Government-Funded Green Banks: Catalysts for the Green Transition

Abstract

The Inflation Reduction Act (IRA) allocated $27 billion to the Greenhouse Gas Reduction Fund to funnel financing for clean energy and climate solutions. Government-funded Green Banks are delegated to administer the fund to attract and amplify private capital investment in reducing emissions. In this paper, we examine the efficacy of Green Banks in mobilizing local investment in the context of climate-related startups. Pre-and post-introduction of IRA in Congress, we show a significant increase in venture capital deals and the total investment amount for local climate-related startups in counties where a Green Bank has issued loans. Our evidence is consistent with Green Banks de-risking climate ventures to facilitate a bottom-up green transition.

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

JEL Classification: G23, G28, O44