Earthward: Green Finance

Transitioning from fossil fuels to renewable energy requires mobilizing large amounts of money. This is a basic principle that has been executed with remarkable efficiency by the Biden administration. Within nineteen months of taking office, and with a unified Democratic Congress behind him, President Biden signed three major pieces of legislation that have greatly accelerated the financing of the clean energy revolution. These bills are the CHIPS and Science Act (basic and applied energy research, semiconductors, advanced nuclear, critical minerals), the Infrastructure Investment and Jobs Act (electricity grid upgrades, national EV charging network, public transit improvements), and the Inflation Reduction Act (tax credits for renewable energy, hydrogen hubs, carbon capture and storage infrastructure, other climate-friendly technologies). With glowing praise, the Rocky Mountain Institute, a leading clean energy think tank, describes the CHIPS Act as the brains of the operation, the IIJA as the infrastructure-providing backbone, and the IRA as the engine that will drive investment growth. Together, this legislation authorizes approximately half a trillion dollars in spending over the next decade – far, far more than allocated under prior US administrations.

A major objective of all three laws is to unlock private capital. In the usual pathway for technology development, the public sector leads the way by funding basic research that can lead to prototypes for promising new technologies. This is the province of the CHIPS Act. The second stage, in which prototypes are scaled up and translated into industry-ready technologies, has historically been the most challenging, even earning it the rubric “valley of death”. The Biden administration addresses this by offering public-private partnerships through specialized directorates within the National Science Foundation and Department of Energy, such as the Advanced Research Projects Agency (ARPA-E), which has had considerable success in driving commercialization. Finally, after a technology (such as solar or wind) is well enough established to be profitable, the expectation is that private funding will take over and there will be no further need for public subsidies. However, recognizing the tremendous building efforts required, and in view of competition from well-established fossil fuel technologies, both the IRA tax credits and IIJA funding offer further incentives to push private equity in the direction of climate-friendly options. Government funding to modernize the electricity grid for compatibility with intermittent and distributed renewable power is seen as especially important, given the national scale of the buildout.

Is it possible to say anything yet about how well the new laws are mobilizing capital? This inquiry drives the work of the Clean Investment Monitor (CIM), a new joint initiative of MIT’s Center for Energy and Environmental Policy Research and the Rhodium Group, an independent research team offering analysis of climate and energy data. The CIM assesses investments in all the major renewable energy technologies, plus nuclear power, sustainable aviation fuels, energy storage, hydrogen and carbon capture – and includes both manufacturing of necessary components (i.e., solar cells) and deployment. It also examines business and homeowner investments in “retail” technologies such as heat pumps, EVs and distributed solar power. In an inaugural report published in mid-September, the CIM’s analysis found that there was $213 billion in new clean investment across the US economy in the first year the legislation was active (July 1, 2022- June 30, 2023), a 37% increase compared to the prior twelve months, and 165% higher than five years ago. Electric cars and solar manufacturing showed the most dramatic increases. The new private investments are far higher than the public funding allocated under the three laws for that year, suggesting that the new legislation is indeed working as Congress and the Biden administration intended. The US surge is part of a rapid worldwide acceleration: in January of this year, Bloomberg reported that global clean energy investment in 2022 topped $1 trillion for the first time – although it also estimates that this level has to quadruple in upcoming years to reach net-zero emissions targets.

In addition to the well-known tax credits, the IRA also allocated $27 billion to three other financing programs, under what is collectively known as the Greenhouse Gas Reduction Fund. The largest piece of this, receiving $14 billion, is the National Clean Investment Fund, also known as the national green bank. A green bank is a public or nonprofit institution that leverages capital for climate-friendly projects that would otherwise have difficulty getting off the ground. Although nearly half the states now boast established or proposed green banks, this is the first time that such an institution will have national scope. The other two programs in the GGRF are the Clean Communities Investment Accelerator ($6 billion) and the Solar for All program ($7 billion). Both of these programs specifically target clean energy financing for low-income and disadvantaged communities, with the latter fund dedicated to distributed solar energy projects.

The entire $14 billion NCIF will be awarded to just two or three large nonprofits, which will in turn use these funds to partner with private capital, with the goal of delivering financing for green projects to businesses, communities, and local lenders. The idea is to complement other IRA provisions that benefit large projects by specifically targeting smaller scale and community level initiatives, including rooftop solar, green buildings, and carbon-free transportation projects. The EPA is now in the process of deciding which nonprofit groups will receive this funding. This week, Energy & Environment News reported that the agency is looking for nonprofits that can show they have a ready pipeline of organizations to which the funds will in turn be distributed. This is important because the IRA sets a deadline, now less than a year away, by which all $27 billion has to be in the hands of local or state governments or nonprofits that can make use of the money.

