De-Risking the Clean Energy Transition: Opportunities and Principles for Subnational Actors

Executive Summary

The clean energy transition is not just about technology — it is about trust, timing, and transaction models. As federal uncertainty grows and climate goals face political headwinds, a new coalition of subnational actors is rising to stabilize markets, accelerate permitting, and finance a more inclusive green economy. This white paper, developed by the Federation of American Scientists (FAS) in collaboration with Climate Group and the Center for Public Enterprise (CPE), outlines a bold vision: one in which state and local governments – working hand-in-hand with mission-aligned investors and other stakeholders – lead a new wave of public-private clean energy deployment.

Drawing on insights from the closed-door session “De-Risking the Clean Energy Transition” and subsequent permitting discussions at the 2025 U.S. Leaders Forum, this paper offers strategic principles and practical pathways to scale subnational climate finance, break down permitting barriers, and protect high-potential projects from political volatility. This paper presents both a roadmap and an invitation for continued collaboration. FAS and its partners will facilitate further development and implementation of approaches and ideas described herein, with the goals of (1) directing bridge funding towards valuable and investable, yet at-risk, clean energy projects, and (2) building and demonstrating the capacity of subnational actors to drive continued growth of an equitable clean economy in the United States.

We invite government agencies, green banks and other financial institutions, philanthropic entities, project developers, and others to formally express interest in learning more and joining this work. To do so, contact Zoe Brouns (zbrouns@fas.org).

The Moment: Opportunity Meets Urgency

We are in the complex middle of a global energy transition. Clean energy and technology are growing around the world, and geopolitical competition to consolidate advantage in these sectors is intensifying. The United States has the potential to lead, but that leadership is being tested by erratic federal environmental policies and economic signals. Meanwhile, efforts to chart a lasting domestic clean energy path that resonates with the full American public have fallen short. Demand is rising — fueled by AI, electrification, and industrial onshoring – yet opposition to clean energy buildout is growing, permitting systems are gridlocked, and legacy regulatory frameworks are failing to keep up. This moment calls for new leadership rooted in local and regional capacity and needs. Subnational governments, green and infrastructure banks, and other funders have a critical opportunity to stabilize clean energy investment and sustain progress amid federal uncertainty. Thanks to underlying market trends favoring clean energy and clean technology, and to concerted efforts over the past several years to spur U.S. growth in these sectors, there is now a pipeline of clean projects across the country that are shovel-ready, relatively de-risked and developed, and investable (Box 1). Subnational actors can work together to identify these projects, and to mobilize capital and policy to sustain them in the near term.

Box 1. Streamlining administrative procedure to unleash clean energy in New York.

The New York Power Authority used a simple, quick Request for Information (RFI) to identify readily investible clean energy projects in New York, and was then able to financially back many of the identified projects thanks to its strong bond rating and ability to access capital. As Paul Williams, CEO of the Center for Public Enterprise, noted, this powerful approach allowed the Authority to “essentially [pull] a 3.5-gigawatt pipeline out of thin air in less than a year.”

States, cities, and financial institutions are already beginning to provide the support and sustained leadership that federal agencies can no longer guarantee. They’re developing bond-backed financing, joint procurement schemes, rapid permitting pilot zones, and revolving loan funds — not just to fill gaps, but to reimagine what clean energy governance looks like in an era of fragmentation. One compelling example is the Connecticut Green Bank, which has successfully blended public and private capital to deploy over $2 billion in clean energy investments since its founding. Through programs like its Commercial Property Assessed Clean Energy (C-PACE) financing and Solar for All initiative, the bank has reduced emissions, created jobs, and delivered energy savings to underserved communities.

Indeed, this kind of mission-oriented strategy – one that harnesses finance and policy towards societally beneficial outcomes, and that entrepreneurially blends public and private capacities – is in the best American tradition. Key infrastructure and permitting decisions are made at the state and local levels, after all. And state and local governments have always been central to creating and shaping markets and underwriting innovation that ultimately powers new economic engines. The upshot is clear and striking: subnational climate finance isn’t just a workaround. It may be the most politically durable and economically inclusive way to future-proof the clean energy transition.

