US legislators propose federal "Green Bank"

Industry groups have this week praised proposals for a federally-owned US " green bank" designed to finance low carbon projects and fuel the growth of the green economy.

Congressman Chris Van Hollen introduced the Green Bank Act 2009 earlier this week, which is adopted would create an organisation for lending money to clean energy project owners underwritten by treasury bonds.

Under the proposals, the bank, chartered for 20 years of operation, would help to finance government purchases of renewable energy, make existing energy infrastructure more efficient, and encourage the creation of more local manufacturing capacity for renewable energy. It would also help move the US towards energy independence, said the text of the Act.

The bank would be set up using $10bn in federal funds, and would be able to carry outstanding loans amounting to $50bn in bonds at any single time. It could underwrite up to 80 per cent of a project's capital expenses, effectively restoring the flow of credit to large numbers of renewable energy projects that have been stalled as a result of the tightening credit market.

Significantly, the legislation categorises nuclear plants as clean energy projects, which would make them eligible for a slice of the funding after all other federal funding sources had been exhausted.

The Coalition for Green Bank (CGB), a group of energy companies and advisors, praised the legislation, saying that the initial $10bn capitalisation alone could fund up to 15GW of renewable energy.

"More than ever, America needs a new, specialised, well-capitalised bank to help private investors build a green future for our economy, and this proposal is a ray of sunshine through the clouds that have been covering the prospects for alternative energy," said CGB co-chair Reed Hundt.

However, the idea of using Treasury bonds to establish further funding for green ventures comes at a time when the US dollar faces unprecedented global challenges. Earlier this week, China called for a new world currency to replace the US dollar. China, which holds around $1 trillion in US debt, much of it in government bonds, wants a new currency for national reserves, which could also replace the dollar as a trading currency for oil and other commodities. President Obama dismissed the idea, floated one week before a meeting of financial leaders in London next week.