How states can drive growth on the road to a new energy future

Climate adaptation and green energy transition funding and estimated impacts

The landmark climate-related laws mentioned above were designed in part to catalyze private investments through policy tools such as tax incentives and loan guarantees (figure 1).²

This approach is already achieving results. Since the 2022 passage of the IRA, by one estimate, more than US$278 billion has already been invested in green energy projects, supporting the creation of nearly 171,000 new jobs (figure 2).³ The White House expects the IRA to generate 1.5 million “green” jobs in the next decade.⁴ A 2023 study estimates the shift to net-zero emissions will increase the share of the US labor force involved with energy from 1.5% in 2020 to between 2.5% and 5% by mid-century.⁵

And, according to the Congressional Budget Office, the IRA’s clean energy tax credits are expected to generate US$3 trillion in public and private investments in the next 10 years.⁶

Fulfilling these optimistic forecasts, however, will depend on the synergy between public and private investments.⁷

To help realize the opportunities this new federal funding offers, state and local leaders should

• Use networks to build capacity and amplify impact
• Strengthen state and regional coordination
• Employ funding strategies to drive innovation and market forces
• Expand the green talent supply chain through industry partnerships
• Overcome inertia in legacy systems
• Harness the “flywheel” effect in which the cumulative effect of numerous initiatives creates a momentum that propels the process forward.

Six strategies to drive the clean energy transition

How are states approaching the shift to a cleaner future? It depends. Nowadays, most states recognize the need to move to clean energy, but their ways differ. Some are more interested in the huge economic development opportunities that come with the clean energy shift, while others emphasize more on the overall aim of decarbonization. Many states have a strong focus on both aims (figure 3).

While the reasons may differ among states, the truth is that achieving the nation’s green energy and climate goals ultimately depends on implementation at state and local levels. While much of the money is federal, project execution will largely be done by state and local governments in collaboration with private industry.

These six strategies, based on a systems-of-systems perspective, can help state, regional, and local governments successfully lead this shift.

1. Use networks to build capacity and amplify impact

Climate change can be described as what former MIT President L. Rafael Reif calls a “wicked problem”—“an enormously complex societal problem that has no single right answer and no clear finish line, multiple stakeholders with conflicting priorities, and no central authority empowered to solve it.”⁸

Solving wicked problems requires collaboration on all levels. Because many facets of society must engage with the issue, their collective attention becomes an unexpected advantage, giving rise to innovative collaborations of all kinds. Picture this: universities partnering with businesses; and nonprofits partnering with schools and regional consortiums to pursue shared goals on energy, transportation, and water management.

The job of coordinating all these entities often will fall to the public sector—not just as a source of funding and mandates, but as a leader that can harness networks and shape market forces. If networks driven by self-interest can create problems such as climate change, they can also prove remarkably effective at mitigating them (see “Harness the ‘flywheel effect’”).

An important first step is mapping these networks (figure 4). Participants will have diverse objectives and may respond to incentives in unexpected ways. Leaders can amplify collective impacts by pinpointing influential leverage points in the network, such as energy distributors, and using them to create network structures to drive the green transition.⁹ Such leverage points can stimulate positive feedback loops across industries, from solar developers to battery research, creating market incentives for clean energy production. Governments also can shape such incentives through policies such as emissions caps and carbon pricing.

That’s why the “catalytic tools” of tax incentives, grants, and loans can be so critical: They can incentivize innovation, address the “chicken-and-egg” problem with supply and demand, and make investments considerably safer. Almost 97% of climate funding in the IRA takes the form of indirect funding, while various grants constitute 78% of funding in the IIJA, with an additional 8% allocated for loans or loan authority (figures 5 and 6).¹⁰

Consider the market for electric cars. One reason many people are reluctant to buy electric vehicles is due to the scarcity of charging stations, but without strong demand for electric cars, there hasn’t been a strong incentive to build them. And it’s not just the number of charging stations, it’s also the reliability and recharging time with current technology that’s critical.¹¹ Government can help break this impasse by catalyzing both sides of the market, as various incentives from Congress and the states are presently attempting.

