Massachusetts is taking a step forward in its fight against climate change. This past summer, Massachusetts Governor Healey announced the creation of the Commonwealth’s Community Climate Bank. Unlike other state climate banks, Massachusetts is limited to fueling investment in affordable housing and energy efficiency. The bank will utilize public and private investments to set up a revolving loan fund that provides low-interest, low-risk loans for green building and renovation projects. Potential projects include anything from community solar projects and EV charging stations to deep energy retrofits (e.g., heat pumps, insulation measures, high-efficiency appliances).
Climate/green banks operate with both public and private funding, which allows them to overcome budgetary limitations characteristic of conventional state agency programs. Public funding is funneled into the venture first to set up the operation and attract private capital, which sustains the banks in the long run. The Massachusetts Community Climate Bank will commence operations with $50 million in seed funding from the Department of Environmental Protection. It is also set up to take advantage of unprecedented federal funding available through Inflation Reduction Act (IRA) grants and tax credits. The IRA is expected to allocate $20 billion to establish a national green bank and another $7 billion to state banks.
In addition to public funds, the Massachusetts Community Climate Bank stands to attract and take advantage of private funding. Traditionally, private capital has been hesitant to invest in renewable energy and environmental infrastructure due to high risks compared to other industries. Green banks attract private investors by decreasing perceived risks using financial tools such as aggregation and securitization of assets, as well as credit enhancement schemes. These strategies enable banks to attract large investors that have low-risk tolerance and require a large minimum investment.
Green banks provide governments with a valuable opportunity to accelerate investment in climate and energy infrastructure and programs and meet their emissions reduction targets. In the past decade, operational green banks have demonstrated success in mobilizing significant funding.
While Massachusetts’s decision to prioritize affordable housing decarbonization is unprecedented and interesting, is not surprising. Within the state, the residential sector (excluding electric use) accounts for 19 percent of the Commonwealth’s greenhouse gas emissions, and this figure is much higher (70 percent) for environmental justice communities. As a result, Massachusetts has been working on steadily decarbonizing the sector by focusing on energy efficiency measures and electrification of home heating. Over the last decade, it has cemented itself as a leader in energy efficiency through its Mass Save program. The Community Climate Bank will facilitate this work with an increased focus on creating affordable, energy-efficient housing to lessen the inequitable energy burden faced by low-income households.
Low-income households spend more on housing in proportion to their income than higher-income households. This also applies to energy costs—low-income households spend more on household energy costs. In Massachusetts, the average energy burden for a low-income household is about 10 percent; this figure can be as high as 31 percent in certain neighborhoods. In contrast, the average household energy burden for all income groups within the Commonwealth is 3 percent. Studies have shown that as the effects of climate change intensify, such as hotter summers, so will the need for increased energy demand to keep places livable. The energy burden for low-income households is expected to rise.
Developing energy-efficient affordable housing and providing retrofits to make already existing homes more energy-efficient are effective ways to address the energy burden in low-income households. For instance, using more energy-efficient air conditioning systems can reduce cooling consumption by up to 70 percent in low-income households thereby decreasing their overall energy burden. The Massachusetts Community Climate Banks’s affordable housing decarbonization focus positions the state to not only drastically reduce its carbon emissions but also tackle social inequity.
One potential development to remain cautious of is the possibility of green gentrification. The bank’s investments in housing decarbonization might inadvertently lead to increased property values and rent, causing the displacement of already vulnerable communities. Robust policies are essential to prevent green gentrification by ensuring housing security and channeling benefits to those who need them most.
Massachusetts’ Community Climate Bank offers the Commonwealth a valuable opportunity to accelerate its work in energy efficiency while meeting the housing needs of vulnerable communities. The success of this initiative will depend on effective management, community involvement, and an unwavering commitment to equity.
