax bases and less borrowing capacity. In 2018, the rating agency Moody’s downgraded Jackson, Mississippi on account of its “financially stressed” water system and its residents’ low average incomes, raising the city’s future cost of borrowing on bond markets. Last year, its water system spiraled into crisis on account of severe underinvestment, leading to a foregone conclusion: At a time when Jackson, a predominantly black city, needed more low-cost, long-term investment to fix its infrastructure, its government was structurally unable to raise enough of it.
Increasingly frequent climate disasters will set in motion the same process again and again across the country. Greater perceived climate risks are increasing municipal borrowing costs and insurance premiums, thereby driving investment away from vulnerable areas, preventing communities from investing in adaptation and resilience, and increasing their future vulnerability. Proactive disaster prevention policy requires breaking this financial doom loop.
It doesn’t help that municipal bonds are a volatile asset class, seeing sharp price drops and prolonged sell-offs during periods of market uncertainty and, lately, rapid interest rate hikes. Their dependence on risk-averse private buyers is a primary culprit. Indeed, private investors’ muni bond fire sales at the start of the pandemic nearly broke this market. Had it not been for the Federal Reserve’s emergency creation of the Municipal Liquidity Facility, which committed the Fed to buying muni bonds that no other investor wanted to hold, cities and states would not have been able to fund crucial social and community services, pay employees, and undertake necessary capital investments. The mere announcement of this backstop program preserved cities’ ability to raise debt during the first phase of the pandemic, but Congress forced it to wind down at the end of 2020.
That’s a shame: Absent this kind of backstop for public bond markets to stabilize local governments’ long-term borrowing costs, policymakers literally cannot secure the liquidity they need to keep their climate promises. There really is no way to flood-proof New York, storm-proof Miami, summer-proof Amtrak, or manage wildfire out West without the long-term public debt finance that would allow states and cities to spend responsibly and consistently on resilience.
This is a problem not just for long-term adaptation and resilience investments, but also for the mitigation investments the IRA is designed to facilitate. Considering that green banks, state financing authorities, and public-sector power developers will have to issue considerable amounts of debt to accelerate the deployment of renewable energy ― and especially because no comprehensive decarbonization program can neglect public housing or schools, which finance themselves via municipal bonds ― state and federal policymakers should not let their investment priorities fall victim to the whims of our illiquid, volatile public debt markets.
Where climate mitigation is concerned, there are some provisions of the IRA that demonstrate how rewiring the financial system to power decarbonization works in practice. Tax credits that pump a functionally unlimited amount of money into private and public clean energy development allow developers to take on more debt at better terms, facilitating greater investment. (Bonus tax credits for investments in disadvantaged communities should help mitigate against geographic biases, too.) And expanded lending authority at the Department of Energy makes financing higher-risk, longer-term decarbonization investments of all kinds vastly less expensive. The United States has seen over $200 billion in new decarbonization investments in the past year, suggesting that, despite the lack of finalized regulations on tax credit financing and “chaining,” a set of provisions that could allow public and nonprofit entities to engage in tax credit financing of private projects, the Biden administration’s political down payment on decarbonization is already paying off.
Not in every sector, though. Private investors are fickle, risk-averse, and face considerable restrictions on where they can put direct money. The developers they finance, particularly those behind the most ambitious decarbonization projects, are under similar pressures. As Ørsted, the world’s leading offshore wind developer, retreats from projects in the U.S. and elsewhere, its CEO has admitted that “what our investors need” is for Ørsted to “create value.” If expected returns aren’t high enough, then its projects won’t pencil out. Time is of the essence; this outcome shouldn’t be acceptable.
New York’s recently passed Build Public Renewables Act mandates that New York’s public energy authority build renewable energy itself for just this reason — its proponents doubted that relying on private developers made good business sense. But it may not have passed without the IRA’s financial firepower behind it. The IRA allows the public sector to access many of the same decarbonization incentives it gives private firms, balancing the playing field and empowering transformative public sector policymaking.
The public sector can also compete against risk-averse private lenders to finance project development — public financing authorities can lend for longer, on cheaper terms, and with a higher risk tolerance than most private lenders could. By offering cost-share agreements, low-cost construction loans, equity injections to buy out troubled projects, or even by building up critical component stockpiles, the public sector can set the pace of the transition.
