Event Debrief: Advancing Equitable Clean Technology Investment Through the Greenhouse Gas Reduction Fund

“The Greenhouse Gas Reduction Fund is the single largest non-tax investment in the Inflation Reduction Act, which itself is the largest investment in climate in the history of this country,” said Jahi Wise about the little-known program that is expected to drive vast economic, environmental, and health benefits for U.S. communities . As Senior Advisor to the Administrator of the Environmental Protection Agency (EPA), Wise would know—he was tapped to help design the program and ensure that the whopping $27 billion in funding would be spent effectively and on-time, something he was only given 18 months to do before the funds expire and revert back to the Treasury.

The Biden Administration’s landmark climate bill, the Inflation Reduction Act (IRA), included funding for a host of provisions aimed at accelerating the energy transition in the United States. Passed through the budget reconciliation process, the IRA promotes clean energy and environmental priorities primarily through tax rebates and incentives, with a few notable exceptions. The Greenhouse Gas Reduction Fund (GGRF) is one such exception, providing funding through three grant competitions to national and community nonprofit financing institutions, local and tribal governments, and NGOs to invest in projects that reduce greenhouse gases and air pollution.  

The GGRF was designed and funded to achieve three main objectives: 

1. Combat the climate crisis by reducing emissions and air pollution; 
2. Deliver tangible benefits to communities (e.g., lower energy costs and health benefits) and; 
3. Mobilize private capital behind public investment to advance common investment goals. 

As designed, the GGRF is expected to “deliver serious health outcomes for the communities that are impacted and lower energy costs for families across the country,” Wise told a Harvard Kennedy School audience during a February 26 Energy Policy Seminar. It aims to achieve this through three programs organized around different priorities: the National Clean Investment Fund ($14 billion), the Clean Communities Investment Accelerator ($6 billion), and the Solar for All program ($7 billion). To make sure that the priorities were aligned with community goals, the EPA went through an extensive stakeholder engagement process and solicited hundreds of written comments.

The $14 billion National Clean Investment Fund will make awards to two to three eligible national nonprofit financing institutions to partner with the private sector to provide accessible and affordable financing for tens of thousands of clean technology projects nationwide. As Wise noted, “14 divided by two or three equals some of largest grants made by the U.S. government.” These organizations, in return, are required to provide financial products (beyond grants) with “the capacity to recycle” – in other words, the return on capital is meant to create a virtuous cycle that can draw in private capital for even greater impact. The nonprofit financial institutions are meant to partner with other lending institutions to provide these products to a broad portfolio of big and small projects, of which at least 40% must be used for providing financial assistance to low-income and disadvantaged communities in keeping with the Biden administration’s Justice40 principle.

The $6 billion Clean Communities Investment Accelerator will provide capital to two to seven regional “hub” nonprofits, intermediaries who will then pass that funding through to hundreds of “community lenders”—community development financial institutions, credit unions, community banks, housing finance agencies, state, local, and independent green banks, etc. The GGRF funding is aimed at building capacity among community lenders, who are already actively working in communities at various levels to deploy clean technology projects. “The idea here,” said Wise, “is to juice the origination capacity on the ground to bring more clean technology projects in communities where they don’t currently exist.”

Lastly, the $7 billion Solar for All program will award up to 60 grants to states, territories, tribes, governments, municipalities, and other nonprofits to support the deployment of residential-serving community solar projects. To help overcome barriers to solar deployment, grantees are expected to provide financial assistance to projects, as well as other forms of support to address non-financial barriers, such as technical assistance and workforce development. By doing so, the Solar for All program will provide a market-making function that complements other federal programs, including tax subsidies for solar and other GGRF programs.

Each program will award funds through a grant competition, the last of which closed in October 2023. The EPA is currently reviewing applications and is expected to announce selected recipients later this spring. Wise, who began his career in local community organizing and economic development in D.C., noted that investors still perceive community energy projects as risky, not scalable, and not replicable, resulting in capital gaps. This was the central problem driving his design of the GGRF, which is aimed at demonstrating the scalability of community energy projects and catalyze financing that “crowds in” private equity funding. “$27 billion is a lot of money,” said Wise, who noted that it equals roughly three times the EPA’s average annual budget, “but nowhere near what is necessary to invest to meet our climate needs over the coming decades. And so the idea here is this has to be catalytic and it has to basically create opportunities for additional funds to flow in behind public investment or else we lose the value of the policy.” 

Wise concluded by noting that “access to capital is important, but only if it results in the deployment of projects.” Remaining non-financial barriers, such as tax codes, permitting, and the capacity of local governments to process approvals, are “what keep [him] up at night.” The GGRF’s innovative approach to capitalizing nonprofit lending institutions is a good one, but only if those institutions deploy financing for projects that can contribute to the EPA’s goals for the GGRF of reducing emissions and air pollution, delivering tangible benefits to communities, and catalyzing private finance. For this reason, selection of the grantees and partner organizations for GGRF funding will be crucial. When asked about this challenge, Wise responded: “That is the 27 billion dollar question.”