Minnesota's Green Groundwork

The House begins debate on dirty debt deal at 2 PM this afternoon, with a vote planned this evening. Funny how the only way to get a fracking pipeline through Appalachia and cripple environmental law is under the guise of national emergency. Today, instead, let’s take a look at climate legislation passed in the functioning democracy of the state of Minnesota.

The passage of the Inflation Reduction Act (IRA) last year prompted much talk in D.C. policy circles of a “rebirth of industrial policy.” What’s meant by this isn’t always clear, but the basic story seems to track an arc from the end of the New Deal era, when a sharp rise in the financial sector’s share in our economy contributed to the demise of American manufacturing and infrastructure, all the way through to the present day.

The Covid 19 pandemic provided a startling revelation of how hollowed-out public investment weakened governments’ ability to respond effectively to crises—including climate change with its profound economic implications.

Over the last decade, governments exploring creative ways to build state capacity and address the climate crisis have built up a network of “green banks” to spur green lending.

That’s where the IRA comes in. The legislation may represent a historic first in terms of congressional action on climate, but actually ending climate pollution will require significantly more regulation and investment.¹ To lay the groundwork for this, the IRA must be implemented with an eye toward industrial policy. In other words, it must provide governments latitude to spur economic development and usher in a just transition to a clean energy economy.

The IRA holds the potential to be truly transformative toward this end, as the $27 billion in its Greenhouse Gas Reduction Fund (GGRF) is several times larger than the total amount of investment green banks have facilitated over the last 10 years.² The fund is administered by the Environmental Protection Agency, which will disburse the money to public and non-profit entities through competitive grants.

In May, the Minnesota state government approved $45 million to establish a new green bank, the Minnesota Climate Innovation Finance Authority (MnCIFA).³ Minnesota’s green bank is designed as an investment vehicle for the GGRF, and will serve as one of the most ambitious green banks yet created by a state. This new public institution provides a vision for how climate and industrial policy can be made to work together. As with most green banks, Minnesota’s will do this by investing in projects that don’t tend to receive support from the financial sector because their benefits are too long-term or because they primarily help low-income consumers. 

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MnCIFA is arguably the most publicly accountable green bank created to date. MnCIFA’s leadership team is intended to be publicly representative, with a majority of its board chosen by the governor after consultation with labor organizations and community members. These leaders will be responsible for identifying projects that reduce pollution while ensuring equitable economic growth.

“High road standards” are embedded within the economic development plan, and priority will be given to projects that pay good wages, respect collective bargaining agreements, utilize domestic manufacturing technologies, and hire workers from retired fossil fuel facilities. No less than 40 percent of investments from MnCIFA are directed to go toward environmental justice communities, in a nod to the “Justice 40” standard articulated by the Biden administration, and reasserted through the national fund’s standards. 

Minnesota communities stand to benefit from MnCIFA’s strong standards and strategic planning process. For example, the bank could coordinate between lenders and developers in Duluth—a city whose gentrification is admixed with a questionable reputation for being “climate proof”— to support more energy efficient, affordable housing. MnCIFA is also empowered to collaborate with tribal governments and native financial institutions to support projects in Minnesota’s economically underserved tribal communities.

In a politically vital region where cruel, far-right social measures are all too common and democratic resilience is badly needed, the creation of a progressive green bank is just the latest example of Minnesota exerting national leadership. Including MnCIFA in the state budget put a capstone on an enormously productive and progressive 2023 legislative session for the state’s new DFL trifecta, which included an expansion of labor rights, marijuana legalization, gun safety laws, reproductive health protections, and, in another move mirroring Biden economic policy, a ban on non-compete clauses.

Minnesota Democratic-Farmer-Labor legislators kicked all of this off in February by passing one of the nation’s strongest clean energy standards, putting the state on a pathway for 100% clean energy by 2040. As it moved through the legislature, MnCIFA’s lead sponsors promoted the authority as vital to helping Minnesota achieve its new goals. Additionally, MnCIFA’s inclusion of strong labor standards, environmental justice provisions, and consumer protections was instrumental in the formation of a broad coalition of national and state-based organizations supporting MnCIFA’s creation. 

These features should also make MnCIFA competitive in the GGRF grantmaking process. By investing $45 million from their $17.5 billion budget surplus in MnCIFA, Minnesota legislators have positioned MnCIFA to attract substantial federal and private sector resources.⁴ This should ensure that manufacturing, housing construction, and clean energy deployment will continue to flow through Minnesota’s economy, mitigating an expected recession.

Importantly, Minnesota’s green bank also brings the lofty “industrial policy” rhetoric coming out of Washington into real people’s lives. Through its support for multiple infrastructure packages in the last Congress, reinvigorated antitrust enforcement, ocean shipping reform, and investments in domestic manufacturing and supply chain resilience, the Biden administration has begun laying the groundwork to retool an economy facing climate catastrophe. But this is just the groundwork—and, it must be noted, that work is polluted by the administration’s continued support for global fossil-fuel exploration, production, and distribution.

Amid mounting costs from climate disasters, fossil-fuel industry cleanup obligations in the billions, and insurance market meltdowns, state governments need much more support and much more development of capacity-building tools to prepare for the road ahead. To actually fulfill its commitment to climate and industrial policy, the Biden administration must work with state and local governments, including through robust public investments from the Greenhouse Gas Reduction Fund. States can seize this opportunity through innovative policy interventions like Minnesota’s new green bank.

1 In 2020, President Biden promised to be a “bridge” to a future generation of leaders, after defeating a field of Democratic primary opponents that had criticized his climate plans as inadequate and misaligned with the demands of science. Now, Biden has launched his 2024 re-election campaign with the slogan “Finish the Job.” It’s clear that Biden considers the IRA a signature climate accomplishment. What is not clear is whether his plan for “finishing the job” involves trillions of dollars more than what the IRA had, including state capacity-building initiatives like MnCIFA. Allowing approval for the Mountain Valley Pipeline in the debt ceiling deal was not an encouraging sign.

2 Unsurprisingly, eliminating the fund is a policy priority of House Republicans.

3 Disclosure: I advised MnCIFA’s lead sponsor, Rep. Emma Greenman, on the bill, which incorporated numerous recommendations from a paper I co-authored, State and Local Government and the Formation of Green Banks.

4 The bill’s sponsors estimate that MnCIFA will secure $350 million in federal money, and green banks in other states have a track record of supporting clean energy investments in partnership with the private sector.

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