To that end, the IRA empowers state and local governments and community lenders to seed ambitious decarbonization projects of all types and sizes where private investors alone might hesitate. This brings us back to the GGRF and all it could do for local decarbonization ― and to carveouts in the Department of Energy’s lending authorities which enable state green banks to pass on extremely low-interest loans to eligible project developers. So long as public and private entities take the effort to access them, these programs create considerable liquidity for ambitious mitigation programs and resilience investments.
But the GGRF does not target larger infrastructure improvements, and the IRA’s other grant programs for adaptation and resilience, however ambitious they may be on the scale of U.S. history, are also wholly inadequate. If policymakers and legislators want to make nationwide climate adaptation feasible, they will still have to fix public debt markets.
Maximizing the potential of the IRA to replace bad assets with better ones requires giving local and state governments the chance to throw money at mitigation and adaptation problems that money can actually solve. Leave the financial system as is, however, and the private investors that mediate it will steer the benefits of decarbonization and adaptation toward the communities wealthy enough to make doing so a good investment. Meanwhile, the communities experiencing climate disasters first and worst ― spread across underinvested rural and urban pockets, here and globally ― will struggle to secure the long-term financing they urgently need both to lessen their contributions to climate change and also to prepare for its inevitable effects.
The financial status quo forces a kind of trickle-down decarbonization that is wholly inadequate to the scale of the climate challenge. Responsible climate policymaking, then, requires the elimination of this liquidity constraint everywhere, to the greatest extent possible, and the creation of coordination mechanisms to ensure that what people need is what gets built. Public liquidity is, without a doubt, a public good.
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Defenders of the Inflation Reduction Act have hit on what they hope will be a persuasive argument for why it should stay.
With the fate of the Inflation Reduction Act and its tax credits for building and producing clean energy hanging in the balance, the law’s supporters have increasingly turned to dollars-and-cents arguments in favor of its preservation. Since the election, industry and research groups have put out a handful of reports making the broad argument that in addition to higher greenhouse gas emissions, taking away these tax credits would mean higher electricity bills.
The American Clean Power Association put out a report in December, authored by the consulting firm ICF, arguing that “energy tax credits will drive $1.9 trillion in growth, creating 13.7 million jobs and delivering 4x return on investment.”
The Solar Energy Industries Association followed that up last month with a letter citing an analysis by Aurora Energy Research, which found that undoing the tax credits for wind, solar, and storage would reduce clean energy deployment by 237 gigawatts through 2040 and cost nearly 100,000 jobs, all while raising bills by hundreds of dollars in Texas and New York. (Other groups, including the conservative environmental group ConservAmerica and the Clean Energy Buyers Association have commissioned similar research and come up with similar results.)
And just this week, Energy Innovation, a clean energy research group that had previously published widely cited research arguing that clean energy deployment was not linked to the run-up in retail electricity prices, published a report that found repealing the Inflation Reduction Act would “increase cumulative household energy costs by $32 billion” over the next decade, among other economic impacts.
The tax credits “make clean energy even more economic than it already is, particularly for developers,” explained Energy Innovation senior director Robbie Orvis. “When you add more of those technologies, you bring down the electricity cost significantly,” he said.
Historically, the price of fossil fuels like natural gas and coal have set the wholesale price for electricity. With renewables, however, the operating costs associated with procuring those fuels go away. The fewer of those you have, “the lower the price drops,” Orvis said. Without the tax credits to support the growth and deployment of renewables, the analysis found that annual energy costs per U.S. household would go up some $48 annually by 2030, and $68 by 2035.
These arguments come at a time when retail electricity prices in much of the country have grown substantially. Since December 2019, average retail electricity prices have risen from about $0.13 per kilowatt-hour to almost $0.18, according to the Bureau of Labor Statistics. In Massachusetts and California, rates are over $0.30 a kilowatt-hour, according to the Energy Information Administration. As Energy Innovation researchers have pointed out, states with higher renewable penetration sometimes have higher rates, including California, but often do not, as in South Dakota, where 77% of its electricity comes from renewables.