The overall picture appears quite impressive, and if the surge in private capital is not yet enough, it would seem reasonable to extrapolate that more will flow as initial investments start to bear fruit. And yet in recent months we have been treated to a steady drumbeat of bad news from the energy sector. ExxonMobil and Chevron continue to report high profits, even if less astronomical than in the immediate aftermath of Russia’s invasion of Ukraine, which caused oil and gas prices to spike. Both of these US-based companies are doubling down on their oil and gas activities, recently announcing acquisitions of smaller fossil fuel firms that clearly signal their choice to stay heavily invested in the sector. More worrisome is a just-released UN-sponsored report on worldwide fossil fuel production plans, which also documents a refusal to relinquish attachment to these resources. According to this analysis, the latest Production Gap Report from the well-regarded Stockholm Environmental Institute, production of fossil fuels in 2030 is projected to be at twice the level needed to stay within the 1.5°C warming target. The stubbornly high oil and gas prices, arising in part from increasing conflict in oil and gas-rich parts of the world, make it difficult for fossil fuel companies to change course, and help account for the surge in stock values for the industry.

The rise in fossil fuel prices is, unfortunately, matched by a recent sharp decline in the fortunes of renewable energy stocks. The sector experienced losses of 20% in August and September, continuing a year-long slump in which returns have fallen by more than 30%. Selected individual sectors have fared even worse, with some specific wind and solar exchange-traded funds down by as much as 60% since 2021. Writing in the New York Times, industry analyst Jeff Sommer notes the failure of the markets to respond to the huge surge in renewable energy investment, attributing it to a number of factors that may continue to depress valuations in this sector for some time. Interest rates are high, which increases the costs of the borrowing required in the capital-intensive early building stages of large-scale renewable energy projects, during which no returns are realized. Substantial supply bottlenecks and rising raw material costs also impede project buildouts, and it does not help that some IRA provisions feature “buy American” requirements at the same time that China dominates the supply chain for solar energy and battery components. The sharp contrast with the well-established and immediately profitable fossil-fuel industry helps explain the present sharp disparity between the valuations of the two sectors. Offshore wind has been particularly hard hit by these conditions, with a number of recent project cancellations and financial write-downs creating an aura of gloom around the industry. These new developments partly belie the optimistic assessment of the industry that I offered in a previous post (Earthward, August 10).

Well, what did we expect – that a massive retrenchment of the entire global energy industry would go off without a hitch? The daily diet of juxtaposed good and bad news is exactly what we should anticipate in the very early stages of the transition – and we really are just getting going after an unconscionable quarter-century delay that has baked in a lot more ecological damage than was ever necessary. Those of us who are deeply invested, psychologically or financially, in the success of the green energy transition feel that we have little choice but to stay the course.

The precarious nature of this new beginning, though, should alert us to the importance of political trends that still threaten to derail large parts of the agenda. The House of Representatives, for example, now suffers under the leadership of a staunch climate change denialist – and while he presently lacks the power to effect the changes he wants, the noises emanating from his right-wing caucus are often disturbing. Attacks on the national green bank and other parts of the GGRF have been particularly prominent of late: the House Financial Services and Education and Workforce Committees have each passed multiple bills to defund the programs or limit the use of ESG (environmental and social governance) criteria to determine where the monies ultimately go. The House Judiciary Committee, chaired by Jim Jordan, has been investigating organizations and companies in the financial sector for their promotion of ESG, and, most recently, hearings held by the House Ways and Means Committee have featured Republican members asserting that ESG-based investments threaten retirees’ savings, are a danger to free markets, and (no less) represent the single greatest threat to our economic system. ESG, however, is simply a framework to assess how an organization’s practices are consistent with sustainability (i.e., carbon footprints) and other issues such as fair pay, responsibly sourced supply chains, corporate governance and accounting transparency.

And therein may lie the rub. The sustained and coordinated attacks on ESG by right-wing interests clearly reveal the threat they perceive from an agenda that, while not anti-capitalist as claimed, does enshrine environmental and social values that most Americans support. In view of the unpopularity of their actual positions, Republicans have calculated that winning against ESG requires demonization and, especially, linkage to a “woke” agenda that in some of its excesses does alienate many moderate voters. How this clash of values may ultimately be resolved could have considerable impact on the success of the larger effort to limit the damage of climate change.


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Earthward is written by Dr. John Perona and is an outgrowth of the climate education work begun with From Knowledge to Power: The Comprehensive Handbook for Climate Science and Advocacy (K2P).