Making America Green Again

More progressive states look to establish leadership in energy independence and climate change in the midst of mixed federal messages

By Michael Ferguson

By mid-2017, U.S. issuers had gone to the market with about $36 billion in green bonds, signalling increased American participation in the growing global trend of green finance. Michael Ferguson, Director, US Energy Infrastructure, S&P Global Ratings, looks back on some of the challenges facing green bond issuances in the U.S. and considers prospects for the marketplace.

2017 has seen a surge of global green bond issuances. The Climate Bonds Initiative (CBI) quantified the total worldwide figure for the first half of 2017 at $55.8 billion, a $21.2 billion increase from the same period in 2016. And with the CBI estimating $1 trillion of outstanding bonds by 2020, worldwide green bond growth is showing no signs of slowing. However, while the U.S. has experienced a sharp increase in both municipal and corporate green issuances this year, the majority of global growth has been contained within the European and Chinese markets. If the U.S. is to increase its – still relatively small – share of the world’s green bond marketplace, there are some historic challenges to be overcome.


First, whereas EU nations have long benefitted from transparent and robust carbon reduction frameworks, the U.S. still has no cohesive set of federal policies in place. This is largely due to political partisanship on the topic of climate change – demonstrated most recently by both the U.S.’ expressed intent to withdraw from the Paris Climate Agreement and the recent rollback of the Clean Power Plan proposed by the Obama administration in an effort to reduce the carbon emissions of power generators.

There is also continued uncertainty around the investment tax credit (ITC) and the production tax credit (PTC). As credits that directly incentivise the development of renewable energy technology, they have long been critical to the development of the wind and solar industries in the U.S., but face discontinuance in coming years. They could be crucial going forward, too; while conventional solar and wind have seen sharp declines in cost – which may make credits unnecessary – more advanced technologies likely still need such subsidies to reach that point.

Crucially, these factors are all contributing to a lack of near-term clarity on federal environmental regulatory policy, and, as such, slow progression in terms of both formal green bond issuances and the formation of a necessary supporting framework. However, regulatory ambiguity is only skin deep.


There has been a groundswell of support for environmentally friendly projects across the U.S., despite the aforementioned federal discord. Notably, over $100 billion of bonds raised for projects for climate change mitigation are outstanding in the U.S.

Although not all of these are labelled as “green” bonds, they nevertheless contribute to environmental progress. Proactiveness regarding carbon mitigation is tangible at the local, state and corporate levels, as the U.S. continues to see dramatic reductions in carbon emissions, due, in part, to considerable strides taken by major energy industry players.

U.S. municipalities are a particularly noteworthy force. Take New York City as an example. With a commitment to an 80 percent reduction in CO2 emissions by 2050, the city has undertaken major infrastructure projects funded by green bonds, including a $315 billion wastewater adaption project under the NYC Department of Environmental Protection.

Other cities such as San Francisco and Los Angeles are following suit. Contributing to this is the fact that municipalities accounted for both 70 percent of U.S. bonds issued in the first half of 2017 and a majority of the global 101 green bonds issued by municipalities, cities and states worldwide. LOOKING BACK TO MOVE FORWARD As the more progressive states – New York and California chief among them – look to establish leadership in climate change in the midst of mixed federal messages, we expect that state renewable portfolio standards will increase, and we will begin to see more solar, and wind power projects, as well as newer technologies, including battery storage.

If recent history is anything to go by, investment for these projects could come indirectly from investor-owned utilities and public power entities. Notably, even where utilities are not inclined to develop renewable assets on the balance sheet, they’re likely to enter into power purchase agreements to attain renewable portfolio standards and to diversify their fuel mixes.

Green bond issuances are one way that issuers can best demonstrate their green credentials for these projects. And with competition for capital remaining fierce, especially in the investment grade space, we expect sustainability – or “greenness” – to be a key, differentiating factor.

Ultimately – despite federal animus – we expect the U.S. green bond market to flourish in coming years. An increasing number of states are issuing more and more green bonds in a bid to champion climate change mitigation from the ground up.

Michael Ferguson is the Director for U.S. Energy Infrastructure, S&P Global Ratings. He may be reached at

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