The Role of Subnational Finance in the Clean Energy Transition

Recent years saw heavy reliance on technocratic federal rules to spur a clean energy transition. But a new political climate has forced a reevaluation of where and how federal regulation works best. While some level of regulation is important for creating certainty, demand, and market and investment structures, it is undeniable that the efficacy and durability of traditional environmental regulatory approaches has waned. There is an acute need to articulate and test new strategies for actually delivering clean energy progress (and a renewed economic paradigm for the country) in an ever-more complex society and dynamic energy landscape.

Affirmatively wedding finance with larger public goals will be a key component of this more expansive, holistic approach. Finance is a powerful tool for policymakers and others working in the public interest to shape the forward course of the green economy in a fair and effective way. In the near term, opportunities for subnational investments are ripe because the now partially paused boom in potential firms and projects generated by recent U.S. industrial policy has generated a rich set of already underwritten, due-diligenced projects for re-investment. In the longer term, the success of redesigned regulatory schema will almost certainly depend on creating profitable firms that can carry forward the energy transition. Public entities can assume an entrepreneurial role in ensuring these new economic entities, to the degree they benefit from public support, advance the public interest. Indeed, financial strategies that connect economic growth to shared prosperity will be important guardrails for an “abundance” approach to environmental policy – an approach that holds significant promise to accelerate necessary societal shifts, but also presents risk that those shifts further enrich and empower concentrated economic interests.

To be sure, subnational actors generally cannot fund at the scale of the federal government. However, they can mobilize existing revenue and debt resources, including via state green and infrastructure banks, bonding tools, and direct investment financing strategies, to seed capital for key projects and to provide a basis for larger capital stacks for key endeavors. They are also particularly well suited to provide “pre-development” support to help projects move through start-up phases and reach construction and development. Subnational entities can engage sectorally and in coalition to scale up financing, to draw in private actors, and to support projects along the whole supply and value chain (including, for instance, multi-state transmission and grid projects, multi-state freight and transportation network improvements, and multi-state industrial hubs for key technologies).

A wide range of financing strategies for clean energy projects already exist. For instance:

Strategies like these empower states and other subnational actors to de-risk and drive the clean energy transition. The expanding green banking industry in the United States, and similar institutions globally, further augment subnational capacity. What is needed is rapid scaling and ready capitalization.

There is presently tremendous need and opportunity to deploy flexible financing strategies across projects that are shovel-ready or in progress but may need bridge funding or other investments in the wake of federal cuts. The critical path involves quickly identifying valuable, vetted projects in need of support, followed by targeted provision of financing that leverages the superior capital access of public institutions.

Projects could be identified through simple, quick Requests for Information (RFIs) like the one recently used to great effect by the New York Power Authority to build a multi-gigawatt clean energy pipeline (see Box 1, above). This model, which requires no new legislation, could be adopted by other public entities with bonding authority. Projects could also be identified through existing databases, e.g., of projects funded by, or proposed for funding under, the Inflation Reduction Act (IRA) or Infrastructure Investment and Jobs Act (IIJA). 

There is even the possibility of establishing a matchmaking platform that connects projects in need of financing with entities prepared to supply it. Projects could be grouped sectorally (e.g., freight or power sector projects) or by potential to address cross-cutting issues (e.g., cutting pollution burdens or managing increasing power grid load and its potential to electrify new economic areas). As economic mobilization around clean energy gains steam and familiarity with flexible financing strategies grows, such strategies can be extended to new projects in ways that are tailored to community interests, capacity, and needs.

Principles for Effective, Equitable Investment

The path outlined above is open now but will substantially narrow in the coming months without concerted, coordinated action. The following principles can help subnational actors capitalize on the moment effectively and equitably. It is worth emphasizing that equitable investment is not only a moral imperative – it is a strategic necessity for maintaining political legitimacy, ensuring community buy-in, and delivering long-term economic resilience across regions.

Funders must clearly state goals and be proactive in pursuing them – starting now to address near-term instability. Rather than waiting for projects to come to them, subnational governments, financial institutions, and other funders should use their platforms and convening power to lay out a “mission” for their investments – with goals like electrifying the industrial sector, modernizing freight terminals and ports, and accelerating transmission infrastructure with storage for renewables. Funders should then use tools like simple RFIs to actively seek out potential participants in that mission.

Public equity is a key part of the capital stack, and targeted investments are needed now. With significant federal climate investments under litigation and Congressional debates on the Inflation Reduction Act ongoing, other participants in the domestic funding ecosystem must step up. Though not all federal capital can (or should) be replaced, targeted near-term investments coupled with multi-year policy and funding roadmaps by these actors can help stabilize projects that might not otherwise proceed and provide reassurance on the long-term direction of travel.