Retail electricity prices are not solely determined by fuel costs Distribution costs for maintaining the whole electrical system are also a factor. In California, for example,it’s these costs that have driven a spike in rates, as utilities have had to harden their grids against wildfires. Across the whole country, utilities have had to ramp up capital investment in grid equipment as it’s aged, driving up distribution costs, a 2024 Energy Innovation report argued.
A similar analysis by Aurora Energy Research (the one cited by SEIA) that just looked at investment and production tax credits for wind, solar, and batteries found that if they were removed, electricity bills would increase hundreds of dollars per year on average, and by as much as $40 per month in New York and $29 per month in Texas.
One reason the bill impact could be so high, Aurora’s Martin Anderson told me, is that states with aggressive goals for decarbonizing the electricity sector would still have to procure clean energy in a world where its deployment would have gotten more expensive. New York is targetinga target for getting 70% of its electricity from renewable sources by 2030, while Minnesota has a goal for its utilities to sell 55% clean electricity by 2035 and could see its average cost increase by $22 a month. Some of these states may have to resort to purchasing renewable energy certificates to make up the difference as new generation projects in the state become less attractive.
Bills in Texas, on the other hand, would likely go up because wind and solar investment would slow down, meaning that Texans’ large-scale energy consumption would be increasingly met with fossil fuels (Texas has a Renewable Portfolio Standard that it has long since surpassed).
This emphasis from industry and advocacy groups on the dollars and cents of clean energy policy is hardly new — when the House of Representatives passed the (doomed) Waxman-Markey cap and trade bill in 2009, then-Speaker of the House Nancy Pelosi told the House, “Remember these four words for what this legislation means: jobs, jobs, jobs, and jobs.”
More recently, when Democratic Senators Martin Heinrich and Tim Kaine hosted a press conference to press their case for preserving the Inflation Reduction Act, the email that landed in reporters’ inboxes read “Heinrich, Kaine Host Press Conference on Trump’s War on Affordable, American-Made Energy.”
“Trump’s war on the Inflation Reduction Act will kill American jobs, raise costs on families, weaken our economic competitiveness, and erode American global energy dominance,” Heinrich told me in an emailed statement. “Trump should end his destructive crusade on affordable energy and start putting the interests of working people first.”
That the impacts and benefits of the IRA are spread between blue and red states speaks to the political calculation of clean energy proponents, hoping that a bill that subsidized solar panels in Texas, battery factories in Georgia, and battery storage in Southern California could bring about a bipartisan alliance to keep it alive. While Congressional Republicans will be scouring the budget for every last dollar to help fund an extension of the 2017 Tax Cuts and Jobs Act, a group of House Republicans have gone on the record in defense of the IRA’s tax credits.
“There's been so much research on the emissions impact of the IRA over the past few years, but there's been comparatively less research on the economic benefits and the household energy benefits,” Orvis said. “And I think that one thing that's become evident in the last year or so is that household energy costs — inflation, fossil fuel prices — those do seem to be more top of mind for Americans.”
Opinion modeling from Heatmap Pro shows that lower utility bills is the number one perceived benefit of renewables in much of the country. The only counties where it isn’t the number one perceived benefit are known for being extremely wealthy, extremely crunchy, or both: Boulder and Denver in Colorado; Multnomah (a.k.a. Portland) in Oregon; Arlington in Virginia; and Chittenden in Vermont.
On environmental justice grants, melting glaciers, and Amazon’s carbon credits
Current conditions: Severe thunderstorms are expected across the Mississippi Valley this weekend • Storm Martinho pushed Portugal’s wind power generation to “historic maximums” • It’s 62 degrees Fahrenheit, cloudy, and very quiet at Heathrow Airport outside London, where a large fire at an electricity substation forced the international travel hub to close.
President Trump invoked emergency powers Thursday to expand production of critical minerals and reduce the nation’s reliance on other countries. The executive order relies on the Defense Production Act, which “grants the president powers to ensure the nation’s defense by expanding and expediting the supply of materials and services from the domestic industrial base.”
