How to Issue a Green Muni Bond: The Green Muni Bonds Playbook

Issue Brief
March 15, 2016

U.S. municipalities have vast infrastructure, climate mitigation, and adaptation investment needs

It is estimated that the United States must invest $3.6 trillion by 2020 in basic infrastructure, including transportation systems, waterways, and the power sector— and the current and projected spending rates will lead to a shortage of investment. At the same time, U.S. cities are critically important centers for action on climate change mitigation and adaptation, and are therefore uniquely positioned to lead the effort to fund projects to reduce energy use and promote green infrastructure. In the United States, more than 60 percent of carbon emissions come from the buildings in which we live and work and transportation systems—the majority of this environmental impact arises from cities.

Cities are also particularly vulnerable to the negative impacts of our changing climate. In just the last three years, extreme weather events have caused more than $188 billion in damages in American metropolitan areas, claiming more than 1,000 lives.3 Investment in low-carbon and climateresilient transportation, water, power, and buildings can address both the infrastructure and climate challenge.

The muni bond market is a tried and trusted finance channel for U.S. municipalities

Municipal bonds are one financing tool well suited to close the U.S. infrastructure investment gap. The U.S. municipal bond market has funded large-scale, long-term capitalintensive projects in states and cities, as well as their operational expenses, since the beginning of the 1900s. The market is large, with investors today holding a total of $3.7 trillion of U.S. municipal debt. Different types of investors are attracted to the muni bond market, but individuals are the dominant investors, either directly as individual retail investors or through mutual funds, accounting for more than 70 percent of the market. This is largely because the vast majority of muni bonds are issued as tax-exempt instruments: of the $3.7 trillion in outstanding muni bonds, only approximately $600 billion are taxable.4 Because individuals tend to have significant tax liability, tax-exempt muni bonds are attractive investment opportunities. Some federal programs also offer additional subsidies to attract tax exempt investors, such as pension funds, to the U.S. muni bond market.