Buried on page 667 of the Inflation Reduction Act is a climate policy that has been in the making for more than a decade.

The Greenhouse Gas Reduction Fund provides $27bn in funding for projects aimed at lowering America’s planet-heating emissions. Some of those funds, roughly $7bn, will be dedicated to clean energy deployment in low-income communities – but the vast majority of the funds will be used to create America’s first national green bank, an initiative long championed by climate activists. Those activists hope that the national green bank, which will provide ongoing financial assistance to expand the use of clean energy across the country, will accelerate America’s transition away from fossil fuels.

With the green bank’s assistance, communities looking to bolster their nascent renewable energy industries will have increased access to funding that could bring them closer to meeting their climate goals.

“This is, I think, one of the most exciting and transformational investments and programs in this new law,” said Sam Ricketts, co-founder of the climate group Evergreen Action. “The importance of a national clean energy accelerator is that it’s a national entity, with a national mandate to finance these projects in every state.”

The creation of the national green bank reflects years of work from climate experts and their allies on Capitol Hill. A green bank proposal was included in the Waxman-Markey climate bill of 2009, which never made it through the Senate. The idea has been tossed around ever since but never realized – until last month, when Joe Biden signed the Inflation Reduction Act, the Democrats’ huge spending package, into law.

“The climate test is simple: jobs, justice and climate. The National Climate Bank does all three,” Edward Markey, a Democratic senator from Massachusetts, said of the new initiative. “Through this bank, local climate and clean energy entrepreneurs will leverage funding to advance green initiatives and infrastructure in their communities while creating good, local jobs.”

The national bank will aid the work of existing state and local green banks, which have already flourished in more than a dozen states.

The New York green bank has lent more than $1bn since its creation in 2014, as it has worked with the private sector to expand the use of clean energy technology. One of the New York green bank’s initiatives, the community solar program, has allowed residents who may not be able to install solar panels on their roofs to instead subscribe to an off-site solar project, thus reducing participants’ energy costs.

Richard Kauffman, the chair of the New York State Energy Research and Development Authority who launched the green bank, cited the community solar project as an example of how such financial institutions can be put to their best use. Before the New York green bank got involved, traditional lenders were hesitant to approve funding for community solar projects because of the potential financial risks attached to such initiatives.

The New York green bank helped mitigate those risks by wading through the documentation and contracts involved in the project while also starting to lend out funds at a low interest rate. Those green bank loans established a record of repayment that then made traditional lenders more comfortable with putting their own money toward community solar initiatives, broadening the implementation of such programs.

“The intent of the green bank in New York was to provide financing for these projects where the problem was not the cost of financing, but the availability of financing,” Kauffman said. “There are many community solar projects across the state now. They really benefited from the pioneering role that the green bank took on to establish the market.”

State and local banks have indeed helped identify the vast need for such lending institutions in the US. Reed Hundt, former chair of the Federal Communications Commission under Bill Clinton and co-founder of the Coalition for Green Capital, said his group had identified $21bn worth of backlogged clean energy projects at state and local green banks.

The national green bank will help address that backlog while providing a more streamlined process to get clean energy projects up and running at the local level.

“As the saying goes, you need money to make money,” Hundt said. He added that the national funding could help provide the financial support needed to transform clean energy supply chains, which could in turn lower the cost of such technology for American consumers.

The existing state and local green banks in the US have shown how such loans can be a sound investment. According to the Coalition for Green Capital, 99.62% of state and local green bank loans in the US have been repaid to their lender. Those payments have made green banks self-sustaining, allowing them to invest more funds in projects aimed at reducing planet-heating emissions.

“It’s the sort of money that’s going to continue to operate. It’s not going to just go away as a grant and not be seen again,” Ricketts said. “This is going to be a self-executing, self-sustaining financial institution that will continue to … recycle through that initial capitalization to continue to do its work. That’s a feature, not a bug, and that’s one of the more exciting pieces of it.”

Climate experts have emphasized that the accelerated timeline of clean energy deployment in the US is crucial, as the world has little time left to avert climate catastrophe. The Intergovernmental Panel on Climate Change warned earlier this year: “Any further delay in concerted global action will miss a brief and rapidly closing window to secure a livable future.”

Combined with other climate provisions in the Inflation Reduction Act, the national green bank could play a vital role in meeting Biden’s goal of cutting US emissions in half by the end of the decade.

“We have to have adoption go at an accelerated rate in order to reduce emissions before it’s too late. It’s as simple as that. We have to have the market go faster than it would otherwise go,” Hundt said. “We just don’t really have the option of delay.”

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