CPE’s Director of Energy Yakov Feygin and Senior Associate for Capital Markets Advait Arun prepared a research memo for the SEEC Institute outlining how states can advance decarbonization and green industrial policy amid federal uncertainty. This memo draws on CPE’s work with state agencies and municipalities nationwide, and demonstrates how tools like green banks, revolving funds, and public equity structures can advance climate goals while generating returns. They suggest that state actions taken now will build the institutional capacity to enable faster implementation when federal support returns.

The Trump administration has used both administrative and legislative measures to roll back the progress that the Inflation Reduction Act (IRA) was making to decarbonize and modernize America’s energy system while containing consumer costs. With the passage of the One Big Beautiful Bill Act (OBBBA), many IRA programs including tax credit support to renewable energy, federal loans for new energy infrastructure, and support for building decarbonization have been halted. New administrative barriers have been erected to minimize the impacts of the programs that still exist.

States can keep the flame of green industrial policy alive through the next three years to preserve some of the IRA’s gains and build a base of administrative competence, innovation, and market information for the day that we see competence return to the federal government. As part of its efforts to build public sector capacity among states, the Center for Public Enterprise has undertaken projects to help states replace and expand some of the functions of IRA, while acknowledging the fiscal limitations of state governments relative to the federal government.

States should be an investor in the green transition. We encourage leaders to find strategic business opportunities for state entities’ financial and development authorities  not just by incentivizing the private sector to encourage investment in your state’s infrastructure but also by creating and redistributing value to the taxpayer. Institutions such as green banks, bond banks, and public investment funds can support green industrial policy while also generating returns to the budget that can be recycled or used as a cross-subsidy for further investment in essential projects. 

Critical uses for public investments in the post-IRA environment include:

• Public development of mixed-income housing: Complimenting and encouraging investment in green industrial capacity by preemptively pairing traditional state and federal economic development efforts with proactive planning of investments into workforce infrastructure—especially housing. State leaders such as the Montgomery County Housing Opportunities Commission (Maryland) not only streamlined regulation to build new housing but invested public capital into both traditional low income housing and “mixed income social housing,” combining both market-rate and subsidized units using tools such as publicly financed revolving funds. We are providing financial modeling and capital planning services to over 15 municipalities and state governments interested in addressing the housing shortage through this revolving fund-led approach.

• Public development or financing of critical energy infrastructure: Using existing or new state instrumentalities as “public developers” of critical infrastructure, including higher-cost technologies such as transmission, storage, geothermal, and nuclear power. For example, the New York Power Authority has been instrumental in sustaining the state’s clean energy progress by building a pipeline of renewable energy projects owned and developed by the state in partnership with private developers. 

• Public development and financing of local grid resilience: Supporting smaller-scale decarbonization efforts such as rooftop solar and storage deployment and building decarbonization via both green bank lending and green bank-led public development. For example, the Connecticut Green Bank’s Solar Municipal Assistance Program uses its own power purchase agreement (PPA) and lease structures to directly build public-public partnerships with municipalities and community organizations, with the bank as PPA holder and lessor.

• Public procurement of clean energy: Investing in both centralized procurement of clean energy projects and PPA warehousing to crowd in capital. In the former case, the state’s utility commission can itself sign PPAs and mandate that regulated utilities buy certain kinds of contracted power (e.g., geothermal or offshore wind). In the latter case, states play a more entrepreneurial role by signing upfront PPAs with developers, to lower developers’ construction risks, and selling them to end-users of clean energy when projects are complete, earning returns in the process. To maximize the impact of such measures, states should examine options for pre-payment of PPA contracts. California has implemented the former of these projects while the latter is being examined in several states in the Western Interconnect grid region.

• Public backstop for critical projects: Examining opportunities to rescue projects that have encountered unexpected financial bottlenecks from federal policy uncertainty though public equity or lending structures. Many renewable energy projects rely on tax credit financing and are rushing to meet expiration deadlines. However, administration actions and other delays may cause projects to miss these cutoffs, forcing them to resort to higher-cost financing. In the absence of tax credits, most developers are anticipating charging higher rates for power. Our modelling and research demonstrates that low-cost state loans and public purchases of projects can replace a significant amount of the value provided by tax credits and allow stranded projects to reach completion without raising ratepayer electricity prices. 

Whatever the future of national energy and climate policy, states will have to be critical players in economic development policy. Thus, undertaking active public investment is more than just helping sustain momentum before the federal government takes the lead: It is building up vital capacity for many possible futures. One of the roadblocks to IRA implementation was that states had very little experience and capacity in acting as developers and investors, or as partners to federal programs. Thus, they could not easily take advantage of many of the law’s many incentives or play a role in implementing federal policy on the ground. Working now to build up institutional knowledge and capacity will allow states to accelerate their efforts when the funding picture improves and, in the meantime, serve as the laboratories of democracy for the future of our energy system.