There's a renewed push at the State Capitol to create Minnesota's first "green bank," which proponents say would maximize public dollars to lower greenhouse gas emissions in disadvantaged communities.
'Green bank' legislation aims to speed climate-friendly projects in underserved communities
State Sen. Tou Xiong hopes to create a self-sustaining financial institution that would loan money for green projects in Minnesota.
By Andrew Hazzard, Sahan Journal
The proposed green bank, called the Minnesota Climate Innovation Finance Authority, would create a public-private partnership structured as a nonprofit with a publicly appointed board.
"It's an opportunity to pool resources to leverage federal and private funding to bring in the clean energy transition here in Minnesota," said Sen. Tou Xiong, DFL-Maplewood, who is carrying the measure in the state Senate.
Green banks are financial institutions designed to speed the transition to clean energy by funding projects that lower emissions or produce carbon-free power. By assuming some of the perceived risk of investment, green banks can effectively lower interest rates or guarantee a rate of return for hesitant private investors.
There are 25 green banks operating in 18 states and Washington, D.C., according to the Washington-based Coalition for Green Capital. Since 2011, those banks have leveraged $4.2 billion to attract $14.8 billion in public and private investment.
The 2022 federal Inflation Reduction Act created a $27 billion Greenhouse Gas Reduction Fund that the Environmental Protection Agency can use to allocate grants to states, cities, and tribal nations with communities that are low-income and disproportionately polluted. Xiong said the proposed green bank would help garner that federal funding in addition to private investment.
"We don't want to miss out on any rounds of funding," Xiong said.
A rough estimate shows Minnesota could qualify for $350 million from the federal funds, according to Rep. Emma Greenman, DFL-Minneapolis, who authored the bill's House version. The green bank's fund would be self-sustaining in about three years, she said.
Minnesota's green bank would operate as a nonprofit with an 11-member board composed of four state commissioners, the chair of the Minnesota Indian Affairs Council, and six members appointed by the governor. The board, required to represent the state's geographic and demographic diversity, would hire an executive director and staffers to carry out operations.
The green bank initiative is currently included in both House and Senate climate omnibus bills, and Xiong said he was optimistic it will pass this session. Gov. Tim Walz has said he supports the green bank.
The proposal requires the green bank to develop a long-term investment strategy by the end of 2024. As it stands now the bill would appropriate $20 million, but Xiong is optimistic that more funding will be allocated in conference committee and wants to see an initial investment of $45 million.
The green bank would have the ability to enter into financial agreements with federal and state agencies, local governments, corporations and individuals. It would be charged with analyzing the financial needs of projects aimed at reducing greenhouse gas emissions in Minnesota, and recommending solutions to funding shortfalls. And it would have a pool of capital that could partly reimburse a private lender if a customer defaults.
Investment matters
Green banks are a great way for states to leverage public dollars for investment in climate friendly projects like weatherization for aging buildings or constructing solar arrays, according to J. Timmons Roberts, a professor of environmental studies and sociology at Brown University in Providence. R.I.
Connecticut in 2011 created the nation's first green bank, which has been very successful, Roberts said. But Rhode Island's green bank was understaffed and didn't receive strong initial funding.
"Green banks are a nice idea and can have measurably positive impacts, but unless you invest in them with the funding and capacity staffing, it might not amount to much," Roberts said. The return on investment with green banks will be lower than traditional banking targets, he said, but it's more sustainable and continuous than one-time grants for projects that don't generate returns that can be reinvested.
States that invest now will be better off in the future, Roberts said. "The next ten years are really critical" in reducing carbon emissions, he said.
Xiong said he hoped the green bank could help spur projects like rooftop solar energy for schools and nursing homes, and ramp up weatherization efforts in low-income communities to save people money and lower emissions.
Xiong, who grew up in Maplewood in a family of eight kids, remembers his mother stressing out over the energy bill. Their home's insulation wasn't great. "It was hard to study when you're freezing your butt off," he said.
The legislation would allow related projects to be bundled together to receive financing. At a recent news conference, Amber Naqvi, CEO of Lake Street Solar, said traditional banks often tell him they are interested in investing in $10 million projects rather than $1 million projects. A green bank could help group smaller projects into one funding pool to make them more appealing, he said.
A green bank in Minnesota could be a game changer, Naqvi said. His company provides upfront funding for solar installations for businesses run by people of color along Lake Street in south Minneapolis. Businesses pay off the installations with profits from energy credits in about seven years, at which point Lake Street Solar transfers full ownership of the solar arrays to them.
"This is a great way for us to provide the initial capital and give the opportunity for solar to get deployed," Naqvi said.
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Andrew Hazzard, Sahan Journal
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