The Power of Public Policy: Catalyzing Private Investment in the Green Energy Transition

This week, thousands will gather in New York City for Climate Week, one of the largest climate summits in the world, with the goal of understanding how to advance climate action. This summit is occurring amidst one of the most favorable legislative environments in a generation to support climate solutions and we are watching, in real time, as public policy spurs new private investments into burgeoning fields and technologies.  

We are two and a half years into the bipartisan Infrastructure Investments and Jobs Act (often called the Bipartisan Infrastructure Law, or BIL) and the Inflation Reduction Act (IRA), both of which have either invested or catalyzed billions into solving the climate crisis. The RMI predicts public funding related to the IRA alone will hit $1 trillion by 2030, and a recent report by MIT and the Rhodium group estimated businesses and consumers have funneled $493 billion into clean technologies and infrastructure since the launch of the IRA. 

So what have we learned about how public policy impacts private investments? 

Public and private financing can work together to be more impactful.

Both are needed to move solutions forward. Take for example the Grid Resilience and Innovation Partnerships program (GRIP), a $10 billion bipartisan measure funded by the BIL that aims to deliver projects that improve the power grid, and make it more resilient and adaptable to clean energy technology. By focusing on improving aging infrastructure, the program creates opportunities for projects such as wind farms and solar to plug into the power grid and deliver the clean energy they produce to American homes. Investors are now realizing the importance of investing in the grid, and the opportunities this unlocks for new technologies. Private funding can carry the torch forward.  

Public spending can create economies of scale and fill financing gaps.

Spending on new technologies is a challenge for private investment, since private investors have a goal of being profitable in the early stages. The long lead times associated with scaling new technologies are often a better fit  for government programs that take a long view on delivering return for public benefit. The Department of Energy’s Loan Program Office is a great example of how government funds can support the development of first-of-its-kind projects. One of the categories of the Title 17 Clean Energy program is financing for projects that are “technically proven but not yet widely commercialized in the United States”. To date, Title 17 has funded 34 projects across the US with a total of $36.5M. The projects include biofuels, clean energy, virtual power plans and several others. 

Public funds can incentivize private investment by reducing some of the risk around an innovative product or a new market.

The Korean government wanted to incentivize its local companies to utilize clean ammonia (as opposed to ammonia produced by coal). To achieve that, the government set out to guarantee to pay the difference between the cost to buy coal produced ammonia and the cost of clean ammonia. The Korean government is doing so by contracting with north American companies to provide its Korean entities with clean ammonia, spurring investments in plants here in the US. Moreover, when the government steps in it makes it easier to get loans and reduces the financing burden.

Innovation in sustainable investment projects requires long lead times and large scale investments that public funding is better positioned to provide.

Take hydrogen hubs for example.  The way they work is that a consortium is made up of private companies and municipalities that create an ecosystem that produces renewable power plants and manages the logistics of transporting green hydrogen. The consortium comes up with a viable proposal and applies to funding from the DOE. In the US today we have seven regional clean hydrogen hubs that the DoE has committed to help fund through another BIL initiative, H2Hubs. 

Legislation such as the IRA and BIL stand as a testament to the powerful role public policy can play in driving sustainable economic growth. By investing significantly in clean energy initiatives, these policies have not only stimulated job creation but also demonstrated the potential for public funding to catalyze private investment in emerging technologies. By reducing the financial burden and mitigating risks associated with innovative ventures, public policy can foster a more conducive environment for sustainable investment. To maintain the strength and innovation of the U.S. capital markets, policymakers should continue to create an environment that supports the transition to a resilient and sustainable economy.