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The Inflation Reduction Act’s Green “Bank” Begins to Take Shape

Recent announcements by the EPA provide some insight into its administration of the Inflation Reduction Act’s Greenhouse Gas Reduction Fund.

On February 14, 2023, the Environmental Protection Agency (“EPA”) announced an outline for its administration of the Greenhouse Gas Reduction Fund (“GGRF”), the $27 billion appropriated in the Inflation Reduction Act (“IRA”) to help finance projects that reduce or avoid greenhouse gas emissions and air pollution and deploy zero-emission technologies across the country — often referred to as the “Green Bank.” The GGRF will be implemented via two distinct grant programs: a $19.97 billion General Assistance and Low-Income and Disadvantaged Communities Grant Program (“General Assistance Program”), and a $7 billion Zero-Emissions Technologies Grant Program (“Zero-Emissions Technologies Program”).

Beyond a few broad statements and overarching guidelines, the EPA’s announcement is light on details for parties with potentially qualifying projects. More information on applicant selection criteria, project prioritization, financing conditions, and oversight measures will be included in a Notice of Funding Opportunities (“NOFO”) for each grant program, which the EPA plans to publish in early summer.

Until then, additional information may also be forthcoming from Jahi Wise, the EPA’s recently appointed acting director for the GGRF, as the EPA wraps up its stakeholder engagement process. Owners, operators, and investors of potentially qualifying projects will likely need to wait until at least the beginning of 2024 before they can begin securing GGRF financial assistance for their projects.

Fund Administration

The IRA instructs the EPA to distribute GGRF monies to certain nonprofits that are designed to marshal and provide capital and other financial assistance for the rapid deployment of low- and zero-emission products, technologies, and services, among other requirements. These eligible recipients are permitted to deploy their allocated GGRF capital as direct financial assistance in the form of loans or investments for qualified projects, which can be any project, activity or technology that reduces or avoids greenhouse gases or assists communities in their efforts to do the same. Grant recipients may also distribute GGRF capital as funding to new or existing non-profit or public entities that, in turn, provide financial assistance to qualified projects at the national, state, community, or Tribal level. GGRF funds can be used to cover the expenses incurred by grant recipients for any technical assistance provided to these other entities.

The EPA has not announced any restrictions on the types or modes of financial or technical assistance that selected recipients may provide but it has signaled that it will allow grant recipients to co-invest or otherwise partner with private capital to fund or assist qualified projects.

Whether there will be any coordination or interdependence between the grant-receiving entities remains an open matter. While the EPA has specified that there will not be a single “green bank” in charge of the GGRF, it has not committed to a completely decentralized project-by-project system either. Because the EPA has stated that at least one of the program’s grantees will have a national scope, it may be opting for a hybrid approach — splitting the funding grants between one or two “green bank-lite” entities (who then assist smaller projects), and a select set of single major project- or initiative-focused recipients.

Such a hybrid approach could possibly help the EPA meet the financial needs of a more varied set of projects. Large national projects — like electric vehicle infrastructure, grid improvements, or renewable energy projects — will likely require large national financing solutions. Conversely, smaller, community-focused investments — like residential solar deployment and energy-efficiency improvements — will likely be better served by local organizations with proven track records and relationships in those communities, especially with respect to historically disadvantaged communities.

The EPA has also committed to administering the GGRF in alignment with the Biden administration’s Justice40 Initiative, which means that 40 percent of the total investments must flow to disadvantaged communities, including those in areas of disproportionately high and adverse health and environmental conditions. However, around $15 billion of the GGRF is already conditioned for use in low-income and disadvantaged communities by the terms of the IRA, so the extent to which the commitment will further influence the EPA’s management of the programs is currently unclear.

The Grant Programs and Investment Opportunities

Under the larger, General Assistance Program (listing available here), the EPA expects to award between 2 and 15 grants. Beyond the generic greenhouse gas avoidance or reduction goals stated in the IRA, the EPA has not announced any guidance for the selection or preference of qualified projects that award recipients may choose to fund or support.

For this reason, entities interested in funding from the grant recipients should refer to the NOFO, when published. They can also review applications submitted by eligible recipients, which may contain specific funding details, priorities, and plans.

Conversely, the EPA has stated that the primary goal of the Zero-Emissions Technologies Program (listing available here) is to fund and scale solar deployment and adoption, including associated energy-storage technologies and related upgrades, in disadvantaged communities. The EPA expects to issue as many as 60 grants under this program. Also, unlike the General Assistance program, states, municipalities, and Tribal governments may be eligible recipients and can apply and receive funding directly under the Zero-Emissions Technologies Program. We expect further details on grant financing terms and restrictions to be announced in each program’s NOFO.

While the plan for the GGRF continues to be developed, entities with potentially qualifying projects may also seek funding via other EPA grant programs. In late February, EPA announced $550 million in grants to be distributed by 11 entities under the Environmental Justice Thriving Communities Grantmaking Program, also funded by the IRA. This program is separate from the GGRF and part of the EPA’s disbursement of $3 billion in IRA funds allocated for environmental justice grants.

Next Steps

The NOFOs for each grant program, expected in early summer 2023, will provide more detail on application submission deadlines, award announcement dates, the review process, and selection conditions and criteria. The NOFOs will be posted on the federal website, and the EPA anticipates spending 120 to 180 days reviewing submitted applications. The GGRF funds will be dispersed to award recipients by no later than September 30, 2024, as required by the IRA. Keeping a close watch on further guidance from the EPA, in the NOFOs, and applicant-specific lending plans and priorities will help entities and organizations with qualified projects secure funding from the award recipients as the GGRF is implemented.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.