Who's Making All That Climate Economy Money? Part I*
Prosperity Now brief: Black & Brown businesses lag in clean-green advancements in infrastructure, transportation, food supply & other sectors where climate-smart advancements are big economic drivers
Sarita Turner | Senior Fellow, Prosperity Now
Climate change, a global clear and present danger, is fostering economic opportunity
for some, while increasing racial wealth inequality for far too many. Black and Brown
communities disproportionately bear the burden of climate impacts yet benefit the
least from the related economic activity. The United States has lost an average
of $1 billion annually in the last 40 years because of climate-related disasters.
Governments, institutions, corporations and community organizations are working at
an unprecedented scale to advance solutions to shift from a fossil-fuel-powered to a
clean-energy-fueled society to temper climate change-related impacts. This shift –
often referred to as “the transition” - has become a major economic driver as policies
such as the American Rescue Plan, the Infrastructure Investment and Jobs Act, the Inflation Reduction Act and more drive federal funding toward business activities that will help achieve climate mitigation and adaption goals. The flow of these public dollars, combined with private-sector investments, has created a “climate economy” that, if left unchecked, will reproduce and exacerbate the same racial and economic exclusion that has been baked into the U.S. economic structure since its founding.
Black and Brown businesses are lagging in clean and green advancements in the
infrastructure, transportation, buildings, food supply and other sectors where climate-
smart advancements are driving economic opportunities. Environmental groups are
advancing full-blown carbon reduction policy campaigns. In response, state and local
governments are adopting emission reduction policies that will have a broad impact on manufacturing, engineering and the construction of roads, highways, bridges, buildings, housing and more. Corporations are adopting Environment Social (ESG) policies and action plans to assess risks and for some, to better govern their carbon footprint.
Black and Brown businesses and communities must be informed and educated
about these climate-related economic opportunities and the potential risk to their
existing businesses. They must be provided with the capital, technical assistance and
capacity-building they need to start new and reshape existing business practices.
Policymaking processes such as corporate ESG policies, state and local climate
plans and Building Performance Standards must prioritize racial equity. Otherwise,
as with the tech boom and many other global wealth catalyzers, another opportunity
to make progress on eliminating racial wealth gaps and dismantling America’s legacy
of economic extraction, exploitation and injustice will be missed, and further racial
and economic harm will be done.
An Emerging … and Unequal Climate Economy
Climate change has catalyzed record spending, facilitating the growth of a new
economy – the “climate economy.” The World Meteorological Organization (WMO)
estimates that climate-related disasters are fostering government spending on
average of $200 million a day. In 2019, U.S. clean energy spending hit a record $78.3 billion, led by investments in wind and solar. These investments are expanding in scope, scale and frequency. In the 2023 federal budget, the Biden administration allocated an additional $45 billion in new spending for climate change, clean energy and environmental justice programs.
U.S. climate investments are causing the clean energy sector to outpace traditional
energy sectors in job growth. In the power sector, zero-emissions generation was
responsible for 544,000 jobs in 2019, more than double the 214,000 jobs in fossil
fuel generation. Businesses are also enjoying record industry growth and increased
clean energy market share globally. The advanced energy industry generated $238
billion in revenue in 2018, which is roughly equal to that of aerospace manufacturing
and double that of the biotechnology industry.
While vastly under collected, emerging data show that there is significant racial disparity in participation in the climate economy by Black and Brown communities. Private sector and federal, state and local government contracts, procurement dollars and more are not distributed equitably, limiting business entry and growth opportunities. The lopsided awarding of government contracts in disaster recovery offers a snapshot of the racially exclusionary manner in which the climate economy operates. For example, of the recovery contracts awarded in the aftermath of Hurricane Irma in 2017, only 6.4 percent went to Black and Brown businesses, or women-owned firms. After Hurricane Harvey that same year, less than one percent of contracts went to Black- and Brown-owned firms. The disparities in contracting are compounded by lack of access to disaster recovery dollars in small business lending. One analysis shows that the Small Business Administration approved more than 52 percent of disaster recovery loans in communities that were majority White, while approving only 28 percent of recovery loans in majority Black communities. This is a continuation of the nation’s long history of a capitalist economy that thrives off of the backs of Black and Brown people. One need not go very far back in time to recall the dismal distribution of the first installment of Paycheck Protection Program (PPP) loans by race, where Black firms were approved for only 1.6 percent of COVID-19 small business relief loans, despite being 10 percent of the small business population.
In addition to the direct loss of economic opportunity, the lack of investment in Black and Brown businesses leaves communities unable to redevelop critical infrastructure. The results perpetuate a cycle of under-capitalization that leads to greater wealth disparities by race. Public buildings, schools, roads and bridges are left in disrepair, which affects property values, business stability and creation, and local tax revenue to spur future public projects. The cycle continues. A recent study by the Minority Business Development Agency highlights that little has changed with regard to racial disparities in government contracting. The study found that minority-owned firms were less likely to win contracts across the board.