A Deloitte report states that “the transition to a low-carbon economy demands the synchronized transformation of multiple, interdependent systems.”¹² To do so will require state and local governments not just to implement new policies but to create innovative programs that shape and amplify market forces to help ensure that all participants can benefit from a green transition. Maine, for example, achieved an ambitious climate goal of installing 100,000 heat pumps in homes, businesses, and public buildings two years early by coordinating legislation, nonprofit rebate programs, incentives, and workforce training at community colleges.¹³

2. Strengthen state and regional coordination

Some of the more effective early transition efforts so far have been those carried out by regional cross-sector partnerships that connect philanthropists and investors, established industries, startups, government agencies, and universities. These Regional Climate Collaboratives (RCCs) organize their efforts around the specific needs and capabilities of their region, transforming local economies according to local strengths. RCCs can address anything from retraining coal miners to coordinating wildfire evacuation plans. Already, they’ve emerged in regions across the nation, from the Florida panhandle to California’s “inland empire,” the area east of Los Angeles.¹⁴

Regional partnerships allow local communities to solve problems their own way, with states and the federal government providing support, rather than through edicts. This allows regions such as the “Inland Empire” to focus on logistics and lithium extraction, while Colorado and Wyoming collaborate on wildfires, water security, and drought.¹⁵ Such groups can operate outside of legislatively defined boundaries on shared goals.

There’s also an opportunity for state and local governments to partner with indigenous communities on land management practices. Pacific Northwest’s Swinomish Tribe, in the vanguard of environmental action since 2007, prioritizes climate adaptation, preparing for rising sea levels, flooding, and erosion, and safeguarding critical resources such as drinking water and salmon runs.¹⁶ Across North America, more than 50 tribal climate action plans bear witness to the leadership roles tribes can take.

Clean energy market clusters enable regions to focus on their strengths

A regional focus aligns with decades of similar hubs or clusters focused on economic development. Markets naturally create such business ecosystems: a brake pad factory pops up near an automobile factory, and power generation comes in to serve both. Similarly, regional partnerships can catalyze innovation in green tech by combining different renewable energy types, such as solar and wind, with distribution technologies.¹⁷

Regional partnerships, typically supported by state and federal funding and incentives, also allow communities to coordinate strategies, exchange lessons learned, and share funding (see “California’s regions rise together”). Governments can provide funds and guidance, connecting investors with innovators, and using indirect tools such as tax incentives, regulatory benefits, and grants to encourage growth. One such example is the Regional Greenhouse Gas Initiative, a market-based collaboration between 11 states. By its own estimates, it has cut its member states’ annual power sector emissions by 50%, raised US$6 billion from the sale of CO₂ allowances, reduced childhood asthma, created thousands of jobs, and cut energy bills, too.¹⁸

Collaboration between states can also qualify regions for additional federal funding. In April 2023, for example, a coalition of northeast states—New York, New Jersey, Maine, Rhode Island, Connecticut, Vermont, and Massachusetts—jointly applied for funding of US$1.25 billion to develop a hydrogen fuel cell hub that brings together more than a dozen decarbonization projects.¹⁹ In total, 17 US states have announced their intention to form and support regional hydrogen hubs.²⁰ At the heart of this vision lies a simple yet powerful principle: Proximity breeds efficiency. By situating production close to demand, these hubs can slash the costs of construction and transportation, and foster a fertile environment for collaboration and synergy.

But the benefits extend beyond economics alone. By investing in building capacity for low-carbon technologies, stakeholders are cultivating a culture of innovation and sustainability that itself becomes a powerful asset.

Regions can be effective innovation laboratories

The United States’ clean energy goals can’t be realized without an array of innovations. To spur these developments, the National Science Foundation has awarded innovation grants to power the energy transition in 10 US regions. In the next decade, these NSF Regional Innovation Engines will be eligible for more than US$2 billion.²¹ In addition, the IRA can provide billions in additional investments to deploy commercial and emerging technologies in the pursuit of carbon capture and storage, carbon dioxide removal, and hydrogen production.²²

