The $27 billion Greenhouse Gas Reduction Fund (GGRF) created under the U.S. Inflation Reduction Act of 2022 will reach several rated community development financial institutions, housing finance agencies, and social housing providers. S&P Global Ratings expects to determine any potential impact on credit quality in the near-to-medium term after specifics of the awards are finalized.
What's Happening
The U.S. Environmental Protection Agency (EPA) selected GGRF recipients in April 2024 following a competitive process. Among the selected applicants are several rated entities. Community development financial institutions are at the forefront of the GGRF, with their strong capacity to deploy capital efficiently and through their networks into smaller projects (for more information, see S&P Global Commodity Insights' article, "Cleantech Edge – Eco-Federalism: $20 billion for US green bank," published April 17, 2024). Building decarbonization is the largest expected project category for National Clean Investment Fund (NCIF) awards; others include electric transportation and distributed energy generation and storage.
According to the EPA, which is overseeing GGRF implementation, commitments from selected applicants include:
- Funding projects across sectors that will reduce or avoid greenhouse gas emissions by an equivalent of nearly 9 million typical passenger vehicles per year;
- Reaching communities in all states and territories, including in Tribal Lands, with a particular focus on low-income and disadvantaged communities;
- Mobilizing private capital over the next seven years, with every dollar in grant funding leveraged for almost seven dollars in private funds; and
- Funding community lenders and partners that already work with communities across the country.
Why It Matters
The magnitude of GGRF awards could mean a range of credit impacts for recipients, from muted to significant, over the multiyear performance period. These programs have the potential to affect the bottom lines of mission-driven lenders and transform the work of affordable housing operators and developers. The receipt of one-time capital and incentives can help entities meet their social missions while temporarily strengthening their financials.
Successfully turning one-time awards into long-term assets or recycled funding could lead to stronger capital adequacy and profitability ratios. The degree to which lenders earn income related to GGRF-financed loans or how additional lending will affect balance sheets remains unclear. Conversely, taking on additional debt could stress their financial profiles. Similarly, social housing providers' strategy to use or leverage GGRF funding to build or rehabilitate properties could strengthen their financial risk profiles should their organizational capacity withstand the additional administrative requirements. For example, developers may receive lower or no-cost funding to make certain projects or initiatives viable.
What Comes Next
The EPA anticipates NCIF and CCIA awards will be made by July 2024, and Solar for All awards during the summer 2024. Before awards are made, recipients will need to finalize work plans and confirm the details of deploying funds. Those involved with the GGRF development and the selected applicants recognize that the implementation timeline appears accelerated and carries a great deal of political support ahead of November's election.
Related Research
Cleantech Edge – Eco-Federalism: $20 billion for US green bank, S&P Global Commodity Insights, April 17, 2024
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This report does not constitute a rating action.
| Primary Credit Analyst: | David Greenblatt, New York + 1 (212) 438 1383; david.greenblatt@spglobal.com |
| Secondary Contacts: | Jessica L Pabst, Englewood + 1 (303) 721 4549; jessica.pabst@spglobal.com |
| Nora G Wittstruck, New York + (212) 438-8589; nora.wittstruck@spglobal.com |
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