What’s the deal with Environmental Impact Bonds?

As cities across the country look more and more to investing in widespread green infrastructure, they must explore innovative ways to finance these new techniques. Traditionally, major grey infrastructure projects such as tanks and tunnels are paid for through a municipal bond, which the municipality will pay off over time through revenue generated through the water bill (in NYC’s case) or taxes. Environmental Impact Bonds (EIB) differ from municipal bonds as they use a “Pay for Success” approach, sharing performance risks with private investors. DC was the first city to trial an EIB last year. The tax-exempt bond finances DC to pilot green infrastructure projects, with an interest rate dependent on the performance of the green infrastructure project.

Building from DC’s model, Quantified Ventures launched a competition with Rockefeller Foundation and Neighborly to issue EIBs in two more US cities. Atlanta is the first to win this competition, funding eight green infrastructure projects for a total of $12.9 million. Baltimore is now looking to do the same. It will be a few years before we see the performance results in DC, and cannot yet measure the success of EIBs to fund green infrastructure projects. However, exploring innovative financing mechanisms for green infrastructure projects is an important measure to entice investors and quantify community and environmental benefits of green infrastructure.