Information is a surprisingly powerful tool. Deep, shared, information architectures and clarity on policy goals are key for institutional investors and patient capital. Shared information on costs, barriers, and rates of return would substantially help facilitate the clean energy transition – and could be gathered and released by current investors in compiled form. Sharing transparent goals, needs, and financial targets will be especially critical in the coming months. Simple RFIs targeted at businesses and developers can also function as dual-purpose information-gathering and outreach tools for these investors. By asking basic questions through these RFIs (which need not be more than a page!), investors can build the knowledge base for shaping their clean technology and energy plans while simultaneously drawing more potential participants into their investment networks.

States should invest to grow long-term businesses. The clean energy transition can only be self-sustaining if it is profitable and generates firms that can stand on their own. Designing state incentive and investment projects for long-term business growth, and aligning complementary policy, is critical – including by designing incentive programs to partner well with other financing tools, and to produce long-term affordability and deployment gains, especially for entities which may otherwise lack capital access. State strategies, like the one New Mexico recently published, that outline energy-transition and economic plans and timelines are crucial to build certainty and align action across the investment and development ecosystem. Metrics for green programs should assess prospects for long-term business sustainability as well as tons of emissions reduced.

States can finance the clean energy transition while securing long-term returns and other benefits. Many clean technology projects may have higher upfront costs balanced by long-term savings. Debt equity, provided through revolving loan funds, can play a large role in accelerating deployment of these technologies by buying down entry costs and paying back the public investor over time. Moreover, the superior bond ratings of state institutions substantially reduce borrowing costs; sharing these benefits is an important role for public finance. State financial institutions can explore taking equity stakes in some projects they fund that provide substantial public benefits (e.g., mega-charging stations, large-scale battery storage, etc.) and securing a rate of return over time in exchange for buying down upfront risk. Diversified subnational institutions can use cash flows from higher-return portions of their portfolios to de-risk lower-return or higher-risk projects that are ultimately in the public interest. Finally, states with operating carbon market programs can consider expanding their funding abilities by bonding against some portion of carbon market revenues, converting immediate returns to long-term collateral for the green economy.

Financing policy can be usefully combined with procurement policy. As electrification reaches individual communities and smaller businesses, many face capital-access problems. Subnational actors should consider packaging similar businesses together to provide financing for multiple projects at once, and can also consider complementary public procurement policies to pull forward market demand for projects and products (Box 2).

Explore contract mechanisms to protect public benefits. Distributive equity is as important as large-scale investment to ensure a durable economic transition. The Biden-Harris Administration substantially conditioned some investments on the existence of binding community benefit plans to ensure that project benefits were broadly shared and possible harms to communities mitigated. Subnational investors could develop parallel contractual agreements. There may also be potential to use contracts to enable revenue sharing between private and public institutions, partially addressing any impacts of changes to the IRA’s current elective pay and transferability provisions by shifting realized income to the public entities that currently use those programs from the private entities that realize revenue from projects.

Box 2. Combining financing and procurement policy to electrify bus systems.

Joint procurements, whereby two or more purchasers enter into a single contract with a vendor, can bring down prices of emerging clean technologies by increasing purchase volume, and can streamline technology acquisition by sharing contracting workload across partners. Joint procurement and other innovative procurement policies have been used successfully to drive deployment of zero-emission buses in Europe and, more recently, the United States. Procurement strategies can be coupled with public financing. For instance, the Federal Transit Agency’s Low or No Emission Grant Program for clean buses preferences applications that utilize joint procurement, thereby helping public grant dollars go further.

The rising importance of the electrical grid across sectors creates new financial product opportunities. As the economy decarbonizes, more previously independent sectors are being linked to the electric grid, with load increasing (AI developments exacerbate this trend). That means that project developers in the green economy can offer a broader set of services, such as providing battery storage for renewables at vehicle charging points, distributed generation of power to supply new demand, and potential access to utility rate-making. Financial institutions should closely track rate-making and grid policy and explore avenues to accelerate beneficial electrification. There is a surprising but potent opportunity to market and finance clean energy and grid upgrades as a national security imperative, in response to the growing threat of foreign cyberattacks that are exploiting “seams” in fragile legacy energy systems.

