Green ​‘liberty’ bonds: The American way to win the war on climate change?

President Joe Biden has an aggressive plan to decarbonize the U.S. economy. But his administration hasn’t yet provided many specifics on how it plans to leverage public funding to drive greater private capital investment in the green infrastructure needed to reach its goals.

Bryan Garcia, president and CEO of the Connecticut Green Bank, thinks that a modern, green-tinged version of Liberty Bonds, the U.S. government war bonds from World War I and World War II, could be a valuable model for the federal government — particularly if Connecticut’s recent experience with it can be replicated at a national scale.

Connecticut Green Bank’s $25 million green ​“liberty” bond issuance on Thursday, its latest to support rooftop solar and energy efficiency projects in the state, was oversubscribed by nearly a factor of four, Garcia said.

“If there was $100 million of demand in Connecticut’s green liberty bonds on Earth Day in 2021,” he said, ​“then imagine what demand there would be for similar bonds in support of infrastructure across our country over the next four years?”

Tapping the same enthusiasm nationwide could help pay for some of the investments called for in the Biden administration’s American Jobs Plan, Garcia said. The plan would direct roughly half of its $2.2 trillion in proposed spending toward infrastructure to decarbonize the U.S. electricity, transportation and industrial sectors.

The decarbonization effort needed to forestall the most catastrophic impacts of global warming over the next decade has often been compared to World War II, in terms of the comprehensive, all-of-society effort needed to achieve it. Connecticut Green Bank’s green liberty bonds are modeled after the Series E war bonds that raised $185 billion from 85 million American citizens between 1941 and 1945, the equivalent of $2.5 trillion in today’s dollars.

The American Jobs Plan also contains the vehicle for creating federal or green-bank-issued green liberty bonds, in the form of a $27 billion Clean Energy and Sustainability Accelerator. This would be the equivalent of a federal Green Bank to support the 21 state- and local-level green banks that have sprung up since Connecticut launched the first one in 2011, as well as to create more green banks in every state.

The green banks formed so far have generated about $5 billion in investment in hard-to-grow sectors and underserved communities, according to the nonprofit advocacy group Coalition for Green Capital, which has been advocating for the creation of a federal Green Bank for the past decade.

By backing private capital with public funding, green banks help unlock investment in valuable yet relatively unproven propositions such as installing distributed energy at homes and businesses, deploying electric vehicle charging stations and conducting efficiency retrofits at residential, commercial and municipal buildings.

Under a federal accelerator model, state-chartered green banks would receive federal dollars to stimulate private investment to expand the reach of clean and energy efficient technology. According to the Coalition for Green Capital, each dollar of federal spending can leverage up to five dollars in private-sector lending and investment, generating a powerful multiplier effect.

“[The green liberty bond structure] is a way to bring in low-cost capital to fund clean energy projects,” said Jeffrey Schub, executive director of the Coalition for Green Capital. It allows average Americans to gain access to the bonds by offering them in small denominations, providing a direct link to environmental, social and governance investments for institutional investors, he added.

Because the Biden administration’s American Jobs proposal targets disadvantaged communities for accelerator-backed investments, community development financial institutions can also play a role. CDFIs, which currently operate in all 50 states, are private financial institutions supported by the U.S. Department of the Treasury that aim to expand economic opportunities in disadvantaged communities.

From solar and efficiency to climate resiliency

Connecticut Green Bank’s green liberty bonds supports incentives for nearly 7,000 households and 60 megawatts of residential solar PV, totaling nearly $220 million of investment in projects in 165 cities and towns in the state, Garcia said. By doing this, it will create more than 2,100 jobs, he added.

Today, the bank’s charter only permits it to issue use-of-proceeds green bonds that fund residential solar and energy efficiency projects. But in January, Connecticut Governor Ned Lamont introduced a bill that expands the bank’s ability to issue environmental infrastructure bonds, including resilience bonds.

Resilience bonds are use-of-proceeds green bonds in which some or all of the bond’s proceeds are aimed at facilitating the funding of climate adaptation and resilience projects.

“The green liberty bond structure is designed to support the Paris Agreement, which addresses mitigation of greenhouse gas emissions and adaptation to the impacts of climate change,” Garcia explained.

“If environmental infrastructure is added to the scope of the Connecticut Green Bank, then we can issue green liberty bonds as a mechanism to finance infrastructure projects that improve resilience in Connecticut,” Garcia said. Like green liberty bonds that raise proceeds for clean energy investments, environmental infrastructure liberty bonds that focus on resilience are good policy and also complementary to the American Jobs Plan, he added.

“The Clean Energy and Sustainability Accelerator within the American Jobs Plan would enable local, state and regional investments in climate-resilient infrastructure. […] This could be a catalyst to the issuance of resilience bonds that would leverage the federal resources in the accelerator to unlock more private investment,” he added.

According to Garcia, Connecticut Green Bank’s Earth Day green liberty bond issuance shows that individuals and institutions are interested in investing in bonds that confront climate change. ​“As the impacts of climate change become clearer to all of us every day, we would expect that individuals and institutions would want to invest in resilience bonds too,” he said.

In many ways, Connecticut, home to Hartford, the city known as the insurance capital of the world, is a natural place for road-testing environmental infrastructure bonds that fund resilience projects. But it’s not just Connecticut that needs innovation in this domain, Garcia said. ​“The focus needs to turn to resilience because climate change is here,” he said. ​“Mitigation isn’t going to be enough,” he added.