The Inflation Reduction Act included a Greenhouse Gas Reduction Fund, $27 billion to be disseminated primarily in vulnerable and under-resourced communities for clean energy and climate mitigation projects. In this episode, EPA’s Jahi Wise discusses how the program was designed, who the recipients are, and what the funding will accomplish.
Text transcript:
David Roberts
One of the biggest pots of direct spending in the Inflation Reduction Act is the Greenhouse Gas Reduction Fund (GGRF), a $27 billion program meant to strategically fund clean energy and climate mitigation projects primarily in vulnerable and under-resourced communities.
Obviously $27 billion could make a big difference, but the ultimate impact of the program will depend on how it is designed — on who distributes and receives the money. Should the money go to one central green bank that can make a plan for how to distribute it properly? Or should it go to a series of regional or local intermediaries who can make those decisions closer to the ground, but perhaps without the same degree of coordination?
To help puzzle through questions like these, the EPA brought in Jahi Wise, a longtime climate policy expert who has worked in the White House and before that for the Coalition for Green Capital (a group of state green banks) and BlocPower (a startup focused on building upgrades). He and his staff have been wading through thousands of public comments as they wrestle with program design.
This week they announced the recipients of the money — eight organizations of varying size and focus. So I thought it would be illuminating to talk to Wise about the kind of considerations he wrestled with, where the money is going, and what he thinks it will accomplish.
With no further ado, Jahi Wise, welcome to Volts. Thank you so much for coming.
Jahi Wise
Hey, thanks for having me here, David.
David Roberts
This is a big week for you. You've been beavering away on this, and now it's your Oprah moment — "You get a car! You get a car!" Very exciting. So let's start with a little bit of background. Just tell us a little bit about the Greenhouse Gas Reduction Fund. What is its nature? And it's divided into three buckets. Maybe just tell us, sort of like what are the parameters that you inherited?
Jahi Wise
As you said in your lead in the Greenhouse Gas Reduction Fund is a program that was created as part of the Inflation Reduction Act. It's actually the largest non-tax investment in the Inflation Reduction Act, a huge, huge investment in climate mitigation. It's divided into three different but complementary competitions. First, we have the National Clean Investment Fund program, which will take $14 billion and allocate it to a number of nationally focused nonprofit financing entities to provide direct access to capital, particularly financial products for climate and clean technology projects. Second, you have the Clean Communities Investment Accelerator, which is a $6 billion program which will take that $6 billion and provide it to a number of national nonprofit hub financial institutions who will then work with scores of community lenders across the country to deploy that capital into, again, clean technology projects, specifically those in distributed generation space, net zero transportation and net zero buildings.
And then lastly, we have the Solar for All program, which takes $7 billion and will award it to a number of states, tribes, municipalities and eligible nonprofits to enable the deployment of residential-serving solar across this country. So three different distinct buckets that we think work together to provide the infrastructure you need to make clean technology deployment accessible to communities all across this country.
David Roberts
So can you clarify a little bit? Because I've read the description of the National Clean Investment Fund and the Clean Communities Investment Accelerator several times, and I'm still a little bit fuzzy on the distinction between those two. Can you just clarify that for me a little bit?
Jahi Wise
Yeah, it's interesting. They speak to two different pieces of the statute. The statute provides that the GGRF, the Greenhouse Gas Reduction Funds, can be deployed directly into projects or indirectly into projects. And they speak to kind of the complementary, or rather they speak to the different policy intents that that statutory language was designed to animate. So, in the National Clean Investment Fund, essentially, you're creating national financing institutions that have the capital, the sophistication, to deploy financial products directly to small businesses, to communities, to, directly to consumers for clean technology. Think of these as really large versions of the state and local and independent green banks that exist today.
These institutions have the resources and the sophistication to look across the country and design suites of financial products, portfolios of transactions that can then be deployed into clean technology projects. On the CCIA side, you have a slightly different objective, which is to move a bunch of existing — what we call community lenders, but these are community development financial institutions — again, state, local and nonprofit green banks, credit unions, housing finance agencies, the kind of whole ecosystem of smaller scale lenders who are currently providing capital access to communities across this country to move them into clean and climate lending.
And so the intent of the CCIA is actually to put capital onto the balance sheets of those institutions, to make capital available to those institutions, so they begin to use their existing infrastructure to lend into clean technology projects. And to maybe take it a little bit further then the question asked, the idea is that at a certain point, these actually two programs begin to meet. You have a scaling up of the capacity of community lenders across the country who originate a large number of projects a year, a large number of transactions a year. They increase the originations that they do in the clean and climate technology space, and then are met by large chunks of national capital that can then one, expand the scale of the lending that they're doing, but also begin to connect them up into the capital markets so that we can have even greater scale than the $27 billion that was appropriated.
David Roberts
So maybe heuristic for thinking about this is the National Clean Investment Fund is a little bit top down. Big national institutions, big projects, and the Clean Communities Investment Accelerator is a little bit more bottom up. You're finding existing local and state institutions and sort of bulking them up to move into clean stuff. Is that fair?
Jahi Wise
Yeah, I think that's pretty fair. I think maybe the subtle change I would make is on the National Clean Investment Fund side, even though these are big institutions, they don't have to do only big projects. We know there are a number of really small projects but that require scale lending. You could think of lending facilities for heat pumps or lending facilities for solar or small commercial. These are smaller projects, but that can be replicated and scaled across the country. And so these institutions have the sophistication and frankly, the capital to create the kind of portfolio approach that allows to do a lot of smaller projects at scale.
David Roberts
Got it. So I'm just curious, just as a policy wonk here, you know, you, you inherited this and you had some decisions to make about how to divide up the money. I'd just love to hear a little bit about kind of the design questions you faced. Just to choose an example: I think one of the sort of pre-existing debates was, do you hand most of the money to a single institution? Right, that solves a lot of kind of the coordination problems, or do you spread it out? I mean, theoretically — you ended up with eight, just as a spoiler here, you ended up with eight recipients.
