Government-Funded Green Banks: Catalysts for the Green Transition

Abstract

Government-funded Green Banks (GBs) are delegated to administer the Inflation Reduction Act (IRA) funds to leverage private capital for reducing greenhouse gas emissions. To contextualize their impact, this paper examines how effectively GBs mobilized local private investment into green projects before the IRA. We show significant increases in venture capital (VC) deals and total investments for climate-tech startups in counties following a GB loan issuance. The increases are concentrated among GB-startup pairs with aligned technological focus, are accompanied by real green output growth, and do not crowd out existing private capital. Our evidence underscores GBs' pivotal role in facilitating bottom-up green transitions.

Keywords: climate tech, renewable energy, green transition, Green banks, venture capital, climate finance, sustainable finance

JEL Classification: G23, G28, O44, G24, L32, Q55