How Green Banks Are Making Climate Finance Affordable When Federal Funds Retreat
As local governments are acclimating to the likely federal funding pullbacks, especially for climate action, local government leaders are searching for new innovative ways to build resilient, sustainable communities.
Two innovative approaches to fund climate mitigation and resilience are “blended finance” and public-private partnerships (PPP).
“Blended Finance” typically combines zero-payback grants or loans of below-market interest rates to attract private capital for investment by reducing risks for traditional investors. Blended finance can succeed in areas that address common or global challenges as well as creating a public benefit. In essence, blended finance acts as a catalyst, attracting private investors who might otherwise be hesitant to invest in projects or regions perceived as high-risk or with uncompetitive returns. This diversification of capital sources — or “capital stack” — can also be more resilient if one or more of the capital components become unavailable, as we are seeing with the likely disappearance of federal grants.
Public Private Partnerships (PPPs) often secure action, collaboration, funding and financing from private actors, and spread the financial risk of a project across multiple public, private, and nonprofit entities. Partnerships are well-suited for local governments that cannot or do not want to own their project outright, or that are willing to share possible cost savings and revenue generation with a third-party. These third parties can bring upfront capital and avoid tax increases or alleviate the need for new muni bond issuances.
Public Private Partnerships can include:
- Advertising-Funded, such as ‘high tech’ LA bus shelters
- Power Purchase Agreements, seen in Fremont Fire Station microgrids owned by Gridscape Solutions
- Energy Savings Performance Contracts, as in the Newark, Delaware $10 million municipal facilities project
- Program-Integration, as in the ValleyCan Self-Help Credit Union financing program
- Green Banks, as explained below in detail
What makes Green Banks different
Green banks can transform clean energy financing by using innovative tools to attract diverse capital sources — private, public, and mission-driven. Green banks operate on two levels:
- Directly funding projects through loans, credit enhancements, and co-investments
- Indirectly strengthening the market by sharing expertise with community lenders to grow the clean energy finance ecosystem
The result is expanded access to capital for local clean energy and resiliency projects and a more supportive lending environment.
Green banks are different from traditional banks in five ways:
- Mission and investment focus: dedication to accelerating clean energy and resilience, rather than serving traditional banking needs like deposits and consumer lending
- Funding sources: utilizing public, blended capital, grants and green bonds specifically allocated for environmental projects, rather than primarily customer deposits and traditional capital markets
- Risk approach: designed to serve a higher-need community and more complex projects that traditional lenders might avoid, which can help prove market viability
- Market development role: actively work to create and expand clean energy markets by standardizing financing approaches and reducing costs
- Structure: can be quasi-public or nonprofit entities with a public mission, whereas most traditional banks are for-profit institutions focused on shareholder returns
Connecticut Green Bank: A proven model
The Connecticut Green Bank (CGB) is a quasi-public corporation and catalyst to help mobilize greater local investment to address climate change. As the nation’s first green bank since 2011, it makes clean energy more accessible and affordable for all Connecticut citizens and businesses.
Connecticut Green Bank Liberty Bonds and Notes are investment products offered by the CGB to source capital for clean energy projects and provide a way for residents, businesses, and institutions to invest in growing Connecticut’s green economy. Investment can be as small as $100.
CGB Impact:
- Since inception through FY 2024, CGB has mobilized nearly $3 billion of investment into the state’s green economy, attracting $2.88 billion in private investment using only $409.4 million in Green Bank dollars — a leverage ratio of $7 for every $1
- More than 66,500 families and businesses have been able to reduce the burden of energy costs since 2011 through Green Bank programs
- CGB investments led to the creation of over 22,500 direct, indirect, and induced job-years and generated an estimated $93.4 million in state tax revenues
Other foundational quasi-public green banks include:
The Clean Energy Fund of the Carolinas
The Clean Energy Fund of the Carolinas (CEF Carolinas), which recently changed its name from NC Clean Energy Fund (NCCEF), operates as a nonprofit Green Bank to finance clean energy, energy efficiency and resilience projects in North and South Carolina. CEF Carolinas provides direct lending to consumers and businesses as well as credit enhancements for other lenders, leveraging private capital alongside public and private investment.
Last month, CEF Carolinas launched its consumer loan program Carolina SURE (Smart Upgrades for Residential Efficiency), a lending program designed to provide an accessible loan product that removes financial barriers for homeowners in North Carolina and South Carolina seeking to electrify their homes and improve energy efficiency.
CEF Carolinas is also part of the EnergizeNC Coalition, which was awarded a $156 million EPA Solar for All grant to support solar deployment across the state. Unfortunately, this grant is paused and in jeopardy — and consequently, so is the EnergizeNC mission to provide clean affordable renewable energy to NC communities most in need.
Other nonprofit green banks iterating on these models include:
The road ahead
One pioneer to acknowledge is the Coalition for Green Capital (CGC), founded in 2009, which has supported or created over 40 green banks across the country. The American Green Bank Consortium has collectively deployed $25.4 billion in clean energy investments. In 2024, CGC received $5 billion from the EPA’s Greenhouse Gas Reduction Fund to establish the first U.S. national green bank. Unfortunately, those funds are currently paused in 2025 by the current administration.
When properly capitalized, green banks of varying models are proving to be a positive market mechanism to unlock and leverage private capital for equitable climate action.
Next in this series: approaches to implementing affordable mitigation and resilience projects with public-private partnerships.