Global markets can provide ballast against domestic volatility. The United States has an innovative financial services sector. Even though federal institutions may retreat from clean energy finance globally over the next few years, there remains a substantial opportunity for U.S. companies to provide financing and investment to projects globally, generate trade credit, and to bring some of those revenues back into the U.S. economy.

Financial products and strategies for adaptation and resilience must not be overlooked. Growing climate-linked disasters, and associated adaptation costs, impose substantial revenue burdens on state and local governments as well as on insurers and businesses. Competition for funds between adaptation and mitigation (not to mention other government services) may increase with proposed federal cuts. Financial institutions that design products that reduce risk and strengthen resilience (e.g., by helping relocate or strengthen vulnerable buildings and infrastructure) can help reduce these revenue competitions and provide long-term benefits by tapping into the $1.4 trillion market for adaptation and resilience solutions. Improved cost-benefit estimates and valuation frameworks for these interacting systems are critical priorities.

Conclusion: A Defining Window for Subnational Leadership

Leaders from across the country agree: clean energy and clean technology are investable, profitable, and vital to community prosperity. And there is a compelling lane for innovative subnational finance as not just a stopgap or replacement for federal action, but as a central area of policy in its own right.

The federal regulatory state is, increasingly, just a component of a larger economic transition that subnational actors can help drive, and shape for public benefit. Designing financial strategies for the United States to deftly navigate that transition can buffer against regulatory uncertainty and create a conducive environment for improved regulatory designs going forward. Immediate responses to stabilize climate finance, moreover, can build a foundation for a more engaged, and innovative, coalition of subnational financial actors working jointly for the public good.

Active state and private planning is the key to moving down these paths, with governments setting a clear direction of travel and marshaling their convening powers, capital access, and complementary policy tools to rapidly stabilize key projects and de-risk future capital choices.

There is much to do and no time to lose as governments and investors across the country seek to maintain clean technology progress. The Federation of American Scientists (FAS) and its partners will facilitate further development and implementation of approaches and ideas described above, with the goals of (1) directing bridge funding towards valuable and investable, yet at-risk, clean energy projects, and (2) building and demonstrating the capacity of subnational actors to drive continued growth of an equitable clean economy in the United States.

We invite government agencies, green banks and other financial institutions, philanthropic entities, project developers, and others to formally express interest in learning more and joining this work. To do so, contact Zoe Brouns (zbrouns@fas.org).

Acknowledgements 

Thank you to the many partners who contributed to this report, including: Dr. Jedidah Isler and Zoë Brouns at the Federation of American Scientists, Sydney Snow at Climate Group, Yakov Feigin, Chirag Lala, and Advait Arun at the Center for Public Enterprise, and Jayni Hein at Covington and Burling LLP.

50 Years, $50 Billion in Savings: Don’t Pull the Plug on FEMP

When it comes to energy use, no one tops Uncle Sam. With more than 300,000 buildings and 600,000 vehicles, the Federal Government is the nation’s largest energy consumer. That means any effort to conserve power across federal operations directly benefits taxpayers, strengthens national security, and reduces emissions. 

Since 1975, the Department of Energy’s (DOE) Federal Energy Management Program (FEMP) has been leading that charge. Born out of the oil crisis and authorized under the Federal Energy Policy and Conservation Act (1975), FEMP has quietly transformed how the federal government uses energy, helping agencies save money, modernize infrastructure, and meet ambitious energy goals. 

FEMP has been backed by bipartisan support across administrations. In recent years, a bipartisan group of Senators hailing from states across the country—from Hawaii, to Ohio, to New Hampshire, and West Virginia—cosponsored legislation to formally authorize FEMP and establish energy and water reduction goals for federal buildings in an effort to reduce emissions and save money. 

Over time, FEMP’s role has expanded to include a wide range of Congressional mandates: from helping agencies leverage funding for infrastructure modernization, to tracking agency accountability, to offering cutting-edge technical assistance. But perhaps its most powerful achievement isn’t written into statute: FEMP saves the federal government billions of dollars. 

In fact, FEMP has done the unthinkable: it’s achieved a “50/50/50.” 

Over the past 50 years, FEMP has delivered: 

Since 1975, FEMP has helped agencies reduce the energy intensity of their facilities by 50%.

