The New Markets Tax Credit (NMTC) federal program, designed to stimulate economic development in historically excluded communities, also holds potential as a powerful ally in the fight against climate change. By directing capital toward sustainable development projects, NMTC can help address the disproportionate impact of environmental degradation on low-income communities, aligning with broader climate justice goals.
By funding projects, such as the construction of energy-efficient buildings or the development of renewable energy resources, NMTC supports not only economic growth but also contributes to environmental sustainability. These projects help reduce greenhouse gas emissions. Additionally, they can decrease the urban heat-island effect, thereby mitigating the impact of climate change on vulnerable populations. For instance, NMTC can support projects that incorporate green roofs, urban forests and improved water-management systems that help communities withstand extreme weather events like heavy rainfall and heatwaves.
The strategic use of NMTC in promoting climate justice also addresses historical and systemic disparities. Many low-income communities, often predominantly inhabited by people of color, are located in areas with poor environmental conditions lacking access to green spaces and sustainable infrastructure. By directing investments into these areas, NMTC helps rectify these inequalities, providing healthier living conditions and better economic opportunities.
Leveraging Additional Incentives
To maximize the impact of NMTC on climate justice, it is essential to leverage additional incentives and collaborate with other financial tools and programs. For example, pairing NMTC with Renewable Energy Tax Credits (RETC) or Historic Tax Credits (HTC) can amplify the benefits of investments, making projects more financially viable and impactful. Sponsors and Owners should also track opportunities from the Inflation Reduction Act, including clean-energy tax credits and the deployment of the U.S. Environmental Protection Agency’s recently announced Greenhouse Gas Reduction Fund (GGRF) awards earmarking billions of dollars in capital for building-decarbonization projects.
Integrating Technology in Green Building
Technological advancements are setting new standards in the construction industry, particularly in the realm of green building. The integration of technology in NMTC-funded green-building projects can further enhance their impact on climate justice and sustainability.
Here are some examples of how Sponsors and Owners can integrate green-building principles using technology:
- Advanced materials and building techniques. The use of recycled materials and low-VOC (volatile organic compound) paints, help reduce the environmental impact.
- Energy efficiency and management. Integration of smart grids and renewable energy resources, like solar panels and wind turbines, into buildings is a key aspect of green technology. AI-driven systems are also being used to optimize HVAC and lighting systems within buildings. These smart systems adjust based on real-time data such as occupancy and weather conditions.
- Building operations and maintenance. AI- and machine-learning algorithms are used to predict when building systems might fail or require maintenance. This proactive approach prevents downtime and reduces maintenance costs.
- Sustainable construction practices. Virtual- and augmented-reality technologies are used during design phase to simulate building designs and operations, allowing for better planning and decision-making.
Challenges and Opportunities
The integration of technology in green building faces significant challenges stemming from increased costs of green design, a complex regulatory landscape that varies significantly across jurisdictions and the pace of technological advancements outstripping existing regulations.
Higher Upfront Costs
Many sustainable building materials, energy-efficient systems and advanced technologies come with a higher upfront price tag. This can strain the already tight budgets of NMTC projects, which often operate with narrow financial margins to maximize their impact. Conversely, technology can mitigate these cost challenges by enabling more accurate forecasting and tracking of project expenses. Advanced software tools and data analytics help project managers better estimate the costs associated with green-building technologies, allowing for more precise budgeting and financial planning. These tools can also help identify potential cost-savings opportunities, such as bulk purchasing of materials or optimizing construction schedules to minimize waste and downtime.
The integration of Internet of Things (IoT) devices and real-time monitoring systems can provide valuable data on the performance of green-building technologies throughout the construction process and during building operation. This data can be used to track energy consumption, identify inefficiencies and optimize building systems for maximum cost effectiveness. By leveraging these technological solutions, NMTC project sponsors can make data-driven decisions that balance the upfront costs of green building with the long-term financial and environmental benefits.
To further address the cost challenges, the NMTC industry can also explore innovative financing models that spread the upfront expenses of green-building technologies over a longer period. For example, energy-performance contracting allows building owners to finance energy-efficient upgrades through the savings generated by reduced utility costs. Similarly, green leases can be structured to incentivize tenants to adopt sustainable practices and share in the financial benefits of green-building technologies.
Regulatory Environment
The regulatory environment for green building is highly fragmented, with standards and requirements varying significantly from one jurisdiction to another. This fragmentation can create confusion and increase the complexity of projects that span multiple regions. For instance, local building codes may not always align with the latest green-building practices, leading to potential conflicts between what is technologically possible and what is legally permissible. Another example is the use of advanced materials and building techniques that significantly improve energy efficiency or reduce carbon footprints may not be recognized or allowed under current building codes. This lag can restrict innovation and prevent the adoption of latest technologies that could otherwise contribute to more sustainable and efficient buildings.
Current regulations often focus on specific aspects of green building, such as energy efficiency or water conservation, without taking a holistic view of sustainability. This piecemeal approach can result in missed opportunities for achieving greater environmental benefits. For instance, regulations may incentivize the use of energy-efficient appliances without considering the building’s overall energy-management system or its integration with renewable energy sources. A more comprehensive approach to green building standards is needed, one that considers the building’s entire lifecycle and encourages the use of integrated systems that optimize sustainability across multiple dimensions.
Conclusion
NMTC industry is uniquely positioned to support progress toward more sustainable and equitable building designs. By leveraging the NMTC subsidy and prioritizing green-building projects in under-resourced communities, we can simultaneously promote economic development and advance climate justice; however, realizing the benefits will require a concerted effort to overcome the challenges posed by a fragmented regulatory landscape, outdated building standards and the increased costs associated with green-building technologies. The NMTC industry must work collaboratively with policymakers, technology providers and community stakeholders to advocate for more comprehensive and forward-thinking green-building policies. This includes supporting the development of holistic sustainability standards that consider a building’s entire lifecycle and encouraging the adoption of innovative technologies and practices.
Moreover, the NMTC industry should continue to explore ways to leverage additional incentives and financing tools to maximize the impact of green-building investments. By combining NMTCs with other green incentives and historic tax credits, we can create even-more compelling financial models for sustainable development.
By directing capital toward sustainable development projects, NMTC can help address the disproportionate impact of environmental degradation on low-income communities, aligning with broader climate justice goals.
LIIF Vice President for Community Facilities Lending and New Markets Tax Credits Amir Ali