But theoretically, you could have spread this out to hundreds. You could have handed it all to a single national green bank. I'm sort of curious in design terms, the kind of questions you were wrestling with.
Jahi Wise
Yeah, I think the Greenhouse Gas Reduction Fund, as you said, is a really interesting tool. And maybe I'll start a little bit further back. I think one we have to think about the Greenhouse Gas Production Fund and within the kind of ecosystem of tools that were passed within the IRA to accelerate the deployment of clean technologies, particularly those technologies that kind of redound to the benefit of American families, lowering energy costs, cleaning up localized pollution, improving air quality, things like that. And so you see, like in one prong, we have the tax code, which I'm sure you've had folks on to talk about at length, so I'll leave that alone.
You have a bunch of grant programs, some grants at EPA, other grants at DOE, other places across the federal family that are designed to support. And then you also have the Greenhouse Gas Reduction Fund. It occupies kind of this interesting space which is designed to provide a series of institutions to support the deployment of technologies. Think of actual places that can work across space and time to assure we have the capital necessary to meet our climate goals as we march towards them, whether it be 2030 or 2035 or 2050. Coming in, that's what we're solving for: We're trying to create the institutional infrastructure to solve the climate challenges in a way that redounds to the benefit of people.
David Roberts
In some theoretical world, the EPA could serve that role. Like EPA could be handing out grants to individual projects, could be loaning, could be doing all this stuff. I'm assuming that that's just like a massive amount of administration and coordination and just, it's just more than the EPA can take on. Is that why we're sort of handing this off to intermediary institutions?
Jahi Wise
Yeah, I mean, what I'll say is it's not what's in the statute. That's — I mean, the real reason that's the reason we ended up is the statute does not authorize EPA to provide capital directly into projects or to administer its own lending and financing programs. I will say EPA does do that. I mean, for example, the WIFIA program is a historic program EPA has managed for at least over a decade now that, that lends, you know, tons of resources into water projects across the country. And EPA also provides grants directly into a number of different projects through other vehicles.
But I think when we just look at, you know, as you said, the statute, we kind of inherited what we received. It put EPA in a position of being an intermediary to run a competitive process to identify the institutions that could then administer these funds out in the world. So the first step in kind of just the design thinking we had to figure out, "Okay, this is — the name is Greenhouse Gas Reduction Fund. We want to lower. How do we set our north star here? How are we going to, what are our anchor points for designing this?"
And we basically settled on three coequal yet distinct objectives. First is reducing greenhouse gases and air pollution. And that's fairly obvious. It's in the name. Two, delivering tangible benefits, particularly to those families who've been left behind. One thing you'll note when you look at the statute is actually sections of the funding are required to go to low income and disadvantaged communities.
David Roberts
Yeah. 40% of the total. Right, is that —
Jahi Wise
40% of the total. But the full — so, for example, the full $7 billion of the Solar for All funding, which is in the statute called the zero emissions technology part of the appropriation, that funding is required to go into low income and disadvantaged communities, and then 40% of the 20 billion. So there's, like, a real interest on delivering tangible benefits to people, but making sure also communities that have been left behind and kind of left out of the transition are seen there. And then the other piece that comes up, and this statute has become a North Star for us, is seeing this as catalytic capital.
$27 billion is a lot of money, but it does not at all compare to the resources that we need to actually meet our climate investment goals over the next decades. And so this has to be resources that somehow leverage and mobilize private capital and then actually restructure some of the underlying conditions that prevent private capital from flowing into these markets. So those became our three goals. Greenhouse gas and air pollution reductions, delivering tangible benefits, and then mobilizing private capital. And so with those anchor points, which are co-equal but in tension at different points, we set out to design the program.
David Roberts
Interesting. And what about the question of the relative merits of sort of single large institution versus smaller numbers? Like, one of the things that sort of comes to mind when I think about this is I know that a lot of the focus here is on small projects, as you just said, sort of like small community-based projects. But I think you'd also — I mean, tell me if I'm wrong — but I think you'd also want at least the capability to do some big things, to do some really big projects. And so when you think about a series of smaller institutions getting little buckets of money each, the problem that arises there is how do they — who does the big thing and how do they coordinate a big thing? So I'm just curious, sort of like, what are the sort of relative things pulling you in different directions on that particular question?
Jahi Wise
Yeah, it's a really good question. I think this whole idea, this national Green Bank, is a really interesting construct, and it's a really good way of thinking about what we've done. So, "national", okay. It needs to be something that reaches every single corner of the nation. Okay? Like, we want broad scope and scale. This isn't for a few specific places. And this is unusual, this is not something we currently have in this country, although it exists in other places. "Green," okay, we want this focus on these technologies that lean into decarbonization. So we want that to be the principal focus of the institution or the infrastructure. And then "Bank": We want something that's going to exist.
We want something that has the active ability to engage with the market, to be responsive to signals that it receives from the market, whether that be around how much to charge to finance a specific project or which market segments to move into or which market segments to move out of. And so you're like, conceptually, you pull out of that concept actually like a really interesting, interesting idea. And what we basically realized after thinking about it and talking to, as you noted, thousands of stakeholders, is what we really needed was a national financing infrastructure.
That's what folks are really looking for. And that financing infrastructure, as you said, needs to be able to do big projects. It also needs to be able to do small projects. It needs to be able to reach really deeply into low-income and disadvantaged communities where capital access may be an issue, but also needs to be able to address areas where capital access may not be as big an issue, where there may be other issues, customer acquisition, other things that are preventing the flow of the projects. And so how do you design that?
Again, statutory, is it — the statute is our constraining factor. This actually is pretty clear. EPA had to run a competitive grant process, so we need to use the federal grant regulations to award these funds. Two, EPA had a very limited set amount of time to design and implement this project. We have to have all these funds obligated by September 30 of this year.
David Roberts
That just means the funds have to be marked for someone by September. Surely it does not mean that the projects all have to be funded, like, everything has to be done by September. I was reading that, I was like, that can't be right. That's just, that just means you have to make decisions about where the money is going.