However, the U.S. cannot afford this cycle. Economic access for Black and Brown
businesses is critical to ensuring their communities are not locked out of the climate
economy. Even as governments prepare to spend trillions on climate and sustainability efforts, the fact remains that racial wealth inequity is not sustainable. Racial gaps in income cost the nation $3.1 trillion in GDP growth in 2019.
Investing in Black and Brown businesses to support their full participation in the climate economy will grow the overall economy. One study estimates that if Black businesses reached parity in ownership with their non-Black peers, an additional 800,000 plus U.S. firms and potentially 1.6 million additional jobs 13 would be created. For Latinx businesses, parity would yield 735,000 new businesses and 6.6. million new jobs. Black and Brown businesses are more likely to hire Black and Brown workers. However, they are more likely to be sole proprietorships. In 2019, only
4.1 percent of Black-owned businesses were employer firms, compared to 19 percent of White-owned businesses. Only 7.5 percent of Latinx-owned businesses are employer firms. The climate economy is contributing to these disparities. One study observed the impact of FEMA recovery dollars on self-employment rates. Counties with high damages that received FEMA relief funds saw an additional 897 self-employees, with Whites benefiting the most from the increase. 17 If Black businesses were capitalized enough to pay the same wages as non-Black firms, an additional $25 billion in income would circulate through Black and Brown communities, improving quality of life through increased opportunity.
Structural racism in policy and practice has already caused debilitating economic harm to Black and Brown communities. Absent a well-informed racial equity framework guiding the development of climate-driven economic policies and the related interventions, the results will likely exacerbate the persistent and growing racial wealth gap.
The Opportunity Landscape
The time is ripe for deliberate outreach, capital infusion and technical assistance
to Black and Brown businesses and communities, informing them of the economic
opportunities stemming from the climate shift and supporting their ability to attain
and sustain them. In January 2021, President Biden Issued Executive Order 13985
on Advancing Racial Equity and Support for Underserved Communities Through
the Federal Government. Every agency was tasked with examining the racial equity
impacts of their policies and what can be done to be inclusive moving forward.
Additionally, the administration developed the Justice 40 Initiative which charges the
government to ensure that 40 percent of the overall benefits of certain federal investments flow to disadvantaged communities that are marginalized, underserved and overburdened by pollution. The areas of investment include: climate change, clean energy and energy efficiency, clean transit, affordable and sustainable housing, training and workforce development, remediation and reduction of legacy pollution and the development of critical clean water and wastewater infrastructure.
The Infrastructure and Jobs Act aims to help create more livable communities by
reducing carbon pollution from the transportation sector and helping to improve water and air quality. The bill provides $550 billion in new spending on infrastructure over five years. States and localities have a prime opportunity to address racial inequities through the clean and safe drinking water access provisions in the bill. It also aims to correct some of the historical inequities in water infrastructure investment.
For example, the Environmental Protection Agency (EPA) will be required to submit a detailed report on communities facing the greatest financial burdens from spending for drinking water or wastewater, as well as recommendations on how to address these inequities. The Federal Emergency Management Agency (FEMA) has released several initiatives to prioritize racial equity. The agency has committed to expanding home repair assistance for people with disaster-caused disabilities, providing expanded Housing Assistance and Other Needs Assistance funding – a new program which funds repairs for homes that have disaster damage but are not uninhabitable. The agency has also committed to streamlining requirements for small business applicants of the Other Needs Assistance program. Small businesses were specifically provided for in section 3301 of the American Rescue Plan, which issued billions in federal funding to state and local communities suffering from the devastating impacts of the COVID 19 pandemic. The State Small Business Credit Initiative set aside $10 billion for credit and investment programs for existing small businesses and start-ups. The initiative also included new funding for very small businesses owned by “socially and economically disadvantaged individuals,” as well as incentive dollars to promote support and technical assistance for these businesses. More research must be done to understand how these dollars
have been disbursed.
The Inflation Reduction Act (IRA) includes the most comprehensive climate legislation
in American history. The investments made by this policy set the nation on track to meet a goal of 40 percent emissions reduction by 2030. In addition to serval other climate goals, the bill includes $60 billion to clean up pollution in disadvantaged communities and reduce environmental injustice. 25 The Congressional Budget Office (CBO) estimates that the climate allocations in the IRA would cost $374 billion, however other analyses anticipate that the true cost will be $800 billion.
The business activity this bill will generate could be as much as $1.7 trillion over 10 years. The Department of Energy has issued a new decarbonization road map that outlines emissions reduction plans for five sectors: chemical manufacturing, petroleum refining, iron and steel, cement production and the food and beverage industry. The road map also includes $104 million in funding for new industrial decarbonization technologies. Through its Equity Action Plan, the department also outlined as a primary goal improving data collection disaggregated by race in order to understand who is benefitting most from the business opportunities offered.
The Congressional Budget Office estimates that the climate allocations in the IRA would cost $374 billion. However, other analysis anticipates that the true cost will be $800 billion. The business activity from this bill could generate as much as $1.7 trillion over 10 years.
*(Next: “State and Local Opportunities are Expanding”)