California’s Inland Empire, for example, is home to massive warehouses that sort goods arriving in Los Angeles and San Diego from Asia. In fact, 44% of all the goods consumed in the United States pass through the region’s railroads and highways.²³ As a result, it also has some of the nation’s dirtiest air,²⁴ so when its regional coalition moved to address climate change, it focused on sustainable logistics to make shipping greener and more cost-effective. It’s also investing in an innovation cluster around air quality, led by researchers at the University of California at Riverside.²⁵ The region hopes that its focus on cleaner, more affordable logistics will facilitate new projects, such as green manufacturing, centered on lithium.²⁶ Meanwhile, the Los Angeles Regional Collaborative has built a direct relationship between research universities and policymakers to supply them with timely relevant climate science.²⁷

Another innovative approach is the Climate Action Kansas City partnership in 2019 was catalyzed by a 35% drop in the physical size of bluestem wheat laid to drought and climate change.²⁸ Its focus on the immediate impacts of climate change, such as the shrinking Ogallala Aquifer, unites constituencies without debating environmental science. One sign of change is that Kansas farmers have started installing solar panels subsidized by the government because it’s good for business.²⁹

3. Introduce new funding strategies to achieve scale, spark innovation, and catalyze market forces

The IIJA and IRA sparked a grand competition among state and local governments and private industry for the opportunity to fuel economic transformation. But this transformation should be supported by extensive innovations in clean energy, an area historically plagued by underinvestment.³⁵

However, the new laws allow state and local governments to leverage flexible funding, stack federal dollars upon their own investments, and ride the wave of massive private-sector inflows triggered by federal incentives. With this alignment, every taxpayer dollar can become a potent catalyst for change.

The strategic deployment of flexible funding is an important piece of this puzzle. One useful model is the federal community block grant program, grants that have become versatile tools for addressing challenges from homelessness to greenhouse gas emissions.

The US Department of Energy’s Weatherization Assistance Program is another flexible initiative. By training a workforce to weatherize homes by subsidizing such efforts, the program is designed to help increase community resiliency, reduce utility bills, and align with broader goals such as greenhouse gas reductions.³⁶

The US Department of Transportation’s Promoting Resilient Operations for Transformative, Efficient, and Cost-saving Transportation (PROTECT) program also embodies flexibility. PROTECT grants are designed to fortify climate resilience in transportation and can be used for a variety of projects on state and local to-do lists, such as mitigating stormwater runoff and reducing flood risks.³⁷

However, still more action is needed to unlock the full potential of the massive federal funding push. Colorado, for example, has passed a suite of laws to promote climate action that complements the IIJA and IRA, including additional state incentives.³⁸ Colorado’s approach exemplifies the art of “stacking,” or strategically combining multiple funding sources to encourage development. State tax breaks for electric vehicles, for instance, can spur private businesses to leverage federal subsidies as well, thereby fortifying the state’s green infrastructure.

Stacked project funding can be used to pursue highly ambitious goals. Seven New England states pursuing a hydrogen fuel cell hub, for example, have applied for billions in federal funding to essentially help kickstart an entire regional industry, covering more than a dozen proposed projects.³⁹

In another new development, some of the IRA tax incentives are available to more than private businesses alone: State, local, and tribal governments that choose to undertake the work are also eligible to apply.⁴⁰ For example, the IRA provides direct funding to a city or state that purchases a clean vehicle fleet or switches energy production to renewable sources.⁴¹

Rural electric cooperatives also can seize the moment, using IRA and IIJA funding as a once-in-a-generation opportunity. Programs such as Powering Affordable Clean Energy and Empowering Rural America, created by the IRA, will inject billions of dollars into building renewable energy capacity and updating aging rural electric infrastructure.⁴² This, in turn, can usher in a more decentralized grid, offering benefits from greater resiliency to the sale of surplus energy back to the grid.

Early indications are that the new federal funds are already attracting private investment and creating “green” jobs. Within the IIJA and IRA, funding exists for tax credits, rebates, grants, and mechanisms that lower the investment risk, such as partly forgivable loans. These incentives make private investment more attractive. In its first year alone, the IRA produced more than US$270 billion in private investment pledges for clean energy projects.⁵⁰ Since then, companies have announced plans to invest an additional US$408 billion in clean energy.⁵¹ This will include building or upgrading 123 manufacturing facilities, including a US$2.5 billion investment by a South Korean firm in a solar manufacturing complex in Georgia.⁵²