Jahi Wise
Yeah, it's — "obligation" is a very, it's a very specific term in appropriations parlance, which is, I learned from working on this project, but it means that the funds have been committed to a specific grantee and that the relevant kind of documents necessary to memorialize that have been executed. And there's an obligation on the federal government, basically, to provide those funds to that grantee.
David Roberts
Still a pretty tight timeline.
Jahi Wise
Huge. I mean, especially when we're starting with statutory text. It's not like we're starting with an existing program and then modify. We're starting with statutory text and then wading through all the questions you've, you've described. The other interesting thing here is administrative cost. If you look at it that, you know, EPA was given, you know, about $30 million to design and administer this program over the likes of the performance period, which is about seven years. This program, this funding is authorized to last through 2031. So you look at that entire structure, you begin to see, okay, given the time horizons and then the fact that it needs being a better grant program, we need to design something that's open to institutions who we think could fulfill this purpose.
But we can't pick these institutions. They have to be designed to solicit proposals that then we evaluate through our grants lens, and they can award funds to. So there's like a, there's this competitive aspect to it. EPA has a limited set cost set aside. It's not like we have unlimited funds. So we have to figure out how many of these grants can we actually administer, award and administer over the seven years that we have. And so what we landed on was basically a structure that under the NCIF and CCIA competitions, we would award between two and ten, roughly, grants to create a national financing network to meet the statutory obligations and the policy intent.
And then, on the Solar for All side, we would award up to 60 grants to deploy these residential serving solar projects. And so through the competitive lens, essentially, you get to kind of have your cake and eat it, too. We designed a competition that we just solicit financial institutions, nonprofit financial institutions that meet the statutory requirements to do this work of deploying this capital into clean technologies. And then we evaluated them and determined who met the bar, and then we were going to award funds to those who have. And the number we came up with at the end was eight on the NCIF and CCI side.
David Roberts
Sort of a mix of the two. An attempt to capture some of the benefits of centralized funding and some of the benefits of distributed, little bit more distributed.
Jahi Wise
Exactly. If you look at the comments here, that's what you hear. There's this real need for central institutions, or institutions with the scope and scale to look across the market and design highly scalable, highly replicable financial products to rapidly deploy technologies in places. And then there's a need to animate the existing infrastructure, which is comprised of hundreds, if not thousands, of existing community lenders. And I think the design that we've landed on, that I think we've heard from many people across the space that design we landed on actually achieves both of those goals and puts us on a track to kind of utilize the strengths of both of those approaches.
David Roberts
Well, this is actually a great segue into my next question, which is, you know, you've been pretty intensively reading comments, talking to communities, traveling around, really getting public feedback about this. And I've heard from people sort of peripherally involved that you've learned lots of interesting things from this. And I'm sort of like, I guess I was a little taken aback because I can sort of imagine community groups having strong opinions about what kind of projects they want to see funded. But do they really have strong opinions about kind of the nature of the institutions distributing those funds?
Like about program architecture? I'm just very curious about sort of like what questions you asked and what kind of things you heard from communities that you talk to.
Jahi Wise
It's a good question, and the answer is a resounding yes. And it's a bit of a result of the way that federal funding has historically flowed. It's a bit of the way that we price and determine which projects are risky in our current financial system. And it's a bit of a part of who has access to capital at this moment in history. We just heard from a lot of communities, particularly those in low-income and disadvantaged communities, but also just communities across the country, rural communities, communities in Appalachia, communities in the Southeast. They need access to capital in terms that work for them.
And so they need institutions that are willing to understand their unique environment and to design terms that work for their unique environment. Because at the end of the day, our goal is to deploy these clean technology products. Right. And it's to do it in a way that delivers these benefits to people and creates a kind of a flywheel effect to bring in additional capital. If we just take the existing market terms, then none of these projects will get done. The whole point of this program is that these projects that should be done aren't getting done. One thing that's worth noting that I didn't say in the lead up is GTRF is focused on commercialized technologies. This is not the Loan Programs Office.
David Roberts
It's funny; I skipped that question, but you're now going right back to it. I was sort of wondering, this is not about technology based.
Jahi Wise
This is not about technology risk. This is about rooftop solar heat pumps, high efficiency HVAC systems, EV charging, EV purchasing, multifamily built. Like, these are technologies that are in broad use. It's just what you actually look across, whether it's IRS's tax data or you look at energy burn across the country, they're just not being deployed everywhere. Equally, why is that?
David Roberts
What did you hear from people about why they're not, like, if these programs are good. If these technologies are good, why aren't they getting funding through existing institutions?
Jahi Wise
Yeah, it's because of the way that the existing institutions, and there's a whole conversation you could have about the history of risk pricing in this country. Have that here, and I'm not an expert in that, but like, that's it.
David Roberts
If I guessed that there were elements of racism in that history, would I be in the ballpark?
Jahi Wise
There's a lot whether it's issues of race and racial discrimination, or whether it's just issues of perception of how low-income people will be able to repay their loans, there's a ton of data that shows that being low income does not necessarily correlate with being a terrible credit risk.
David Roberts
Right.
Jahi Wise
There are factors that determine whether one is a credit risk. There are factors that determine whether or not one will repay, you know, a 20-year loan on a solar facility, on their roof, or upgrades to their home that don't necessarily tie to income, but those are not necessarily seen by our current risk pricing models. And to also be fair, it's not an area where a lot of financial institutions are working because they have a book of business that's already full. One of the things we hear from a lot of financial institutions is like, there's a ton of work out here to do financing run of the mill, clean technology projects.
In some ways, we have to shift human capital, talent, and real financial capital to focus on these other markets. And that's what the GGRF is intended to do. It's intended to create, essentially the incentive for the origination of a bunch of new projects in places to, one, prove that those projects are financeable, and we know that they are. And most of them are going to be financed on a savings basis. And so they actually save money, there's value there that can be used to repay the cost. To prove that there's financial projects, prove that the financial projects have scale, and then prove that the financial projects at scale are actually profitable, and to draw on the additional private capital.