So what’s behind these staggering savings, and how can FEMP build on its legacy of efficiency to meet the challenges of the next 50 years? That is, if its operations aren’t wound down, as DOE leadership has proposed for FEMP in the FY2026 budget.1

The AFFECT Program: Investing in Smarter, Cleaner Government 

When it comes to saving taxpayers money while cutting emissions, few programs punch above their weight like FEMP’s AFFECT program—short for Assisting Federal Facilities with Energy Conservation Technologies.

Launched a decade ago, AFFECT provides competitive grants to help federal agencies implement energy conservation, clean energy, and net-zero projects. These grants help agencies overcome a common obstacle: the lack of upfront capital to fund energy infrastructure improvements. By filling that gap, AFFECT empowers agencies to invest in long-term savings and resilience.

The results speak for themselves. Over the program’s lifetime, AFFECT has funded 160 projects, distributed nearly $300 million, and leveraged a staggering $4 billion in private-sector investment—yielding $137 million in cost savings to date.

These projects align with longstanding federal priorities to reduce costs, support American manufacturing, enhance energy resilience, and strengthen national security—all of which have gotten increased attention recently. AFFECT proves what’s possible when strategic funding meets real agency needs: a cleaner, more efficient, and more resilient federal government.

The Power of Performance Contracts 

One of FEMP’s most impactful tools over the past 50 years has been its championing of performance contracting—a financial model that allows federal agencies to upgrade their energy systems without spending a dime in upfront Congressionally-appropriated funds.Through mechanisms like Energy Savings Performance Contracts (ESPCs) and Utility Energy Service Contracts (UESCs), FEMP helps agencies partner with private-sector energy service companies (ESCOs) to design and install energy-saving improvements. The best part? The cost of the upgrades is repaid over time using the guaranteed energy savings, so taxpayers benefit from day one.

A graph that shows how ESPCs reduce agency costs by providing electricity cost savings.

These contracts have helped the federal government leverage billions of dollars in private capital, reducing emissions, modernizing aging infrastructure, and cutting utility bills at no upfront cost.

But FEMP hasn’t stopped there. Many civilian agencies don’t have the legal authority to sign long-term power purchase agreements (PPAs)—a key tool for procuring clean energy from the private sector for agency use. In response, FEMP developed a specialized contracting model: the Energy Savings Performance Contract with an Energy Sales Agreement (ESPC ESA). This innovative tool gives agencies a PPA-like pathway to procure their own distributed energy technologies—like solar installations, solar hot water, wind turbines, geothermal, and combined heat and power.

Here’s how ESPC ESAs work:

  1. Start with a plan. The agency figures out what kind of clean energy system they need and then hires a private energy company, called an ESCO, through a competitive process.
  2. The ESCO builds it—and owns it (at first). The ESCO designs and installs the system and owns it during the contract. Because it’s privately owned, the ESCO can use tax incentives that federal agencies can’t access—like the Investment Tax Credit (ITC)—which helps lower the total cost. However, if Congress rolls back clean energy tax credits like the ITC in the June 2025 reconciliation bill, it will limit one of the smartest tools we have to deliver lower-cost energy upgrades in federal facilities, ultimately costing taxpayers more to achieve the same results.
  3. Agencies only pay for the energy they use. Once the system is up and running, the agency pays the ESCO for the electricity it generates—and only that electricity. The rate must be cheaper than what the agency would’ve paid the utility, which means guaranteed savings.
  4. Eventually, the agency takes ownership. A small slice of each energy payment goes into a savings account that covers the cost of transferring ownership. By the end of the contract (usually within 20 years), the agency owns the system outright—and keeps the clean energy flowing.

So, the federal government gets to invest in reliable energy systems with no upfront cost, guaranteed savings, and long-term benefits. This approach blends financial flexibility with long-term energy independence, offering a win-win for agencies and taxpayers alike.

And the results are real. In FY 2023 alone, FEMP supported 191 federal projects that reported $566 million cost savings annually—with actual savings exceeding projections at 101% of estimated values.

Performance contracts aren’t just a workaround for limited budgets—they’re a core strategy for delivering cleaner, more resilient, and more cost-effective government operations. With these tools, FEMP is helping agencies meet today’s energy demands without waiting on tomorrow’s appropriations.

FEMP in Action on Public Lands: Naval Station Newport

FEMP’s commitment to smart stewardship extends beyond office buildings and into the heart of America’s public lands and military installations. At Naval Station Newport in Rhode Island, a 2023 FEMP-led energy and water “treasure hunt” uncovered significant savings opportunities, demonstrating how thoughtful management protects both the federal budget and the government’s consumption of public resources.