One innovative financing strategy that states are starting to implement is the concept of green banks—financial instruments that fund green energy projects with private investment. On average, American green banks attract US$3.70 in private investment for every dollar they invest. The United Kingdom funded much of its wind infrastructure with such banks.⁵³

More intricate financial models are also emerging that bring together entities from across government, non-governmental organizations, and the private sector, tying financial rewards to environmental performance. For example, California recently issued US$3 million in awards to investor projects developing biomass gasification power plants that can run on cut brush and logging “slash” generated by wildfire prevention programs. A plant in Sacramento, for example, plans to consume 330,000 tons of wood annually, producing 21,000 tons of hydrogen. They plan to decarbonize the hydrogen produced by sequestering 450,000 tons of carbon dioxide in saline aquifers, geological formations saturated with salt water.⁵⁴

Another example is Forest Resilience Bonds, developed from a partnership between the US Forest Service and several entities, including the World Resources Institute and the National Forest Foundation. These repay investors based on measures of forest health, fostering shared responsibility for fire prevention measures.⁵⁵

From cooperatives and bonds to green banks and tax breaks, state and local governments can use an array of strategies to catalyze investment. With the IRA and IIJA as formidable tools in their arsenal, they can make changes that bolster infrastructure and climate resilience for decades.

4. Support the development of a green talent pipeline

A staggering 800 million jobs worldwide are vulnerable to climate change and economic adaptation to net-zero emissions.⁵⁶ With “clean” energy jobs now constituting 40% of all energy employment,⁵⁷ many of the nation’s 1.7 million fossil fuel workers may need to begin shifting to new employment opportunities as the sector shifts more and more to clean energy.⁵⁸ Innovations in automation and precision agriculture can also carve away traditional employment.

States can play a powerful role in supporting workers during this transition to a burgeoning clean tech sector where more jobs are created than are lost. An analysis by Deloitte Access Economics estimates that governments’ focus on a “just” transition, together with a swift trajectory toward net-zero emissions, could create 300 million “green-collar” jobs globally by 2050.⁵⁹ In the United States, the demand for green jobs is already rising rapidly. LinkedIn, the career-focused social media platform, reported that hiring for climate-related positions exceeded that for other positions by 25% in 2022.⁶⁰

Texas, a state economically synonymous with the oil and gas industry, leads the nation in utility-scale wind energy generation and ranks second in solar energy production.⁶¹ In 2023, the Texas Comptroller’s office reported that 24 proposed wind energy–related projects could generate more than US$50 billion of investment in the sector, which already employs more than 26,000 Texans.⁶²

Nationally, the IRA, IIJA, and CHIPS Act are expected to create 19 million jobs over their lifetimes, or about three million jobs per year.⁶³ Deloitte estimates that decarbonized workforce growth will over time greatly exceed fossil fuel job losses (figure 8).

Yet for the clean energy job landscape to flourish, the workforce will need retraining. In 2022, US green job postings, including positions calling for new skills such as carbon accounting, sustainable procurement, and wind turbine engineers, soared by 20%, a stark contrast to the 8.4% growth in available green talent.⁶⁴

So how can government help build workforce capacity to bridge the gap between demand and supply in the evolving green economy? The IRA includes measures to help close that gap, generating an estimated nine million new jobs in the United States by 2032.⁶⁵ State-level initiatives such as the regional consortium Maryland Works for Wind showcase the impact that collaborative efforts to build a skilled talent pool can have. With a US$23 million grant from the US Department of Commerce, Maryland Works for Wind aspires to create 5,800 jobs for the offshore wind industry, train or upskill 4,370 workers, and generate US$3 billion in economic output by 2042.⁶⁶

And in September 2023, the federal government unveiled the American Climate Corps.⁶⁷ This interagency partnership, uniting AmeriCorps and multiple government departments, plans to create more than 20,000 high-quality jobs through paid training.⁶⁸

Advancing workforce development ecosystems

To foster a robust green workforce, state and local governments can consider:

