6 key things credit unions can do today
This Earth Day, there’s a lot to celebrate, especially the groundbreaking Inflation Reduction Act, an unprecedented federal investment in the green economy that will support greenhouse gas emissions reductions through energy efficiency, electrification and clean energy projects. IRA will incentivize investment in these projects through billions of dollars of rebates and tax credits and the $27 billion Greenhouse Gas Reduction Fund.
The Biden Administration’s Justice40 Initiative commits at least 40% of benefits of federal investments, like the IRA, to “disadvantaged communities that are marginalized, underserved, and overburdened by pollution.” This equity lens is critical, as Black, Latino and Native households face significantly higher energy cost burdens than White households, and communities of color are more likely than white communities to be overburdened by pollution.
Credit unions and other community-based lenders are key to the Inflation Reduction Act meeting its Justice40 goals. Credit unions, especially community development financial institution, minority depository institution and low-income designated credit unions, have deep community ties and strong track records of lending to low-income people, micro and small businesses, and people and communities of color, who are often excluded from the mainstream financial system. Although the details of GGRF implementation are still being hammered out by the Environmental Protection Agency, credit unions can start building green lending programs and bringing the Inflation Reduction Act's other, already available and critically needed resources to their communities.
Here’s how credit unions interested in green lending can get started.
1. Understand the Structure of the Greenhouse Gas Reduction Fund
GGRF’s $27 billion will be split between two funding competitions: EPA will award $20 billion as competitive grants to between two and 15 eligible nonprofit entities that are not depository institutions (“awardees”) that will be required to partner with and direct capital to community-based, not-for-profit lenders, like credit unions (“indirect recipients”). Together awardees and credit unions will leverage these public dollars with private capital to fund projects that “reduce pollution and lower energy costs for families, particularly those [in] low-income and disadvantaged communities....”
Credit unions will be able to use capital provided by GGRF awardees as loan loss reserves, subordinated debt or grants. This capital will help credit unions grow their electric vehicle, solar installation, energy-efficiency home improvement or other pollution-reducing green lending programs that reach low-income and disadvantaged communities.
The remaining $7 billion of GGRF will be awarded to up to 60 states, tribes, municipalities and eligible nonprofit entities to invest in zero-emissions technology, specifically in residential rooftop solar, community solar, and associated storage and upgrades in low-income and disadvantaged communities.
EPA must award the $27 billion by Sept. 30, 2024, and expects the grant competition will open early this 2023. Depository institutions like credit unions are not eligible to apply directly to EPA for funding. Instead, awardees will pass funding on to credit unions and other indirect recipients after the EPA awards the funds.
2. Understand Members’ Needs
With energy prices rising, many people are struggling to afford their utility bills or pay for gas for long commutes. For example, in 2022, consumers paid 14.3% more on average for electricity than in 2021, more than double the overall 6.5% rise in prices, according to data from the Bureau of Labor Statistics.Understanding the common challenges in your community and the local programs available to help your members with those issues is a great place to start planning your green lending program.
Many utility companies offer free energy efficiency audits that can help your members identify which home improvements might lower their utility bills. And your credit union can partner with your local utility to finance these improvements and even help your members identify additional local and federal subsidies, tax credits, and rebates to reduce their out-of-pocket costs.
3. Help Your Members Access Subsidies, Rebates and Tax Credits
Once you understand your members’ needs, you can tap a wealth of subsidies, rebates and tax credits to help your members lower the cost of making home improvements or buying an electric vehicle. Many localities offer incentive programs to encourage people to make energy efficiency improvements, electrify their homes or install rooftop solar systems. Dsireusa.org is a reliable source for information about local incentive programs for renewables and efficiency. Rewiring America’s Inflation Reduction Act calculator can help people identify how much money they can receive from many of the IRA’s energy programs:
The IRA rebates and incentives include:
- The Energy Efficiency Home Improvement Credit, which went into effect on Jan. 1 and covers up to 30% of the cost of certain home improvements, such as installing energy efficient doors and windows and heat pumps.
- The Residential Clean Energy Property Credit is also now in effect and covers up to 30% of the cost of installing home solar, geothermal battery and other clean energy systems.
- Both individuals and business owners who buy new electric vehicles or fuel cell vehicles could be eligible for a tax credit of up to $7,500 if they meet income guidelines. There is a similar credit of up to $4,000 for used EVs.
- Home Energy Rebate Programs will provide rebates for home electrification projects and energy efficiency improvements. These programs will be launched later in 2023 and administered by states and tribes. They will provide rebates up to $14,000 for qualifying electrification projects or up to $8,000 for qualified efficiency improvements. Some rebates will be available to all households and others will be limited to low- to middle-income households.
- The solar Investment Tax Credit is available to homeowners and now available to credit unions themselves, helping them reduce energy costs and promote climate resilience in their communities. The ITC incentivizes businesses to install solar arrays by covering up to 30% of the cost. The IRA updated the ITC by allowing not-for-profits that do not pay federal taxes to participate by directly paying the benefit rather than providing it as a tax credit.
4. Launch a Green Lending Program
Credit union lending can help members take advantage of the rebates and tax credits listed above. Credit unions are experts in providing affordable auto, home improvement and consumer loans. Your existing loan products could be adapted into green loan programs that can be paired with financial coaching.
You can help your members learn about and access IRA’s tax credits and rebates to make going green even more affordable. For example, many credit unions already offer home improvement loans that their members can use to pay for upgrading their heating system to heat pumps that are eligible for the Energy Efficiency Home Improvement Credit.
Similarly, some credit unions offer discounted auto lending rates to members who buy EVs, and members can save even more with clean vehicle tax credits. Developing a track record of successful green lending now will help prepare your credit union to apply for capital from the GGRF awardees in the coming years.
5. Get Trained in Green Lending
Although many credit union loan products can easily be converted to green loan products, solar lending requires specific training and expertise. Inclusiv’s Center for Resiliency and Green Energy, in partnership with the University of New Hampshire Carsey School of Public Policy Center for Impact Finance, offers a Virtual Solar Lending Professional Training and Certificate Program. This free, instructor-led, cohort-based series is held via Zoom for community-based lenders in two tracks: consumer and commercial solar lending. Applications are open now!
6. Be Ready for New Opportunities Like the Inflation Reduction Act Has Presented
Although many details of the Inflation Reduction Act rebate programs and GGRF implementation are still being finalized, it is already clear that IRA’s investment in green lending is just the beginning of a broader shift toward equitable climate finance. According to a Credit Suisse report, IRA could catalyze as much as $1.7 trillion in climate spending in the United States over the next decade. Credit unions should act now to ensure these investments reach and benefit their members and communities.
Neda Arabshahi is vice president of the Inclusiv Center for Resiliency and Clean Energy, working to build a network of credit unions committed to designing and scaling solutions to climate change, with a goal of promoting affordable and sustainable energy for all people. Learn more about Inclusiv’s Solar Lending Professional Training and Certificate program.