This program is designed to meet the climate goals, to meet our delivery of benefits goals by rushing in, by opening the floodgates for more private capital, actually do the work of financing these projects, and it's intended to lead the way.
David Roberts
So part of this is these institutions come in, set up deals, finance projects, show that they work, show that they're profitable, show that there are sort of established ways of doing it. And the idea is private capital will be like, "Oh, well, okay, we'll come in, like, you've established this. We'll flood some money behind it."
Jahi Wise
This is also not novel. CDFIs, community development financial institutions have been doing this in the affordable housing space for decades. This is kind of what happened with LPO and utility scale solar. You know, they proved that this model, these models work, then all of a sudden their bank's like, "Oh, wow, technology risks are not as bad as we think it is. Let's do these deals." And now utility scale solar, the market is liquid, and lots and lots of folks are doing tax equity deals. There's lots of work. So we're trying to foment the same type of environment here where we believe that you can show and demonstrate using this kind of seed investment — which is, it's crazy to say about $27 billion.
David Roberts
That's a big seed. A lot of seeds.
Jahi Wise
A lot of seed to show that there's demand and there are financial projects and that those projects can be financed on a profitable basis. And then it creates a space for more capital to flow in behind it.
David Roberts
Just to be clear, these are just grants that are going out the door, right? There's no talk of this program trying to make its money back, like taking a share of profits, being revenue neutral, anything like that. This is just money that's getting spent.
Jahi Wise
So, this is a grant program administered by EPA. However, we do expect the nonprofit financial institutions, and speaking specifically about the NCIF and CCIA competitions, which is kind of the focus of this week, the Solar for All competition hasn't yet completed its process. We expect those institutions to revolve their funds, and so we're expecting them to lend those resources out on a basis that they will actually see that capital come back, and then it can be relent again.
David Roberts
So you're kind of trying to kickstart the flywheel, but you expect these institutions to last and operate beyond this initial money.
Jahi Wise
Exactly. That's the objective. And it's actually set in the statute like it's to use it. One of the lines in the statute is for those institutions to use the returns, the repayments, fees, et cetera, to actually relend and to continue their operations.
David Roberts
So you're building a lasting infrastructure here.
Jahi Wise
Yes, that's the objective.
David Roberts
You know, I looked at the list of eight recipients, and obviously, you know, the names don't mean a ton to me. It looks like, speaking of the sort of balance of existing institutions versus, it looked like some of these recipients are institutions that sort of created themselves in order to do this. They're like coalitions that came together in order to do this. Is that, is that right?
Jahi Wise
Yeah, that is right.
David Roberts
Tell us about some of the recipients.
Jahi Wise
Absolutely. So last summer, we put out the request for applications under this competition, and we're pleased to get a pretty strong set of applicants back. And as you said, this week, we will announce the eight institutions that have been selected. A couple of things that are interesting about these institutions. One, they all have a deep track record of deploying tens of billions of dollars into clean technology projects nationally and in partnership with the private sector. And right now, I'm speaking specifically — and maybe it's actually useful to break it up a little bit. Talk about the NCIF side, the National Clean Investment Fund, which are some of the bigger chunks of capital, and then the CCIA, separately.
So on the NCIF side, these are coalitions, like you said, that came together to, in many cases, to stand up to support this program, to apply for these funds. But underneath you have these institutions who have a history of deploying billions of dollars of capital in partnership with the private sector into kind of relevant market segments, whether that be housing decarbonization, whether it be consumer products, whether it be commercial products. And so think of a coalition for Green Capital, for example, which is a coalition that's really built on a number of the existing state and local green banks that have, collectively, over the last dozen years or so, deployed over $15 billion into qualified these kind of decarbonization projects.
David Roberts
I had Reed Hunt, the head of Coalition for Green Capital, was on Volts last year.
Jahi Wise
Good. Yes, exactly. So, like that kind of institution. So, like, yes, you have to compete in this competition, but with deep track records. You know, the Climate United Fund is another one, that's Calvert Impact Capital, which is an old, very long-standing impact investor that partnered with two US treasury certified community development financial institutions, Self-Help and Community Preservation Corporation. Collectively, they've deployed over $30 billion into low-income and disadvantaged communities over their tenure. So all these institutions have a deep track record.
David Roberts
So there are three recipients under the National Clean Investment Fund, the Climate United Fund, which you just mentioned. That's, I think, anchored around Calvert, the Coalition for Green Capital, which Volt's listeners are familiar with. It's just that this is going to be the national Green Bank piece of this. And then the third is Power Forward Communities. And I'm just wondering, of those three, like, are they all doing the same thing, or do they have different focuses — foci?
Jahi Wise
Yeah, they all have. Interestingly, they all have kind of like different market niches they're trying to serve. You know, these are — one, they all have to focus nationally, and so they all set out national investment proposals and will kind of reach across market segments to serve different types of projects at different times. But you can see them coalescing around different market niches which play to their strengths. For example, Climate United Fund, because it has a credit union as part of its coalition, has an emphasis on consumer products and products of small businesses because that's an area they know really well.
They know how to lend to those stakeholders. Whereas Coalition for Green Capital, having worked in state and local green banks for a long time, has actually a lot of really interesting multi-sectoral approach, but it leans heavily into commercial products, whether it's small businesses or community facilities, those types of. Power Forward Communities actually are really intentionally designed to be a housing-focused kind of institution.
David Roberts
Interesting.
Jahi Wise
And so they bring together a national CDFI, you know, Rewiring America — I know you're familiar with — Habitat for Humanity, LISC, United Way, these five institutions that all have deep, deep, deep roots in housing, housing decarbonization and housing investment, and they're going to use their resources to do a housing forward focus.
So they're all doing similar things. Their institutions are structured similarly and in accordance with the statute, but they have different market niches that they'll work into. And we expect to see them collaborate, work together as well.
