Innovative Climate Finance

Innovative Climate Finance

Energy efficiency is a lower-cost tool available to reduce greenhouse gas emissions, but financing efficiency improvements is a challenge. The public sector can encourage investment in efficiency and clean power and leverage limited public dollars to get more private sector capital to the table.

At a C2ES event in 2015, business, state, and city leaders provided key insights into how innovative financing mechanisms can be scaled up to reduce emissions and, in some cases, strengthen climate resilience, and what barriers remain.

Examples of programs working in some states and cities include:

  • Green Banks – These public or quasi-public institutions use public sector resources to leverage greater private sector capital. For example, a private sector bank may not find it economical to finance an energy efficiency upgrade if the payback period is too long. A green bank can offer several options to make the deal happen, such as establishing a loan loss reserve or becoming a subordinated lender that will be repaid after other lenders.
  • Community Development Financial Institutions – To encourage early action on the Clean Power Plan, EPA is proposing bonus credits for programs that improve energy efficiency in low-income communities. Community development financial institutions (CDFIs) provide capital and technical assistance in underserved communities, and are playing a growing role in financing energy efficiency.