The treasure hunt—a hands-on, facility-wide assessment—identified measures projected to save $144,000 annually in energy costs while reducing greenhouse gas emissions by 288 tons per year. These findings not only highlight a direct benefit to taxpayers through reduced utility bills but also contribute to the Navy’s broader goals for energy resilience and resource stewardship.

By deploying FEMP’s technical expertise and leveraging innovative assessment techniques, Naval Station Newport took an important step toward more efficient operations. This case exemplifies how efficient energy management on public lands protects vital federal resources, enhances mission readiness, and supports America’s energy abundance goals.

Why FEMP Matters Now More Than Ever

The federal government is facing a perfect storm of challenges: the urgent need to cut carbon emissions, historic infrastructure investments in need of implementation, rising energy costs, and a shrinking federal workforce stretched thin. At the same time, global demand for electricity is projected to double by 2050. Meeting these demands without breaking budgets or burning out public servants will require solutions that are smart, scalable, and already proven.

That’s where the Federal Energy Management Program comes in. 

For five decades, FEMP has helped agencies modernize their operations, cut waste, and unlock billions in savings. FEMP delivers what every taxpayer hopes for: a government that spends wisely, thinks long-term, and achieves true efficiency. As the next chapter of energy and infrastructure development unfolds, FEMP deserves recognition—and reinvestment. However, despite its proven track record, DOE’s fiscal year 2026 budget proposal requests $8 million to wind down activities at FEMP—potentially shutting its doors for good. That’s a mistake. For decades, FEMP has helped federal agencies save billions in taxpayer dollars, reduce energy waste, and strengthen mission resilience, all without expanding bureaucracy or growing the deficit. If we’re serious about decarbonizing the federal footprint, lowering costs, and building a more resilient future for all Americans, then we need to look to—and continue funding—the programs and public servants who have been doing that work for decades.

Creating an HHS Loan Program Office to Fill Critical Gaps in Life Science and Health Financing

We propose the establishment of a Department of Health and Human Services Loan Programs Office (HHS LPO) to fill critical and systematic gaps in financing that prevent innovative life-saving medicines and other critical health technologies from reaching patients, improving health outcomes, and bolstering our public health. To be effective, the HHS LPO requires an authority to issue or guarantee loans, up to $5 billion in total. Federally financed debt can help fill critical funding gaps and complement ongoing federal grants, contracts, reimbursement, and regulatory policies and catalyze private-sector investment in innovation.

Challenge and Opportunity

Despite recent advances in the biological understanding of human diseases and a rapidly advancing technological toolbox, commercialization of innovative life-saving medicines and critical health technologies face enormous headwinds. This is due in part to the difficulty in accessing sustained financing across the entire development lifecycle. Further, macroeconomic trends such as non-zero interest rates have substantially reduced deployed capital from venture capital and private equity, especially with longer investment horizons. 

The average new medicine requires 15 years and over $2 billion to go from the earliest stages of discovery to widespread clinical deployment. Over the last 20 years, the earliest and riskiest portions of the drug discovery process have shifted from the province of large pharmaceutical companies to a patchwork of researchers, entrepreneurs, venture capitalists, and supporting organizations. While this trend has enabled new entrants into the biotechnology landscape, it has also required startup companies to navigate labyrinthine processes of technical regulatory guidelines, obtaining long-term and risk-friendly financing, and predicting payor and provider willingness to ultimately adopt the product.

Additionally, there are major gaps in healthcare infrastructure such as lack of adequate drug manufacturing capacity, healthcare worker shortages, and declining rural hospitals. Limited investment is available for critical infrastructure to support telehealth, rural healthcare settings, biomanufacturing, and decentralized clinical trials, among others.

The challenges in health share some similarities to other highly regulated, capital-intensive industries, such as energy. The Department of Energy (DOE) Loan Program Office (LPO) was created in 2005 to offer loans and loan guarantees to support businesses in deploying innovative clean energy, advanced transportation, and tribal energy projects in the United States. LPO has closed more than $40 billion in deals to date. While agencies across HHS rely primarily on grants and contracts to deploy research and development (R&D) funding, capital-intensive projects are best deployed as loans, not only to appropriately balance risk between the government and lendees but also to provide better stewardship over taxpayer resources via mechanisms that create liquidity with lower budget impact. Moreover, private-sector financing rates are subject to market-based interest rates, which can have enormous impacts on available capital for R&D.

