When the Ontario Climate Change Action Plan landed last spring, a notable element was the commitment to establish an Ontario green bank to support deployment of low-carbon solutions. Since then, speculation has swirled: what role will it play? How will it be structured?  Why another agency? Some of the uncertainty was cleared up in December with the release of a draft regulation establishing the new entity. Officially dubbed the Ontario Climate Change Solutions Deployment Corporation (we’re assured a more digestible operating name is in the works!) the proposed crown corporation would have a mandate to support deployment of commercially available low carbon technology to reduce GHG emissions from buildings and industry.  Many questions still remain about the vision for and mandate of the new corporation. But first, back to basics:

Why does Ontario need a green bank anyway?

Ontario’s new cap and trade system is expected to generate up to $2B in revenue annually. By law these funds must be reinvested in climate change mitigation. A specialized entity that can recycle cap and trade revenue is a smart and sustainable way to deploy these funds. And by disbursing at least some of the funds through repayable financing programs, a green bank will enable the Province to stretch limited public dollars and ensure they are continually re-invested as loans and paid back with interest.

Just as importantly, a green bank has the unique ability to build capacity and interest among private investors to finance projects like energy efficiency and renewable energy. Traditional investors like pension funds and banks currently avoid financing these types of projects because many of them do not have traditionally ideal investment characteristics. By mitigating some of the risk – perceived and real – associated with this type of investment, a green bank can ease private investors into the sphere of low-carbon financing. As the private sector builds more experience and confidence in this area, the percentage of public investment can be reduced and potentially even withdrawn altogether.

Green Bank or Green Utility?

The Ontario government originally indicated that the green bank will be modelled after two US institutions: Efficiency Vermont, and the New York Green Bank. This raised a few eyebrows because they represent completely different models.  The former is a conservation utility which delivers standardized state-wide energy efficiency incentives (e.g. grants and rebates) to home and building owners. The latter, on the other hand, is a financing agency which invests in clean energy projects with a strategic focus on leveraging private capital through innovative partnerships and finance structures. It will be challenging to successfully combine these two functions in a single entity, especially when conservation delivery mechanisms already exist, but it seems Ontario intends to try.

Key Principles for Success:

While the Corporation would be the first green bank-like organization in Canada, there are many inspirations and best practices to draw from. In the US alone, New York, Rhode Island and Connecticut have financing entities that are leaders in the field of green financing, leveraging limited public funds to attract significant private capital. These, and various European models, offer some insights that should guide Ontario’s emerging green bank:

  1. Follow the carbon. The proposed regulation currently requires the corporation to develop programming for the residential and industrial sectors, and permits development of programs for other building types going forward. Notably missing is the transportation sector, which accounts for 50% of Ontario’s GHG emissions alone. If the ultimate goal is to assist Ontario in reaching its 2050 climate target, the corporation should be able to develop programming based on where the greatest emissions reductions are regardless of sector.
  2. Be a fast follower. There are many examples to learn from in the US, Japan, Australia, and the UK, to name just a few. Ontario should look to all of these and more for best practices and financing innovations.
  3. Make it accessible and consumer-friendly. Ontario’s green bank must not operate in a silo. As a public-facing entity, the corporation should act as much as a “one-stop-shop” as possible. Consumers should be able to be informed of related and synergistic incentive or financing options from entities like utilities and other provincial ministries.
  4. Independence and flexibility are keys to credibility. Best case examples show that a green bank operates most effectively when it is an arms-length entity with the independence and flexibility to identify and adapt to evolving market conditions. This is particularly important in order to attract private capital.
  5. Don’t forget financing! Early consultations with the Province indicated that the corporation’s initial focus will be providing incentives, with financing programs to follow. It’s essential that the corporation move quickly to establish capacity and reputation in the financing sphere, before market expectations and institutional culture solidify around giving away money rather than lending and recycling it.

We’re still in the early stages of development of Ontario’s ‘green bank’. Public consultation on the proposed regulation just closed – TAF’s comments can be found here. There is still plenty of opportunity to be involved so keep an eye out for the final regulation and consultations on program design. To stay up to date, subscribe to TAF updates here.