Universities can finance climate
At Blue Strike, we have significant experience with climate finance. We have written grants, provided the modeling for green bond issuances, helped campuses design green revolving funds, and worked with infrastructure banks to provide financial due diligence around many renewable energy and other climate-related projects. Financing climate-related projects requires a combination of approaches. By implementing these strategies, universities can support innovative solutions to climate change, promote sustainability, and demonstrate their commitment to addressing one of the greatest challenges of our time.
Colleges and universities are often leaders in climate research who contribute significant solutions for mitigating climate change. However, they can also be significant contributors to GHG emissions due to their energy consumption, transportation needs, and other operational activities. Some are now in the vanguard of developing concrete investment plans for bringing their emissions to zero but may find it difficult to finance the necessary projects, which can run into the $100s of millions. The following lists several ways colleges and universities can start the process for financing climate-related projects:
1. Grants: Universities can apply for grants from government agencies, foundations, and other organizations that support climate-related projects. These grants can provide a significant portion of the funding needed to finance the projects.
2. Internal funds: Universities can use their own funds to finance climate-related projects. This can include using funds from their operating budgets or capital budgets. One expression of self-funding is a Green Revolving Fund (GRF). A GRF establishes a special internal account dedicated for investments in sustainability projects. By tracking and “banking” savings from energy efficiency over time, significant financial benefits have been reinvested for future climate-related investments in many cases.
3. Public-Private Partnerships (PPPs): Universities can partner with private sector companies to finance climate-related projects. This can include energy service companies (ESCOs), equipment manufacturers, or other companies that can provide financing or expertise to support the projects. PPPs range in complexity and focus. For example, ESCOs tend to be narrowly focused on energy efficiency and follow certain rules. Other privately funded alternatives can provide complex ownership arrangements, long term deals and significant amounts of capital that may be used for a variety of funding needs.
4. Green Bonds: Universities can issue green bonds to finance climate-related projects. Green bonds are specifically designed to finance environmentally sustainable projects and can be a good option for financing climate-related initiatives.
5. Private contributions: Universities can tap their extensive student and alumni networks to fund some efforts. On one hand, crowdfunding platforms can be used to raise funds for climate-related projects. Crowdfunding platforms allow individuals and organizations to contribute small amounts of money to support specific projects. On the other hand, some universities are experimenting with climate-endowments; campus development offices are tapping networks of alumni and other concerned donors to supply funding that is dedicated toward carbon reducing projects.
6. Energy Performance Contracts: Universities can enter into energy performance contracts (EPCs) with energy service companies (ESCOs) to finance climate-related projects. EPCs provide energy efficiency upgrades and maintenance in exchange for a portion of the savings generated. ESCOs typically provide a guaranteed level of energy savings, which can help to mitigate some of the risk associated with the investment.
7. Tax incentive programs: One section of the Inflation Reduction Act (IRA) provides an investment tax credit for up to 30% project value (or direct cash payment for public entities) for clean energy deployment. Another section provides a production tax credit of similar magnitude to clean energy production. Finally, the IRA provides a 30% tax credit for pure EV purchases as well. Section 179D of the IRS Tax Code provides tax deductions for energy efficiency improvements. Public entities can also take advantage of these deductions through a partnership with a developer or contractor.