• Increasing exposure to new green job opportunities. Governments should identify expected skills shortfalls and advertise the opportunity. The city of Denver recently partnered with a talent analytics platform to connect nearly 1,000 Denver jobseekers to energy-efficiency careers.⁶⁹
• Connecting ecosystem participants. Governments can help ensure that the skills employers seek are the focus of education and training. The Louisiana Green Corps, for instance, provides specialized training for green industries to jobseekers in the New Orleans region.⁷⁰
• Providing upskilling opportunities in underserved communities. To ensure a “just” transition, governments should focus on those communities that will be disproportionately affected by climate change. Philadelphia and Boston, for example, are offering paid job training programs in trades such as weatherization to jobseekers from low-income communities.⁷¹
• Adopting policies to encourage green workforce development. Philadelphia’s Sustainable Business Tax Credit, which rewards companies championing “environmental and human well-being,” is an example of the role policy tools can play in creating a sustainable and resilient future.⁷²

As Podesta points out, the very laws and regulations conceived since the 1970s to protect the environment can create substantial barriers to the green energy transition. The gears of progress are often jammed by a convoluted web of separate approvals required from local, state, interstate, and federal authorities. The National Renewable Energy Laboratory has identified nearly 2,000 local wind energy ordinances in place in the United States, and nearly 1,000 for solar energy, in addition to state and federal mandates.⁷⁴ New energy providers can expect a four-year wait just to connect to the grid.⁷⁵

A 2023 Deloitte survey of the power and utilities industry illustrated the scope of the impact, with about a quarter of respondents saying that permitting challenges are a significant constraint to the development of renewable energy (figure 9).

In 2008, for example, Idaho Power began attempts to secure permits for a 290-mile transmission line, a conduit for clean power generated by hydroelectric dams in Idaho and Oregon. After a 15-year delay, the project finally received a site certificate in 2022.⁷⁶ “Naively or optimistically, we thought it would take four to five years,” said Mitch Colburn, Idaho Power’s vice president.⁷⁷

And permitting delays may not just stall one project. They can stall the compounding growth in green energy that follows each project. That’s why numerous federal and state initiatives are tackling the permitting issue. The IRA, for example, allocates nearly US$1 billion to critical federal permitting agencies, with the goal of ushering in a new era of capacity-building, technological innovation, and improved coordination.⁷⁸ The IIJA also introduces policy changes to expedite permitting for transmission and offshore wind projects.⁷⁹

Many states have also enacted legislation to expedite clean energy project permits.⁸⁰ Other states, such as Arkansas and Louisiana, have appointed infrastructure executive branch coordinators to cut through red tape and organize whole-of-government approaches across state agencies.⁸¹

Overseas, Portugal has implemented a streamlined single environmental licensing system. Launched in 2015, the system consolidates all licensing decisions into a streamlined process involving one request, one certificate, and one fee, all of which significantly cut down the time required for licensing.⁸²

6. Harness the “flywheel effect”

For students of the dynamic relationship between technological advancement and economic transformation, business guru Jim Collins’ concept of the “flywheel effect” has emerged as a guiding metaphor for describing how systems tend to mature.⁸³ The “flywheel effect” describes how companies can become exceptional from the accumulation of little efforts over years, which if properly aligned create their own momentum, spurring a self-reinforcing cycle. Work hard enough to start a flywheel, and it’s easy to keep it spinning.

Because the green energy transition is a colossal endeavor, it requires a symphony of sectors that must harmonize in pursuit of a shared goal. As with a flywheel, each investment in the green energy transition builds the cycle’s speed. Early adopters generate demand; more businesses jump into the sector to meet the emerging demand; costs fall due to improvements and innovation, which in turn stimulates broader adoption. It takes a big push to get the flywheel started, but once it’s moving, it has tremendous momentum.

Yet, just as it takes minimal effort to keep a flywheel spinning once it’s moving, it takes minimal effort to keep one from starting to move. Early pushes add up in either direction—hence the urgent need for updating outdated systems that can stand in the way of progress.

Collaborating toward a cleaner tomorrow

Thanks to a historic infusion of federal funding and growing private investment, states, cities, and regions are now primed to spearhead the charge toward a cleaner, greener future, serving as the engines of innovation in this economic transformation.

The early strides taken across the country paint a promising picture. However, as with most journeys of such magnitude, obstacles loom large, from the hurdles of permitting to the perennial challenge of securing sustained funding and focus. Amid the complexities and uncertainties, through a focus on execution, and cross-sector and cross-industry collaboration, these challenges can be surmounted, paving the way for a brighter, cleaner tomorrow.