David Roberts
So just as an example of the kind of thing, let's take Climate United Fund and consumer products, the kind of thing they might do. So I'm sort of envisioning cheap loans for heat pumps, that kind of thing. Just sort of like maybe give an example or two of the kind of thing they might fund, just to make it real for people.
Jahi Wise
Yeah, I'll lean into the example that we have, which is actually part of the rollout for this event. We're going to go down to Charlotte, North Carolina, and go visit some projects that look like projects that could be funded by Greenhouse Gas Reduction Funds. And actually, one of the projects that we're going to highlight is a community that has received financing from Self-Help, which is one of the coalition members of the Climate United Fund. And what Self-Help did there was they used, they worked with a local developer to provide financing to basically redevelop a set of about 40 homes in this community.
These are new homes — homes for sale. They were limited to folks who are right below the area median income. So they were affordable for working families. And they worked with a local energy company to put an energy guarantee on each of those homes that said, "If you move into this home, because the way we've designed it, because of the equipment we put in here, your energy bill will not exceed x. And we guarantee that for the first two years." And because they had access to this additional capital, they were able to take the kind of incremental steps above building code to put in these high-efficiency pieces of equipment that guarantee these folks' energy costs will be stable over time and much lower.
And so one of the homeowners that I was talking to, as we were doing due diligence in going down to Charlotte before she moved into this home, she was living in a place, renting in a place where her energy bills were running for about $400 a month, and that was paying for gas and paying for electricity. She moved into this home and her energy bills dropped to $100 a month. The home is bigger. It's more square footage, there's more space. And so what you're seeing in Climate United, I think it's a good example of what can be done.
It's not just like, "hey, here's a loan for a heat pump." It's how can you weave this capital into different types of transactions that are already happening across our economy to help them aid decarbonization, help them deliver more benefits for families? And so in this case, this slug of capital, Self-Help and Climate United Fund project, that with their funding, they could potentially do 30,000 more homes and renovations like this across the country. And so that's what we're looking at. We're looking at folks who are going to buy a home and say, "Oh, wow, this is a really nice, new, affordable home for me, close to my job.
And, oh, it's got this cool energy guarantee that guarantees I won't be subject to price shocks. And that's really nice because when I rented, I didn't know what my energy bill would be from month to month. It just depended on the price of natural gas or the price of electricity or, you know, how hot or cold it was. And because my place wasn't super well insulated, like we, you know, it would change." And so giving folks that certainty, giving folks that access to that lower energy cost, I think that's an example of what you could expect to see from this kind of program.
David Roberts
Yeah. And I'll just throw in here. I mean, this is probably true of all these investments, but I just. I think it's worth saying that, like, this is spending, it's government spending. But these are the kind of investments, like, you give 30,000 families, stable energy prices, they miss less work, they're less precarious, they draw less on social services. The array of social and economic paybacks to this kind of thing is rich. I think all these investments are going to produce more value than they cost. The basic premise of this.
Thank you for picking up on it. It's a basic premise of this, and it's one that we see in a lot of our other programs. Like we have the weatherization assistance program, we have the LIHEAP program, because we know that folks get hammered when their energy costs go haywire. And we know that energy costs, paying for it to keep the heat on, paying to keep the lights on, sometimes makes folks make really hard decisions whether they should skip medication, whether they should skip food, because that's a fundamental need for people. And so being able to do something where you can use a little like a slug of capital, you know, a couple thousand, $10,000, $20,000, $30,000 to take a house to a place where it's affordable and it stabilizes those energy costs for that family can be transformational.
Jahi Wise
And in the case of the homeowner I was talking to, you know — it goes from $400 a month to $100 a month. That's $300 a month. Say, like that's a, that's a massive change in their balance.
David Roberts
And that goes into the economy.
Jahi Wise
It goes into the economy in other ways, you know, and then, and then there's all the other benefits. For example, she talked about how her son, who has asthma, you know, he moved into this new house, which has a much cleaner HVAC system, and his asthma episodes go down. So it's, there's like a ton of benefits that can be realized. And GGRF is designed to deploy the capital strategically, whether it's through, like you said, a loan product at a place where you go, and "I want a heat pump", "Here's a loan for the heat pump," or into a series of like real estate development transactions, or a series of small business startups, or like, there's just a number of different ways that you can use this capital and filter it through across sectors throughout our economy to deliver real benefits to people.
David Roberts
Interesting. So maybe just quickly mention like one or two of the clean community investment recipients and the kind of things they might do.
Jahi Wise
There are five of them. The five are, just for the record: Opportunity Finance Network; Inclusiv, which is a network of credit unions; the Native CDFI Network; the Justice Climate Fund; and the Appalachian Community Capital. And so the competition here was slightly different than on the NCIF side. The idea here was to identify institutions that could be hubs for these community lenders. So each of these institutions has a network of community lenders that they know and service who will be taking the capital that they get as a grant and then use it to put on their balance sheet so they can lend into client projects.
So think, for example, the Opportunity Finance Network, 40-year-old nonprofit works with over 400 community development financial institutions across the country, in every state, district, Columbia, Puerto Rico, Guam, literally everywhere, and have done billions of dollars in financing over the last 40 years. They're going to take these funds and they're going to provide balance sheet capitalization to those institutions, and they're going to work with those institutions to provide them technical assistance so they become climate lenders. And so when you walk into a community development financial institution in Washington, DC, there's one there I know that I've spent time with called City First, they will now have the capital on their balance sheet to be able to lend for heat pumps.
Maybe they want to lend for heat pumps, but maybe their only capital access has been for housing affordability. But now, they can do housing affordability and decarbonization. And so it's basically taking a piece of existing infrastructure, of institutions that have been doing incredible work in many cases for generations, and providing them with additional capital to get into a space where we know we need more loan origination, we know we need more financing, which is decarbonization. Inclusiv will do the same thing around credit unions, the Native CDFI Network will do the same thing around native focused CDFIs and on and on. So what you get is kind of these, you're really leveraging this institutional infrastructure that exists.
