On August 16, 2022, President Joe Biden signed the Inflation Reduction Act into law, passing the most significant climate investment in U.S. history. One of the law’s largest investments was the creation of the Greenhouse Gas Reduction Fund (GHGRF)—an impressive $27 billion program to invest in clean energy deployment and emissions reduction projects across the country. Importantly, the GHGRF carves out a minimum $15 billion investment in low-income and disadvantaged communities, who have been disproportionately affected by toxic pollution and other environmental harms and are the most vulnerable to the impacts of climate change.
The GHGRF is the result of years of legislative efforts to advance a federal fund to accelerate the clean energy transition across the country, reducing both greenhouse gas emissions and local pollution. The U.S. Environmental Protection Agency (EPA) has been tasked with designing and implementing this first-of-its-kind program.
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How does the Greenhouse Gas Reduction Fund work?
The GHGRF includes two programs with slightly different parameters: a $20 billion “green financing program” and a $7 billion “zero-emissions technology deployment program.”
The green financing program provides funding to eligible nonprofit organizations that will provide financial or technical assistance directly to clean energy projects—or indirectly to support existing entities or establish new entities that will finance clean energy projects. This green financing program will fund any “project, activity, or technology” that reduces greenhouse gas emissions and other forms of pollution. And at least $8 billion of this funding is explicitly required to be allocated to low-income or disadvantaged communities.
When designed with thoughtful consideration of equity and accountability, the GHGRF can be a historic catalyst for deploying clean energy, improving air quality, creating good jobs, and building wealth in underserved communities.
The GHGRF also created a zero-emissions technology program that provides funding to eligible nonprofit organizations, or state and local governments, to deploy technologies that produce zero greenhouse gas emissions and zero emissions of other air pollutants. All projects funded by this program must go toward benefiting low-income and disadvantaged communities. Notably, while rooftop solar is mentioned as an eligible project, this funding can also go toward technologies such as heat pumps, batteries, and more.
Recommendations for an equitable and effective GHGRF
The GHGRF gives the EPA flexibility in making implementation decisions for the program and allows stakeholders to engage with the design process. The EPA issued a request for information (RFI) on October 21, 2022, asking for public input on certain design elements of the program by December 5. To ensure that the GHGRF is equitable and that it effectively reduces local pollution and greenhouse gas emissions, the EPA must take the following steps:
1. Maximize investments and benefits to low-income and disadvantaged communities
The fund requires that a minimum of $15 billion is invested in low-income and disadvantaged communities; however, this is a floor, not a ceiling. The GHGRF’s mandate is to prioritize projects that traditionally lack access to financing. Funding for clean energy projects in underserved communities represents a significant market gap. Combined with the Biden administration’s Justice40 commitment that at least 40 percent of federal energy and climate investments benefit disadvantaged communities, the EPA should ensure that the GHGRF maximizes investments to these communities well beyond $15 billion.
2. Distribute funding to multiple existing recipients
One of the key questions the EPA must answer is how many recipients will receive direct funding, which has implications for oversight, accountability, and efficiency. The EPA only has 180 days to begin and two years to finish distributing funding. Ultimately, no national green bank or organization currently exists that could execute this program in its entirety, and such organizations would take time to stand up and demonstrate their ability to fund clean energy projects. The EPA should consider distributing initial funding to state and local green banks or community development financial institutions (CDFIs) that have a track record of serving low-income communities, delivering on performance-based metrics, and having strong accountability measures in place. For later rounds of funding, the EPA should consider multiple awards to new and existing entities to ensure there is a network of green finance that is comprehensive and flexible.
3. Distribute funding incrementally based on performance on reducing GHGs and other pollution and equity criteria
To ensure proper oversight and accountability, the EPA should consider scheduling disbursements of funding in increments over time, dependent on how recipients meet performance benchmarks written into grant contracts. Because additional disbursements would be contingent on performance, recipients would have an incentive to meet their agreed-upon benchmarks, and the EPA could disburse future funding to the best performers. To ensure that goals are met, these performance metrics must, at the very least, include reductions in local air pollution and greenhouse gas emissions as well as benefits to low-income and disadvantaged communities.
4. Ensure funding is for truly clean and transformative new projects
Some may argue that fossil-based technologies such as natural gas or biomass still achieve the mandate of reducing greenhouse gas emissions; however, the statute specifies that projects must reduce greenhouse gases and other forms of air pollution, ruling out combustion in many contexts because it inherently increases air pollution. Any project that locks in the combustion of fossil fuels should not be considered to reduce or avoid emissions, no matter what marginal improvement it might represent over the current set of fossil fuel systems. At the GHGRF’s outset, the EPA should establish clear guidelines interpreting this requirement.
5. Support robust assistance and project funding for communities, including education, community outreach, training, and more
Many low-income and disadvantaged communities do not have the needed information, staff, or technical capacity to pursue federal program funds. However, GHGRF funding is not only for the deployment of a technology but also activities that “assist communities in the efforts” to reduce emissions or “enable [them] to deploy or benefit from zero-emission technologies.” Therefore, technical assistance, workforce development, and community planning should all be considered “qualified projects” in their own right. The EPA should seek to fund programs that have careful plans for community education and outreach, contractor training, community ownership of clean energy assets, and more. Furthermore, such funding can be used to help communities take full advantage of many other federal, state, local, and private opportunities for grants, loans, and tax incentives that support the deployment and community benefit of zero-emission technologies.
Read more about the Inflation Reduction Act’s historic climate investments
Conclusion
This program is an unprecedented opportunity to achieve the Biden administration’s climate goal of halving emissions by 2030 while investing in disadvantaged communities. When designed with thoughtful consideration of equity and accountability, the GHGRF can be a historic catalyst for deploying clean energy, improving air quality, creating good jobs, and building wealth in underserved communities.