Green Bonds – Something New

Green Bonds – Something New Gaining Popularity Quickly

By, SPI President & CEO Mary Scott Nabers

Posted by Staff

Know what green bonds are? You probably do if you are a public official. But, otherwise, this may be an unfamiliar term.

Because they are relatively new, it’s important to take note of green bonds. They are another alternative funding source for public projects. And, they are called green bonds, of course, because each project must have environmental benefits.

The market for them is expanding rapidly. And, green bond municipal issuance is contributing to their exploding popularity.

In 2012, $3 billion was invested in green bonds. During the first six months of 2014, that number was almost $20 billion. In fact, 2014 totals for only the first six months equaled what had been issued from the inception of green bonds in 2007.

Experts say that the green bond market will likely exceed $40 billion by the time 2014 end-of-the-year data is compiled. Others predict that by 2015, the green bond market will have expanded to $100 billion.

Many of the first projects involving green bonds were related to wind, solar, geothermal energy and energy efficiency retrofits. More recently, green bonds have been used to finance construction projects, infrastructure projects and water and waste management projects. Some governments are also using them for alternative energy infrastructure and public transportation projects.

In New York, the State Environmental Facilities Corporation issued $213 million in green bonds to finance 125 drinking water and wastewater infrastructure projects statewide. In Mexico, the government needed to reduce carbon dioxide emissions that result from the country’s reliance on fossil fuels. Citizens were asked to trade old refrigerators, light bulbs and other appliances for more efficient models. To make the trade-ins affordable for low-income families, Mexico used green bonds. The project should reduce carbon dioxide emissions by more than 1 million tons in the near future.

In British Columbia, Canada, the first public-private partnership project funded by green bonds was launched. Two new hospitals were built with the objective of increasing acute care capacity on North Vancouver Island. The new facilities were expected to enhance the quality of medical care and safety for patients and promote recruitment and retention of medical professionals.

Use of green bonds is growing in the United States. The University of Cincinnati, in 2014, became the first American public university to issue green bonds. The bond proceeds helped defray costs related to renovating campus facilities through eco-friendly design. Indiana University (IU) used green bonds to construct a new Arts and Sciences Building at IU-Northwest in Gary, Indiana.

Massachusetts was the first state to issue green bonds. A recent bond issue will finance what is being called the New Bedford Marine Commerce Terminal. The project should help move the region into a leading role in the wind energy sector.

In the last few months, New York City’s comptroller urged usage of green bonds to finance infrastructure and construction projects related to Superstorm Sandy.  Such projects can be classified as environmentally friendly, thus qualifying them for green bonds.

Green bond funding – it’s a trend that is gathering momentum quickly.