Former President Biden invoked the act several times during his term, once to accelerate domestic clean energy production, and another time to boost mining and critical minerals for the nation’s large-capacity battery supply chain. Trump’s order calls for identifying “priority projects” for which permits can be expedited, and directs the Department of the Interior to prioritize mineral production and mining as the “primary land uses” of federal lands that are known to contain minerals.
Critical minerals are used in all kinds of clean tech, including solar panels, EV batteries, and wind turbines. Trump’s executive order doesn’t mention these technologies, but says “transportation, infrastructure, defense capabilities, and the next generation of technology rely upon a secure, predictable, and affordable supply of minerals.”
Anonymous current and former staffers at the Environmental Protection Agency have penned an open letter to the American people, slamming the Trump administration’s attacks on climate grants awarded to nonprofits under the Inflation Reduction Act’s Greenhouse Gas Reduction Fund. The letter, published in Environmental Health News, focuses mostly on the grants that were supposed to go toward environmental justice programs, but have since been frozen under the current administration. For example, Climate United was awarded nearly $7 billion to finance clean energy projects in rural, Tribal, and low-income communities.
“It is a waste of taxpayer dollars for the U.S. government to cancel its agreements with grantees and contractors,” the letter states. “It is fraud for the U.S. government to delay payments for services already received. And it is an abuse of power for the Trump administration to block the IRA laws that were mandated by Congress.”
The lives of 2 billion people, or about a quarter of the human population, are threatened by melting glaciers due to climate change. That’s according to UNESCO’s new World Water Development Report, released to correspond with the UN’s first World Day for Glaciers. “As the world warms, glaciers are melting faster than ever, making the water cycle more unpredictable and extreme,” the report says. “And because of glacial retreat, floods, droughts, landslides, and sea-level rise are intensifying, with devastating consequences for people and nature.” Some key stats about the state of the world’s glaciers:
In case you missed it: Amazon has started selling “high-integrity science-based carbon credits” to its suppliers and business customers, as well as companies that have committed to being net-zero by 2040 in line with Amazon’s Climate Pledge, to help them offset their greenhouse gas emissions.
“The voluntary carbon market has been challenged with issues of transparency, credibility, and the availability of high-quality carbon credits, which has led to skepticism about nature and technological carbon removal as an effective tool to combat climate change,” said Kara Hurst, chief sustainability officer at Amazon. “However, the science is clear: We must halt and reverse deforestation and restore millions of miles of forests to slow the worst effects of climate change. We’re using our size and high vetting standards to help promote additional investments in nature, and we are excited to share this new opportunity with companies who are also committed to the difficult work of decarbonizing their operations.”
The Bureau of Land Management is close to approving the environmental review for a transmission line that would connect to BluEarth Renewables’ Lucky Star wind project, Heatmap’s Jael Holzman reports in The Fight. “This is a huge deal,” she says. “For the last two months it has seemed like nothing wind-related could be approved by the Trump administration. But that may be about to change.”
BLM sent local officials an email March 6 with a draft environmental assessment for the transmission line, which is required for the federal government to approve its right-of-way under the National Environmental Policy Act. According to the draft, the entirety of the wind project is sited on private property and “no longer will require access to BLM-administered land.”
The email suggests this draft environmental assessment may soon be available for public comment. BLM’s web page for the transmission line now states an approval granting right-of-way may come as soon as May. BLM last week did something similar with a transmission line that would go to a solar project proposed entirely on private lands. Holzman wonders: “Could private lands become the workaround du jour under Trump?”
Saudi Aramco, the world’s largest oil producer, this week launched a pilot direct air capture unit capable of removing 12 tons of carbon dioxide per year. In 2023 alone, the company’s Scope 1 and Scope 2 emissions totalled 72.6 million metric tons of carbon dioxide equivalent.
If you live in Illinois or Massachusetts, you may yet get your robust electric vehicle infrastructure.
Robust incentive programs to build out electric vehicle charging stations are alive and well — in Illinois, at least. ComEd, a utility provider for the Chicago area, is pushing forward with $100 million worth of rebates to spur the installation of EV chargers in homes, businesses, and public locations around the Windy City. The program follows up a similar $87 million investment a year ago.
