Virginia Gov. Terry McAuliffe said it well: "Climate change is real. Climate change is happening. It's going to have a dramatic impact on the Virginia economy." I could not agree more.
To combat and adapt to climate change, the governor created a Climate Commission, charging it to think in big and bold ways to bring him its top recommendations for taking climate action while strengthening the Virginia economy.
Its No. 1 recommendation, which came in a vote this week, is to create an energy and resiliency bank to help increase private investment in both sectors. Called the New Virginia Bank for Energy and Resiliency, it would help to use limited state funds to bring in dramatically more private investment in projects like solar energy, energy efficiency and strengthening critical infrastructure along the state's coastline.
The approach has been successful in other states.
Connecticut's Green Bank, the first in the country, for example, has brought in $10 in private funds for every one public dollar of investment, known as financial leverage, and increased total clean energy investment more than ten-fold in the state in just four years. The increase in investment had led to a far-more than ten-fold increase in solar capacity installation: in the decade before the green bank, an average of about 4 MW was installed each year; after the green bank started the pace of installation picked up rapidly and last year over 60 MW were installed.
Still in its early stages, New York Green Bank already has a capital pipeline in excess of $350 million, with another $150 million recently approved by the New York Public Service Commission, while New Jersey has the Energy Resilience Bank and Rhode Island the Infrastructure Bank.
If implemented, the Virginia energy and resiliency bank would make the state the first in the South to approach its clean energy and resiliency spending in this way - one that is comprehensive and has the potential to be broadly transformative.
In place of the current piecemeal approach consisting of scattered programs throughout government agencies, the New Virginia Bank would use public dollars far more efficiently, coordinating state investments in clean energy and programs to build and strengthen infrastructure, including raising the height of homes to better withstand harsh and catastrophic weather. It would also more directly engage with private investors seeking to enter Virginia's untapped markets.
The New Virginia Bank would help create a new, stronger Virginia economy by reducing risk for private investors, creating financing methods like new types of loans and increasing coordinated marketing efforts.
Specifically, co-lending or credit enhancements can help increase private investment by reducing risk for private investors.
In co-lending, the New Virginia Bank would invest directly in a project in partnership with one or more private investors. The public lender can fill any financing gaps not covered by private investors and reduce the overall interest rate to the borrower.
Credit enhancements, meanwhile, are a way to reduce a private lender's risk because a borrower does not make all loan repayments. The credit enhancements provide cash or other forms of assurance that the lender will be compensated if the loan is not repaid.
Because the New Virginia Bank would provide loans, rather than grants, public capital would be preserved, keeping it ready to be recycled and used again without the need for additional tax dollars.
To echo Gov. McAuliffe, climate change is indeed real. Combating it and adapting through resiliency can be expensive for states and local governments up front, though such action is an economic boon in the long run. Civic leaders need easy avenues - such as this one proposed under McAuliffe's leadership -- for bringing the financial sector on board in ways that benefit everyone. Increasing private investment in clean and resilient technology is essential to building the new Virginia economy.