And the hub nonprofits who have gotten the grants are going to use their kind of relationships to provide this capital down into those community lenders to make sure that literally every corner of this country has access to capital for clean technology deployment.
David Roberts
So, interesting. So I have a kind of set of questions here which I know are going to come up around this, which has to do with sort of like, once EPA hands this money to one of these institutions, what kind of guardrails or guidelines are there? Like, is it just sort of like, "Here's the money, go with God"? Or like, are there, are we far, are we tracking? Or do they have to report back? Sort of like anytime public spending comes up, there's a lot of people who are worried about waste and fraud and abuse and all this kind of stuff.
So I'm curious, sort of like what control or authority EPA retains over this money after it's been handed over.
Jahi Wise
Yeah, it's a really good question, and it's the right question. This is a huge public investment. From the very beginning, the administrator and the administration more broadly have been, like, committed to radical transparency around what we're doing here, as well as being incredibly efficient and effective with these funds to deliver against the policy objective. So we don't take that lightly at all. I love this question, though. Every time someone asks, I always say, "You have not applied, you have not received a federal grant before. Like, I can tell because if you do, you know, there's no 'go with God.' We are friends together for the rest of your life."
David Roberts
You'll never get rid of me.
Jahi Wise
Now, in this case, it's similar. So I think there's three ways we think about making sure accountability around the application to these funds. First is in program design, and we've done that, you know, we talked a lot about that. And so we try to design something that puts the right set of institutions in competition. Two is actually selecting the right counterparties. And so we've picked a bunch of folks who are reputable. 60% of these folks are in some ways engaging with other federal agencies as regulators, whether they're credit union or subject to regulation, or the community development financial institution that's a treasury.
Like, there's some type of regulatory authority that's engaging with these institutions. All of them are nonprofits. They in some ways come into the auspices of the IRS. So identifying the right set of institutions. And the last one is what you said: reporting. So we have an incredibly robust reporting framework that looks at everything from specific transactions, so this will be a transaction to reporting database, which will be like, what exactly did you spend this money on, and where, and what are the characteristics? How many GHGs did we get for that? So specific transaction level reporting to reporting about the institution itself: What is your default rate?
Did the composition of your board just change? Do you have independent directors? Who's running your investment committee? To then overall impact the whole cohort? Like, are we on track to meet the 40 million metric tons of carbon pollution reduction that we think is possible per year from this program? On track to meet the seven to one ratio of private to public investment that we think is possible from this program? And so, the EPA has an office, which we've set up over the last year, called the Office of the Greenhouse Gas Reduction Fund, which is staffed with an incredibly robust team of career public servants who cover everything from grants management to automating compliance to specific technology expertise, who will be overseeing this program for the next seven years and on a quarterly basis, in many instances, drawing down the kind of information about where this money is being spent, who's benefiting from it, and whether it's meeting the overall policy objectives.
And so, we've put in place a pretty robust compliance and reporting framework, and actually, will be putting into the federal register soon another update of our reporting framework for folks who are interested in that kind of stuff to come in and comment on. Please do. But we put in place the infrastructure to make sure that these funds are being spent well. And we also expect from our colleagues on the hill to the folks in the public to really be looking at these funds and helping us also make sure that we're holding these institutions accountable for what they set out to do.
David Roberts
It's relatively easy for me to imagine the kind of oversight that prevents fraud and makes sure there's enough diversity in the loans and all these sort of more traditional financial metrics and markers, legal markers, that seems straightforward. But what about reporting greenhouse gas reductions specifically? There's a lot of fuzziness around. There's a lot of fuzziness about kind of like, quantifying greenhouse gas reductions specifically from these kinds of programs, like these little loans for a bunch of multiple businesses. Like, if I'm a small business, do I have to report, like, "I reduced 7.2 tons with this?"
Or, like, how do you track the greenhouse gas emission reductions specifically?
Jahi Wise
So it's a really good question. One of the interesting aspects of this program, and one of the reasons I think Congress is pretty, was it was a really good idea to create this as an intermediated program, is that reporting requirements typically fall on the recipients of the funding. And so, no, it won't be on a small business to say, like, "Hey, I installed a heat pump. Here EPA is my letter saying that it reduced, you know, one 1000th of a metric billion metric ton."
No, the idea is like, you're a financial institution. You're tracking where your loans are going every year. These institutions actually do this already. They keep tremendously robust data about who they're lending to or what terms, where, what time, kind of who the were, the characteristics of the beneficiaries, what census tracts, because they're doing reporting to a bunch of other federal programs. Again, many of these are already engaged with federal programs. And so the idea is to use that infrastructure to begin to bring in, where it doesn't already exist, greenhouse gas reporting. So it's like, "hey, Climate Fund, you're running this new build housing program that's installing, you know, these high efficiency HVAC equipment that are, these energy guarantees.
How are you modeling out the energy of the GHG savings of each one of those homes? Okay, great. And so how did you get to that? Okay, great. And so then how are you doing that on a portfolio basis? Okay, that's really interesting. And are you modulating that for the different places in the country where you're doing it? Great." And so through that, like, the process of having an institution, which is why the institutional aspect of this is so important, you actually, across time and space, can look and say, "Hey, at this point in time when the grid looked like this, we were realizing all these types of GHGs.
And now in the places where we land in the grid looks like this, and we're realizing these types of GHGs. Or when we were focused on this market segment, we were realizing these types of benefits. And we're now we're focused on that market segment we're seeing." And there's a track record of green banks and CDFIs that lend in the green space and housing finance agencies that lend in the green space, tracking this information already. So it's not like we're doing something new. We're just doing something at scale. And I think we have the infrastructure, and the GGRF provides, in many ways, the capital, the kind of scale capital that's necessary for these institutions to beef up their reporting infrastructure, to be able to speak compellingly and clearly about the GHG benefits that their projects realize.
David Roberts
And you said the overall goals of the program are threefold, one of which is greenhouse gas reductions. When you hand this money to the institution, you tell them, "here are the three goals." Like, and it's up to them to sort of balance — you know, like, you could imagine a particular institution sort of serving one of those goals better than another. Like, is it up to the institutions to kind of strike that balance?
