Inflation Reduction Act’s Greenhouse Gas Reduction Fund Must Focus on the Most Vulnerable

The Inflation Reduction Act offers a potentially transformative opportunity to address our dual crises of climate change and the pervasive racial inequities in our financial system together. We applaud the Biden Administration and Congress for moving this vital legislation forward. The Inflation Reduction Act’s $27 billion investment in the Greenhouse Gas Reduction Fund is a crucial tool to address the climate crisis, and it must be implemented with a strong focus on communities of color that have been disproportionately affected by climate change and marginalized because of race, ethnicity or immigration status.

The racial wealth gap, an ongoing consequence of redlining and financial exclusion that has resulted in Black and Hispanic families accumulating far less wealth than white families, is well documented. In addition, our current energy system disproportionately burdens communities of color. Recent research shows that Black and Native American households spend about 45% more of their income on energy costs than non-Hispanic white households and Hispanic households spend 20% more.

This combination of financial and energy racism means that communities of color do not have equitable access to affordable climate-friendly financing that would help them to reduce energy cost burdens, increase climate resiliency, and expand energy efficiency and renewable energy efforts in their communities.

The Greenhouse Gas Reduction Fund, which will be administered by the Environmental Protection Agency (EPA), includes specific funding streams “to enable low-income and disadvantaged communities to deploy or benefit from zero-emission technologies … and greenhouse gas emission reduction activities,” as well as “financial and technical assistance in low-income and disadvantaged communities” that can be used for activities that reduce greenhouse gas emissions and other forms of air pollution. To ensure this historic legislation lives up to its promise, the Fund as a whole should target “low-income and disadvantaged communities” to address historic inequities in energy burden, access to clean and green sources of energy, and the disproportionately high impacts of climate change and air pollution experienced by communities of color. It is critical that the Biden Administration and EPA plan its implementation with careful consideration of how to ensure funds will reach and meet the needs of the most climate-vulnerable and energy burdened communities of color, reservation-based communities, and low-income urban and rural communities.

Our organizations represent the Community Development Credit Union (CDCU) movement, which is committed to promoting financial inclusion and equity, and made up of not-for-profit financial cooperatives, including Minority Depository Institutions (MDIs) and certified Community Development Financial Institutions (CDFIs). Collectively, almost 500 CDCUs operate across 47 states, Washington D.C., Puerto Rico and the U.S. Virgin Islands, and represent more than 18 million community members and $255 billion in community-held assets.

In addition to our deep impact, CDCUs are typically able to leverage public investment tenfold. By accessing the Greenhouse Gas Reduction Fund, CDCUs and other mission-driven lenders have the potential to catalyze more than $200 billion in financing for clean energy and climate resiliency. The Greenhouse Gas Reduction Fund bill language is written such that depository institutions, including CDCUs and other credit unions, are not eligible to directly apply to EPA for the Fund dollars. Credit unions should be eligible to participate directly; however, even without this policy change, credit unions can and will participate through Inclusiv and other intermediaries. Inclusiv is committed to ensuring credit unions have a central role to play in the implementation of the Greenhouse Gas Reduction Fund.

CDCUs should be key partners in the planning and disbursement of the Greenhouse Gas Reduction Fund to ensure the fund reaches and benefits all communities equitably. Hundreds of these lenders have already been deeply involved in disaster response and climate resiliency. They have developed successful green lending programs designed to serve low- and moderate-income and communities of color, and finance a wide range of clean energy and energy efficiency technologies. CDCUs are eligible to receive indirect investment from the Greenhouse Gas Reduction Fund and are poised to use those dollars to scale affordable financing that makes green projects accessible to the most climate-vulnerable communities.

These community lenders already finance the full range of consumer, residential and small business energy projects, such as: Efficient home appliance upgrades; energy efficiency upgrades; electric vehicles; solar and solar-powered battery storage projects; and operating capital to grow small businesses that provide clean energy, and energy efficiency installation and contracting services. Examples of how CDCUs and CDFIs already lead in this critical community-based work include:

• Cooperativa Jesús Obrero, based in Puerto Rico, was an early adopter of solar lending and has been a key community resource during climate-induced disasters. Since 2011, it has financed more than 500 photovoltaic solar systems in 26 municipalities across the island, and its renewable energy financing portfolio has grown to 10% of its total loan portfolio. The cooperativa installed solar at one of its own branches in 2015 to reduce energy bills and maintain power during climate events. After Hurricane María, Cooperativa Jesús Obrero was open and provided cash and vital community services within days, whereas mainstream banks on the island were closed for weeks after the hurricane. Aurelio Arroyo, executive president of Cooperativa Jesús Obrero and one of the authors of this opinion piece, recently stated that “the cooperativa greatly improved our disaster response capacity and continuity of operations after Hurricane María and is now putting that resiliency to work for our members and our community after Hurricane Fiona.”
• Clean Energy Credit Union, based in Colorado, serves the entire United States and was founded to promote clean energy using the cooperative credit union business model. The credit union offers loan products aimed at mitigating climate change, reducing pollution and improving public health, creating jobs and building community wealth, promoting democratic organizations, increasing energy independence and promoting personal finance independence. Within just five years of operating, Clean Energy has funded $110.9 million in clean energy loans to 6,929 households across the country.
• Inclusiv’s Center for Resiliency and Clean Energy trains community-based lenders across the country on green lending, building the capacity and financial infrastructure to meet the energy efficiency, resiliency and other climate finance needs of communities hardest hit by climate change. Inclusiv’s research shows that 391 credit unions across the U.S. currently offer dedicated green loan products. Collectively, these credit unions represent more than 22.7 million members and over $360.4 billion in assets. Inclusiv surveyed just 40 of these credit unions and found they have collectively made more than $500 million in green loans in the past three years.

The Greenhouse Gas Reduction Fund is a powerful tool that, if deployed thoughtfully, can be used to ensure Black, Indigenous, Latino, and other disinvested and underserved communities can access the energy cost savings and investments in clean energy and disaster resilience that well-off, predominantly white communities already enjoy. To achieve this, the Biden Administration should partner with CDCUs as it implements the Fund. Together, we can scale equitable green lending programs that will help all communities thrive.

Aurelio Arroyo is Executive President of Cooperativa Jesús Obrero in Puerto Rico.

Cathie Mahon is President/CEO of Inclusiv in New York, N.Y.

Terri Mickelsen is CEO of the $31 million Clean Energy Federal Credit Union in Centennial, Colo.