Plan of Action

There are many federal credit programs across multiple departments and agencies that provide a strong blueprint for the HHS LPO to follow. Examples include the aforementioned DOE Loan Programs Office, which provides capital to scale large-scale energy infrastructure projects using new technologies, and the Small Business Administration’s credit programs, which provide credit financing to small businesses via several loan and loan matching programs.

Proposed Actions

We propose the following three actions:

Scope

Similar to how DOE LPO services the priorities of the DOE, the HHS LPO would develop strategy priorities based on market gaps and public health gaps. It would also develop a rigorous diligence process to prioritize, solicit, assess, and manage potential deals, in alignment with the Federal Credit Reform Act and the associated policies set forth by the Office of Management and Budget and followed by all federal credit programs. It would also seek companion equity investors and creditors from the private sector to create leverage and would provide portfolio support via demand-alignment and -generation mechanisms (e.g., advance manufacturing commitments and advanced market commitments from insurers).

We envision several possible areas of focus for the HHS LPO:

  1. Providing loans or loan guarantees to amplify investment funds that use venture capital or other private investment tools, such as early-stage drug development or biomanufacturing capacity. While these funds may already exist, they are typically underpowered.
  2. Providing large-scale financing in partnership with private investors to fund major healthcare infrastructure gaps, such as rural hospitals, decentralized clinical trial capacity, telehealth services, and advanced biomanufacturing capacity.
  3. Providing financing to test new innovative finance models, e.g. portfolio-based R&D bonds, designed to attract additional capital into under-funded R&D and lower financial risks.

Conclusion

To address the challenges in bringing innovative life-saving medicines and critical health technologies to market, we need an HHS Loan Programs Office that would not only create liquidity by providing or guaranteeing critical financing for capital-intensive projects but address critical gaps in the innovation pipeline, including treatments for rare diseases, underserved communities, biomanufacturing, and healthcare infrastructure. Finally, it would be uniquely positioned to pilot innovative financing mechanisms in partnership with the private sector to better align private capital towards public health goals.

This action-ready policy memo is part of Day One 2025 — our effort to bring forward bold policy ideas, grounded in science and evidence, that can tackle the country’s biggest challenges and bring us closer to the prosperous, equitable and safe future that we all hope for whoever takes office in 2025 and beyond.

PLEASE NOTE (February 2025): Since publication several government websites have been taken offline. We apologize for any broken links to once accessible public data.

Frequently Asked Questions
What is the DOE Loan Programs Office, and how is it similar to the proposed HHS Loan Programs Office?

The DOE LPO, enabled via the Energy Policy Act of 2005, enables the Secretary of Energy to provide loan guarantees toward publicly or privately financed projects involving new and innovative energy technologies.


The DOE LPO provides a bridge to private financing and bankability for large-scale, high-impact clean energy and supply chain projects involving new and innovative technologies. It also expands manufacturing capacity and energy access within the United States. The DOE LPO has enabled companies involving energy and energy manufacturing technologies to achieve infrastructure-scale growth, including Tesla, an electric car manufacturer; Lithium Americas Corp., a company supplying lithium for batteries; and the Agua Caliente Solar Project, a solar power station sponsored by NRG Solar that was the largest in the world at its time of construction.


The HHS LPO would similarly augment, guarantee, or bridge to private financing for projects involving the development and deployment of new and innovative technologies in life sciences and healthcare. It would draw upon the structure and authority of the DOE LPO as its basis.

What potential use cases would the HHS LPO serve?

The HHS LPO could look to the DOE LPO for examples as to how to structure potential funds or use cases. The DOE LPO’s Title 17 Clean Energy Financing Program provides four eligible project categories: (1) projects deploying new or significantly improved technology; (2) projects manufacturing products representing new or significantly improved technologies; (3) projects receiving credit or financing from counterpart state-level institutions; and (4) projects involving existing infrastructure that also share benefits to customers or associated communities.


Drawing on these examples, the HHS LPO could support project categories such as (1) emerging health and life science technologies; (2) the commercialization and scaling access of novel technologies; and (3) expanding biomanufacturing capacity in the United States, particularly for novel platforms (e.g., cell and gene therapies).

How much would the HHS LPO cost?