Federal dollars, once the most visible source of financial incentives for EVs and EV infrastructure, are critically endangered. Automakers and EV shoppers fear the Trump administration will attack tax credits for purchasing or leasing EVs. Executive orders have already suspended the $5 billion National Electric Vehicle Infrastructure Formula Program, a.k.a. NEVI, which was set up to funnel money to states to build chargers along heavily trafficked corridors. With federal support frozen, it’s increasingly up to the automakers, utilities, and the states — the ones with EV-friendly regimes, at least — to pick up the slack.
Illinois’ investment has been four years in the making. In 2021, the state established an initiative to have a million EVs on its roads by 2030, and ComEd’s new program is a direct outgrowth. The new $100 million investment includes $53 million in rebates for business and public sector EV fleet purchases, $38 million for upgrades necessary to install public and private Level 2 and Level 3 chargers, stations for non-residential customers, and $9 million to residential customers who buy and install home chargers, with rebates of up to $3,750 per charger.
Massachusetts passed similar, sweeping legislation last November. Its bill was aimed to “accelerate clean energy development, improve energy affordability, create an equitable infrastructure siting process, allow for multistate clean energy procurements, promote non-gas heating, expand access to electric vehicles and create jobs and support workers throughout the energy transition.” Amid that list of hifalutin ambition, the state included something interesting and forward-looking: a pilot program of 100 bidirectional chargers meant to demonstrate the power of vehicle-to-grid, vehicle-to-home, and other two-way charging integrations that could help make the grid of the future more resilient.
Many states, blue ones especially, have had EV charging rebates in places for years. Now, with evaporating federal funding for EVs, they have to take over as the primary benefactor for businesses and residents looking to electrify, as well as a financial level to help states reach their public targets for electrification.
Illinois, for example, saw nearly 29,000 more EVs added to its roads in 2024 than 2023, but that growth rate was actually slower than the previous year, which mirrors the national narrative of EV sales continuing to grow, but more slowly than before. In the time of hostile federal government, the state’s goal of jumping from about 130,000 EVs now to a million in 2030 may be out of reach. But making it more affordable for residents and small businesses to take the leap should send the numbers in the right direction, as will a state-backed attempt to create more public EV chargers.
The private sector is trying to juice charger expansion, too. Federal funding or not, the car companies need a robust nationwide charging network to boost public confidence as they roll out more electric offerings. Ionna — the charging station partnership funded by the likes of Hyundai, BMW, General Motors, Honda, Kia, Mercedes-Benz, Stellantis, and Toyota — is opening new chargers at Sheetz gas stations. It promises to open 1,000 new charging bays this year and 30,000 by 2030.
Hyundai, being the number two EV company in America behind much-maligned Tesla, has plenty at stake with this and similar ventures. No surprise, then, that its spokesperson told Automotive Dive that Ionna doesn’t rely on federal dollars and will press on regardless of what happens in Washington. Regardless of the prevailing winds in D.C., Hyundai/Kia is motivated to support a growing national network to boost the sales of models on the market like the Hyundai Ioniq5 and Kia EV6, as well as the company’s many new EVs in the pipeline. They’re not alone. Mercedes-Benz, for example, is building a small supply of branded high-power charging stations so its EV drivers can refill their batteries in Mercedes luxury.
The fate of the federal NEVI dollars is still up in the air. The clearinghouse on this funding shows a state-by-state patchwork. More than a dozen states have some NEVI-funded chargers operational, but a few have gotten no further than having their plans for fiscal year 2024 approved. Only Rhode Island has fully built out its planned network. It’s possible that monies already allocated will go out, despite the administration’s attempt to kill the program.
In the meantime, Tesla’s Supercharger network is still king of the hill, and with a growing number of its stations now open to EVs from other brands (and a growing number of brands building their new EVs with the Tesla NACS charging port), Superchargers will be the most convenient option for lots of electric drivers on road trips. Unless the alternatives can become far more widespread and reliable, that is.
The increasing state and private focus on building chargers is good for all EV drivers, starting with those who haven’t gone in on an electric car yet and are still worried about range or charger wait times on the road to their destination. It is also, by the way, good news for the growing number of EV folks looking to avoid Elon Musk at all cost.