In a new whitepaper released today on behalf of the Coalition for Green Capital, economists at The Brattle Group have identified potential roles for a new, federally sponsored financial institution to promote economic recovery via decarbonization: the Clean Energy and Sustainability Accelerator (the “Accelerator”).
The Accelerator would be a non-profit NGO that would provide customized risk-bearing, lending, and grants for decarbonization infrastructure, especially where such efforts will quickly create jobs and foster improved conditions and opportunities for low- and moderate-income (LMI) communities that have often been neglected or even harmed by past environmental practices.
The Brattle whitepaper focuses on the Accelerator’s long-term mission of accelerating decarbonization over the next decade and beyond, through targeted financial support and risk reduction for broader deployment of commercially proven clean energy technologies that face various frictional impediments to their adoption. A complementary short-term mission for the Accelerator — to promote immediate economic recovery through clean energy investments that have significant short-term economic multipliers — is described in an accompanying whitepaper by Analysis Group.
“We believe the Accelerator fills a market niche as an innovative and powerful mechanism for economic recovery, accelerating decarbonization, and promoting social justice,” noted Frank Graves, a Brattle Principal and whitepaper coauthor.
Key premises of the Accelerator are that slowing the rate of climate change depends more on decarbonizing sooner and more rapidly than eventually decarbonizing more deeply, and that decarbonization infrastructure development will be powerful for economic recovery. The Accelerator will therefore focus on reducing impediments to the deployment of already or nearly viable clean energy technologies, rather than investing in R&D for new technologies (even though those will be needed to completely decarbonize the economy). As illustrated below, a broad swath of approaches is already available today at relatively modest abatement costs.
Illustrative US GHG Abatement Cost Curve
Illustrating the accelerator’s “sweet spot” in speeding decarbonization
Source: See whitepaper for full discussion of assumptions and sources
Institutional and financial bottlenecks currently slow the deployment of these measures that could reduce carbon emissions cost-effectively. For instance, some suffer from “chicken or egg” problems that involve separate industries waiting on each other (such as cars and charging stations, as well as many other examples). The Accelerator could provide bridge financing to help break such deadlocks. The goal would be not to fully underwrite decarbonization efforts, but to strategically nudge them beyond tipping points where they will become more attractive in the market.
The Accelerator would complement “Green Banks” already operating at the state and local levels in some regions. However, the Accelerator would be much larger (roughly $100 billion vs. about $4 billion in aggregate Green Bank financing to date), and its operational mandate would be broader, including:
- A focus on swiftly “debottlenecking” private investment in clean energy enterprises currently inhibited by transaction costs, liquidity, side-effects, or risks that for-profit entities are reluctant to bear except in the most auspicious settings;
- Ability to make grants or investments that do not earn a full return, to the extent the Accelerator is covering a share of costs for public benefits that accompany private projects (e.g., “smart surfaces” to mitigate heat retention in dense urban areas);
- Providing analytical and administrative capabilities to the market to identify decarbonization bottlenecks, to pursue high-value investments, and to manage market risks over time; and
- Where possible, utilizing competitive mechanisms to allocate funds and leverage private capital, including competitive solicitations and auctions.
Importantly, whether over the near or long term, “decarbonization” would be defined to prioritize social justice goals, such as equitable and diversified support of programs and technologies to benefit LMI communities across the country. Historically, LMI communities have disproportionately borne the adverse effects of climate change while missing the benefits of past green investments.
The whitepaper, “Clean Energy and Sustainability Accelerator: Opportunities for Long-Term Deployment,” is authored by Brattle Principals Frank Graves and Robert Mudge, Senior Associate Roger Lueken, and Senior Research Analyst Tess Counts. An executive summary of the whitepaper is also available here. The companion paper by Analysis Group is available here and the CGC overview of this initiative is here.
Prepared for The Coalition for Green Capital