The budget could be estimated via its authority to make or guarantee loans. Presently, the DOE LPO has over $400 billion in loan authority and is actively managing a portfolio of just over $30 billion. Given this benchmark and the size of the private market for early-stage healthcare venture capital valued at approximately $20 billion, we encourage the creation of an HHS LPO with $5 billion in loan-making authority. Using proportional volume to the $180 million sought by DOE LPO in FY2023, we estimate that an HHS LPO with $5 billion in loan-making authority would require a budget appropriation of $30 million.

What accountability or oversight measures are required to ensure proper operation and evaluate performance?

The HHS LPO would be subject to oversight by the HHS Inspector General, OMB, as well as the respective legislative bodies, the House of Representatives Energy and Commerce Committee and the Senate Health, Education, Labor and Pension Committee.


Like the DOE LPO, the HHS LPO would publish an Annual Portfolio Status Report detailing its new investments, existing portfolio, and other key financial and operational metrics.

What alternative options could serve the same purpose as the HHS LPO, and why is the HHS LPO preferable?

It is also possible for Congress to authorize existing funding agencies, such as BARDA, the Advanced Research Projects Agency for Health (ARPA-H), or the National Institutes for Health (NIH), with loan authority. However, due the highly specialized talent needed to effectively operate a complex loan financing operation, the program is significantly more likely to succeed if housed into a dedicated HHS LPO that would then work closely with the other health-focused funding agencies within HHS.


The other alternative is to expand the authority for other LPOs and financing agencies, such as the DOE LPO or the U.S. Development Finance Corporation, to focus on domestic health. However, that is likely to create conflicts of priority given their already large and diverse portfolios.

What are the next steps required to stand up the HHS LPO?

The project requires legislation similar to the Department of Energy’s Title 17 Clean Energy Financing Program, created via the Energy Policy Act of 2005 and subsequently expanded via the Infrastructure Investment and Jobs Act in 2021 and the Inflation Reduction Act in 2022.


This legislation would direct the HHS to establish an office, presumably a Loan Programs Office, to make loan guarantees to support new and innovative technologies in life sciences and healthcare. While the LPO could reside within an existing HHS division, the LPO would most ideally be established in a manner that enables it to serve projects across the full Department, including those from the National Institutes of Health, Food and Drug Administration, Biomedical Advanced Research and Development Authority, and the Centers for Medicare and Medicaid Services. As such, it would preferably not reside within any single one of these organizations. Like the DOE LPO, the HHS LPO would be led by a director, who would be directed to hire the necessary finance, technical, and operational experts for the function of the office.


Drawing on the Energy Policy Act of 2005 that created the DOE LPO, enabling legislation for the HHS Loan Programs office would direct the Secretary of HHS to make loan guarantees in consultation with the Secretary of Treasury toward projects involving new and innovative technologies in healthcare and life sciences. The enabling legislation would include several provisions:



  • Necessary included terms and conditions for loan guarantees created via the HHS LPO, including loan length, interest rates, and default provisions;

  • Allowance of fees to be captured via the HHS LPO to provide funding support for the program; and

  • A list of eligible project types for loan guarantees.

Who are potential supporters of this policy? Who are potential skeptics?

Supporters are likely to include companies developing and deploying life sciences and healthcare technologies, including early-stage biotechnology research companies, biomanufacturing companies, and healthcare technology companies. Similarly, patient advocates would be similarly supportive because of the LPO’s potential to bring new technologies to market and reduce the overall Weighted Average Cost of Capital (WACC) for biotechnology companies, potentially supporting expanded access.


Existing financiers of research in biomedical sciences technology may be neutral or ambivalent toward this policy. On one hand, it would provide expanded access to syndicated financing or loan guarantees that would compound the impact of each dollar invested. On the other hand, most financiers currently use equity financing, which enables the demand for a high rate of return via subsequent investment and operation. An LPO could provide financing that requires a lower rate of return, thereby diluting the impact of current financiers in the market.


Skeptics are likely to include groups opposing expansions of government spending, particularly involving higher-risk mechanisms like loan guarantees. The DOE LPO has drawn the attention of several such skeptics, oftentimes leading to increased levels of oversight from legislative stakeholders. The HHS LPO could expect similar opposition. Other skeptics may include companies with existing medicines and healthcare technologies, who may be worried about competitors introducing products with prices and access provisions that have been enabled via financing with lower WACC.