The Greenhouse Gas Reduction Fund will provide an unprecedented $27bn in climate funding for the United States’ most vulnerable communities – how can we make it count?
- The Greenhouse Gas Reduction Fund (GGRF) will fund USD 27 billion in emissions reduction projects in the U.S., especially in low-income and disadvantaged communities.
- However, Climate Policy Initiative research shows that these communities need USD 2.8 trillion in climate finance through 2035 to stay on the nation’s pathway to net zero
- GGRF grants, to be disbursed within 2024, therefore aim to catalyze even more public and private capital to address the climate crisis.
- All actors in the GGRF ecosystem must act now to leverage this opportunity to shape an equitable future for the United States’ most vulnerable groups.
If used to its full potential, the GGRF presents a transformational opportunity to accelerate progress towards climate justice in the United States. While intended to finance emissions reduction projects such as solar panels and electric vehicles, the grants can have even greater multiplier effects by supporting sustainable community, economic, and resilient development in low-income and disadvantaged communities. Such areas are home to some of the United States’ most vulnerable people, who are frequently on the front lines of climate change.
Nevertheless, several challenges must be overcome to enable effective implementation of the GGRF:
- GGRF funds must be disbursed quickly, and CDFIs and green banks may struggle to deploy large volumes of finance at speed to low-income communities.
- The large number of diverse GGRF stakeholders also creates coordination challenges.
- There is often limited workforce capacity and project pipelines in areas where funds may be needed most.
International non-profit research group Climate Policy Initiative has published a new report identifying five areas of action that can help the GGRF achieve its full potential. These actions could bring together climate, community, and financial actors to establish a virtuous cycle that increases wealth and resilience while cutting emissions.
Bella Tonkonogy, who leads CPI’s US-based team and is an author of the report, said: “The unprecedented GGRF funds present a historical opportunity to address the climate crisis, ensure economic competitiveness, and promote energy independence while delivering lower energy costs and economic revitalization to communities that have historically been left behind.
Investing in sustainable technologies can jumpstart various benefits, including job creation in new industries, and better health by reducing air pollution from energy and transport.
In addition, channeling federal funds through community development financial institutions (CDFIs) and green banks can increase access to finance in underserved communities, spurring just and sustainable economic development.”
Realizing these goals and creating lasting change will require coordination across all GGRF stakeholders, including at all levels of government, community groups, financial institutions, small businesses, philanthropies, and more. GGRF stakeholders can move now to:
1. Catalyze private capital at scale
While the USD 27 billion GGRF pot marks a substantial increase in federal support for low-income and disadvantaged communities, this amount pales in comparison to the estimated USD 1.7 trillion in climate finance they need through 2035 under a national pathway to net zero GHG emissions by 2050 – as shown by other recent CPI research. Therefore, GGRF funds must be used to catalyze more private climate finance to accelerate climate justice. This could be done by supporting various other financial instruments such as a more robust secondary market for GGRF-supported loans to recycle capital more quickly; guarantee funds; senior lending facilities; and securitization vehicles.
2. Standardize definitions, products, and underwriting
To enable such financing structures and rapidly scale lending, various stakeholders can encourage the development and deployment of shared underwriting standards, definitions, and processes related to the GGRF. Standardization of financial products, term sheets, use cases, and underwriting criteria can encourage replication, reduce duplication, and alleviate capacity constraints.
3. Coordinate and target technical assistance
Coordinated and targeted technical assistance can help to ensure that the most disadvantaged communities can receive GGRF funds. A hub-and-spoke technical assistance framework would allow for centralized support at the national level, while providing specialized support regionally and thematically (e.g., by lender and technology type, and for rural/Native communities).
4. Increase alignment of government efforts at all levels
The GGRF is one of several climate finance opportunities offered by various U.S. government agencies – better coordination could increase the effectiveness of each agency’s action. Many are unaware of the offerings at other levels of government and therefore do not align on timelines, priorities, definitions, permitting, or application processes. Federal, state, and local government incentives should be braided to make project development easier and to enhance the impact of individual incentives.
5. Create a sandbox culture of collaboration and learning
Creating structures for collaboration and learning around the GGRF will enable stakeholders to share lessons learned in real time, allowing for rapid recalibration around best practices. A centralized learning hub, innovation labs, targeted convenings, and accountability frameworks would be key elements for such a sandbox culture.
- Read the report: Harnessing the transformative potential of the Greenhouse Gas Reduction Fund
- Join a webinar delving into CPI’s findings on February 26, 2024.
About Climate Policy Initiative
CPI is an analysis and advisory organization with deep expertise in finance and policy. Our mission is to help governments, businesses, and financial institutions drive economic growth while addressing climate change.