Jahi Wise
The answer is kind of yes and no. So we do have some hard guardrails that are set by the statute. For example, in the National Clean Investment Fund, you can only lend to what are called qualified projects. And these are projects that have six characteristics, including decarbonization, additionality. You can walk through all of them, but there's a certain set of projects that are eligible for financing. There's a lot of projects that fit under that umbrella, like a lot, but you're limited in scope. So you can't decide, "Oh, I've decided I'm going to change fundamentally, and this is the greenhouse gas increasing program now. And so, like, I've changed the focus."
No, you still have to stay within the box that's set by statute. But on the on yes-side of, like, flexibility, the institutions can determine how much of their investment they're going to put towards low income and disadvantaged community. Above the threshold that we set. We set a threshold that each of the NCIF recipients invest at least 40%. All of them are going to exceed that 40% investment in low income and disadvantaged community. I think the lowest is like 50%. And so they will be able to modulate based on the market that they intend to serve, based on the way they intend to structure their financial products, the market niches they want to go after.
What's the appropriate mix among those three objectives to get to the optimal solution, and the optimal solution being deploying this capital in a sustainable way that delivers greenhouse gas benefits, real tangible benefits to communities, and then leverages private capital? And so there's the flexibility within certain guardrails, including, you know, what's the type of a qualified project? What type of institutions are eligible to use these funds? The fact that under the NCIF, all these funds need to be deployed as financial products. You can't give out grants. You have to actually give financial products to people more towards your businesses or communities.
So within guardrails, there's flexibility for these institutions to figure out how to optimize against the three goals.
David Roberts
And is there a straightforward way of measuring how much private capital you're mobilizing with your public capital? Like, is that something that's easy to measure or quantify?
Jahi Wise
No, it's not like an easy metric, but nothing in this space is easy. But there are metrics that folks have worked on in different places, and it really depends on how they're looking. Like we're in the — transaction, you're looking at the private capital mobilization, for example. There's a lot of work that folks do that looks at actual co-investment with private capital. We are the lowest down in the capital stack, where the first lost capital, and we have this much capital, private capital on top of us, and as a result, we're left — if we weren't there, they wouldn't do this deal.
So there's like a co-investment model. There's also an institutional model. So, for example, a lot of community development financial institutions receive kind of like deposit-like loans from big banks like Bank of America, Wells Fargo, et cetera, under their community reinvestment requirements. And so there are institutions that will receive investments from the private sector, say, "Hey, here, take this slug of capital on these terms and go out and deploy it, and that'll be leverage."
David Roberts
Right.
Jahi Wise
And so, you know, it depends on kind of where the capital is coming in. But we think there are enough tools to, at the beginning of the program, begin to measure whether or not private capital mobilization is happening. So we've set parameters on what it means to actually make sure there's an incremental dollar, private capital coming in with each dollar of public money. And then over time, these institutions can develop an even broader set of tools and metrics to assess how private capital mobilization is happening with the projects that they're working on.
David Roberts
Kind of a political question, this space, public spending on clean energy, is, I would say, haunted by the specter of Solyndra, this notion that if any public investment doesn't pan out or fails for whatever reason or doesn't produce the benefits supposed to or falls apart or whatever, that the opponents of public spending, the giant right-wing media apparatus, will seize on it, thrust it into headlines, make it a synecdoche for the whole program. And I think that experience left a lot of policymakers quite gun shy. So I'm just curious, like, to what extent when you were thinking about design, was some of this kind of defensive or prophylactic against the possibility of that kind of failure or reducing the risk of that kind of failure? Or just more generally, like, how do you think about the risk that, you know, $20 billion worth of relatively small transactions.
That's just a lot of transactions. It's just a lot of programs, a lot of stuff going on. They're not all going to work out, right? I mean, I think we can say pretty confidently they're not all going to work out. So how do you think about failures and the sort of public, how the public hears about them and just the general Solyndra-ness of it all?
Jahi Wise
What I'll say is a couple of things. One, as I said, we see ourselves as stewarding an awesome amount of public funding here. And so we're trying to minimize the failures, the defaults, the problems that happen here, while realizing the very important policy intent of this bill, of this program, which is to expand access to capital for these clean technologies. There's a dual, it's intention here. You got to avoid the downside. But we need to realize the upside for our communities and, quite frankly, for the planet and so we did think about that a lot as we were, as we designed the program.
I think it comes out in a couple of ways. And some of it is kind of, for me, as one of, one of the folks who was lucky enough to help design this, some of it's just good luck. We're focused on commercialized technology here. So technology risk is not something that we have to wrestle with. We're not worried about something new, newfangled. If it's, if it's financeable by, through some of our commercialization funds in the federal government, it's not really eligible here. Like, it's supposed to be stuff that's already — so we've already limited the universe.
And so then we're talking about things that aren't, that aren't being deployed, not for technology risk reasons, but for other risks, whether it's counterparty risk or credit risk, or see performance risks on the customer side, which is a big thing. People are saying, what is this? Why are you putting it in? Like, will it work? So to overcome those risks, we designed a competition to solicit folks who have experience actually breaking down those risks in an effective and thoughtful ways. And that's why you see so many of the grantees here as institutions with long track records of deploying capital, because those are the folks who actually know how to lend in low income and disadvantaged communities without sky high default rates, like they've been doing it for years, so the institutions wouldn't exist.
These are the folks who know how to deploy these technologies at places where they aren't currently being deployed in ways that are appealing to customers. See, for example, this idea of our energy guarantee on a home, which is, like, novel and incredible and like a great way of getting over customer perceptions of performance risk. And so, one, making sure we're focused on the right segments of the market, where we think we can make an impact, to making sure we have the right folks with us. And then again, it goes back to your prior question, just being transparent.
