Infrastructure, green finance and net zero

I have to admit, as someone who didn’t hold out much hope for huge, progressive climate policy under President Joe Biden, I’m impressed. Who knew a 78-year-old career politician and lifelong moderate would wave his magic wand and turn boring old infrastructure into a long-overdue national plan to tackle the climate crisis?

Actually, the wide-ranging $2.25 trillion proposal to overhaul the country’s infrastructure is far from boring for many reasons, but I’d like to home in on the decarbonization piece and its potential to juice the green finance markets.

Let’s start with that total: $2.25 trillion sounds like a lot of money, because it is. But even this gargantuan sum won’t pay for all of the work necessary to fix and modernize our neglected roads, bridges, ports, public transit, airports, water systems, electric grids, schools, waste systems, etc. The American Society of Civil Engineers (ASCE), which recently released its 2021 Report Card for America’s Infrastructure, reckons we need closer to $6 trillion just to catch up on repairs.

Of course, not every infrastructure upgrade qualifies as climate-related, but a whole lot of them would. So, not only would cities, states and companies working to reach their own net-zero emissions goals have, for the first time, the federal government’s will and dollars to incentivize their efforts, they also would need to raise additional funding to pay for them.

States and localities in need of funds for climate-related projects — such as public transportation, circular waste systems, greening buildings and schools, renewable energy and electric vehicle infrastructure — likely would turn to the municipal debt market. Last year, issuers priced a record of roughly $20 billion in muni green bonds, according to data compiled by Bloomberg.

And the pace for 2021 — roughly $3.5 billion of issuance through April — suggests this year will beat that. Lauren Kashmanian, a senior portfolio manager who specializes in the ESG muni space at Parametric Portfolio Associates, believes municipal green bond sales will jump to a range of $30 billion to $35 billion this year, an increase driven in part by the conversation around the infrastructure bill, she told Bloomberg.

The private green debt market also could see some action. Here I’ll touch on just the United States’ two top-emitting industries, energy and transportation, but the possibilities are far from limited to those.

The key target for energy under Biden’s proposal is 100 percent carbon-free electricity by 2035, up from the current 40 percent (if you include nuclear). The plan calls for the federal government to invest $100 billion for power grid modernization and resilience. But to meet state-driven Renewable Portfolio Standards in generation infrastructure, the country’s utilities, more than 70 percent of which are privately owned, are already facing an investment gap that could reach $197 billion by 2029, the ASCE forecasts.

Kickstarting spending

Not that financing the energy transition wasn’t already top of mind for the sector. Utilities have bumped up investments in cleaner, more resilient energy generation and transmission infrastructure considerably in recent years, especially as more customers push to meet their net-zero goals.

Globally, utilities represented 56 percent of corporate green bond issuance in 2020, according to S&P Global Ratings.

For example, Atlanta-based Southern Company and its subsidiaries already have issued nearly $3.9 billion in green bonds to help fund 10 projects — five wind farms in Maine, Oklahoma and Texas and five solar farms in California, Nevada and Georgia — making Southern one of the top U.S. corporate green bond issuers.

On the loan side, Michigan-based CMS Energy became the first U.S. borrower to issue a sustainability-linked loan all the way back in 2018, pricing a $1.4 billion credit facility with an interest rate tied to meeting net-zero targets as it transitions out of coal and into renewable energy generation.

Biden’s proposal to accelerate the shift to electric vehicles with a $174 billion investment in the EV market also could spur green debt issuance in the transportation sector. By giving consumers rebates and tax incentives to buy American-made EVs and establishing grant and incentive programs to build a national network of 500,000 charging stations by 2030, the plan likely would encourage American carmakers to follow in the footsteps of their European counterparts, which already have begun tapping the green bond market to finance their own EV transition. Beyond the car industry itself are Amazon and countless other companies that have pledged to decarbonize, at least in part, by electrifying their vehicle fleets.

I could go on, but you get the idea. Not only would Biden’s infrastructure plan kickstart spending to get the United States on track to meet its net-zero commitment, one could argue that companies won’t be able to reach their own net-zero goals without it.

Brian Marrs, Microsoft’s director of energy markets (EMEA), recently acknowledged as much. Microsoft aims not just to reach net zero by 2030, but to “remove all the carbon from the atmosphere that the company has admitted since its founding in 1975.” To achieve that, all of the company’s cloud data centers will have to run on 100 percent renewable energy by 2025 and go diesel-free for backup power by 2030.

Speaking at a conference, Marrs indicated that if the grid isn’t decarbonized, Microsoft’s sustainability activities will be moot.

Now, consider a recent piece in The Atlantic by Robinson Meyer, who argues that Biden’s infrastructure bill not only includes a climate plan, it is the climate plan.

“There is only one serious vehicle to pass climate policy through Congress during the Biden administration — and it’s this infrastructure plan,” he writes. “If recent history is any guide, the bill is the country’s one shot to pass meaningful climate legislation in the next few years, if not in the next few decades.”

Perhaps this is part of the reason the newly formed Chamber of Progress, a tech industry group funded by giants such as Amazon, Facebook and Google, backs a corporate tax hike to pay for Biden’s plan.

Meanwhile, the U.S. Chamber of Commerce and The Business Roundtable oppose the proposed increase, from 21 percent to 28 percent.

Individual companies appear reluctant to oppose the increase publicly, for obvious reasons. Most Americans don’t believe corporations pay their fair share in taxes. And any company that claims to care about the climate crisis then balks at paying for what could very well be our last chance to truly do something about it risks looking pretty appalling in the eyes of the public.

So, as the bill winds its way through the back halls of Washington, let’s hope what comes out in the end can still be called a climate plan. The window of opportunity for doing our part to achieve net-zero emissions is quickly closing. And without bold action now, there’s little hope individual companies, or the country as a whole, will hit the necessary targets.