Like, there's a ton of reporting here, from reporting about the institutions, about the transactions, about the overall performance. Like, we, we want to have the books open so that people can see and can spot problems. "Hey, you're trending. There's a lot going on in this area. But have you thought about going this way? Hey, this is an area of the market with that, that's not being served really well. Why is that the case? Or why are defaults creeping up in this area versus not in that area?" Like, those are things that, you know, we EPA intend to see.
And then our counterparties both in the federal government and across the folks who are interested in this type of issue are incredibly important. The last thing I'll say, which is this is a program that spans the entire country. I'm incredibly proud of this. Like, the cohort of institutions we've got, we have here will serve every single state, tribal territories, literally every aspect of this country. And that's, that makes, I think, the program incredibly durable because this is a program that's supposed to deliver lower energy costs and a higher quality of life, lower air pollution, job creation, manufacturing.
It's supposed to deliver really positive benefits across the country. And I think that's really compelling. And hopefully, we'll make this a program that's durable. And where all Americans see themselves in what's been built.
David Roberts
And you talk about transparency, this will all be open to the public at large. Like, there will be some sort of central place where people can go just to find out, like, what's getting, what's getting loans, what programs are — ?
Jahi Wise
Exactly that's a big part of what the EPA's Office of the Greenhouse Gas Reduction Fund is designed to do. It's designed to be the one-stop shop. And you say, "Okay, so they set up a national network of clean financing institutions. That was fantastic. What the heck are they doing?" Well, here's what they're doing. Here's what's happened this quarter. Here's what happened over the last year. Here are the trends. Here's what we're learning here. You know, that's what the role of this office is to do. And again, we have a really, really talented set of career public servants who are planning to be here for the long haul to make sure we do exactly that.
David Roberts
All right, so by way of wrapping up, then maybe let's just sort of paint a picture. So say this program is set up for seven years, and the intent is that this public money is going to provide seed capital that's going to get institutions going, and then those institutions will continue going after the public money runs out. So maybe just like paint a picture, you know, seven years from now, when this program shuts down, what's left? What does that national infrastructure look like?
Jahi Wise
Seven years from now, a couple of things in my mind, you know, have happened: One, we've deployed, specifically for NCIF and CCIA, we've deployed $20 billion of capital into these qualified projects. And folks are seeing the very real benefits of this investment for their households and for their communities.
David Roberts
So it's just a lot of money. I just have to reiterate one more time. $20 billion is a lot of money.
Jahi Wise
$20 billion, a lot of money. I mean, but there's a lot of investment in climate; like, it's, you got, it's always, it's always a relative, relative scaling thing. I agree. But if you look at the adoption curves, the $20 billion doesn't seem like a lot of money. You see the hockey sticks we're supposed to go up to get to reach our climate.
David Roberts
Well, thus the leveraging. Right? I mean, this —
Jahi Wise
Exactly. And so I think two: those institutions have also begun to see that money come back. You look at the useful life of these technologies, seven years, ten years, you're beginning to see either the loan fee repayments, the lease structure, whatever kind of financial product structure they've set up, the capital is beginning to come back and be redeployed. And that gives it the kind of second breath at life. Now you have $20 billion, that becomes $40 billion because it's come back. And then lastly, we begin to see private capital move and push these institutions out of certain markets.
And so people begin to say, "Huh, well, that's interesting. You did a lot of low-income solar lending, and it seems to be working out really well. So, why don't we go ahead and take a piece of that off of your hands? Or like this model you've created seems to really be effective. Let's take a piece of that off your hand." And so you begin to see private capital move in, and then this capital begins to refocus on other areas of the market that perhaps are at that point in time need more capital. And so again, this is the point of why institutions are so important.
They have the ability to move across time and space phase and to be able to position themselves to address the pieces of the market as they become relevant. And so seven years we've got, we spent down the capital and deployed into the right projects in a way that's transparent and effective and delivers a ton of benefits. Two, the capitals begin to come back and be ready for redeployment. Three, we have private capital that's at the ready and beginning to crowd some of those institutions out of here is the market where they otherwise used to operate.
David Roberts
Yeah, I think that last point is so interesting and a good place to wrap up. If you think of LPO at the Department of Energy, the Loan Programs Office. The idea is get particular technology sectors started, not making them permanent recipients of public money, but just seeding the start. And then they will stand up and run on their own. Similarly, I guess you could view this as seeding not technologies, but marketing segments that have been neglected. But with the idea that, like, in the end, this is going to be a capitalism is going to take over.
Like, they're going to see, you can make money on this, they're going to see this as a normal part of financial life, and this will run on its own.
Jahi Wise
Exactly. Because at the end of the day, the scale of capital need is far outstrips the $20 billion that we have, even if we revolve it forever. The other thing that's important here, and this used to be at one point called the accelerator. Like, it has to happen faster than it would happen, actually. Perhaps if we had 100 years. Yeah, the markets would change, and we'd get to a place where people were the markets were doing this on their own. The objective here is to help move capital to places where it's not going more quickly, because we know people need the benefits now, and we know the planet needs the benefits now.
And so that's the idea. Seed this capital, make these changes and then have the private markets take up where public capital can't go.
David Roberts
Awesome. Well, this has been so fascinating. I mean, what a fun job. You —
Jahi Wise
It's been an incredible honor.
David Roberts
Not a lot of people, like, "here's $20 billion," like, "go nuts." That's a real unique —
Jahi Wise
That was literally the statutory language. "Go nuts."
David Roberts
"Jahi, go nuts here." That's great. Well, thanks for coming on. Thanks for talking through this. And, man, I can't wait to see what comes out of this.
Jahi Wise
Thank you so much, Dave. I appreciate you taking the time. I'm really excited to be working along with you and other folks like you as we try to deploy this historic, historic investment.
David Roberts
Thank you for listening to the Volts podcast. It is ad-free, powered entirely by listeners like you. If you value conversations like this, please consider becoming a paid Volts subscriber at volts.wtf. Yes, that's volts.wtf. So that I can continue doing this work. Thank you so much and I'll see you next time.
How the EPA will spend $27 billion in carbon-reduction funds