A New Community of Practice Sparks Financial Solutions for Electric School Buses

Medium- and heavy-duty vehicles (MHDVs) account for 21% of the United States’ transportation greenhouse gas (GHG) emissions and are a major source of air pollution in low-income areas and communities of color. Electrifying MHDVs is essential to protect public health and reduce emissions. School buses are a particularly effective entry point: Across the U.S., the total school bus fleet includes half a million buses, and more trips are taken on school buses than on public transit buses each year, reaching every type of community.

Yet financing these vehicles remains a major obstacle to electrifying fleets in the communities that could benefit most. To address this challenge, in August 2024, WRI’s Electric School Bus Initiative and Clean Energy Works launched the Community to Advance Finance for Electric School Buses (CAFE), which brings together finance practitioners and equity advocates to develop innovative solutions.

The most significant barriers to electric school bus (ESB) adoption include high upfront vehicle costs and the charging infrastructure required for the buses. These hurdles make widespread deployment of electric fleets challenging — even more so for those who face greater barriers to accessing finance, such as small fleets, women- and minority-owned businesses, and community-based operators. By helping overcome financial barriers, CAFE presents a high-impact opportunity to reduce the upfront capital required for electric vehicles that can improve air quality and public health while reducing GHG emissions.

The Financing Gap

National- and state-level funding programs, such as grants and rebates developed to address cost barriers, cannot meet the scale of investment required for widespread adoption of ESBs (and the wider e-MHDV segment) on their own. Frequent policy shifts have further increased uncertainty in the funding landscape. What's needed is innovative financing that can unlock the lifetime operating savings of electric vehicles — lower fuel and maintenance costs — as a source of capital to offset upfront costs.

The problem? Financial product innovation for the electric MHDV segment has been virtually nonexistent. Traditional financing models do not account for the unique opportunities and characteristics of this emerging technology, and they do not address the specific needs of communities facing systemic inequities, including underinvestment in infrastructure and services, lack of collateral and weaker municipal credit.

Financial instruments, including debt products, project finance structures and insurance tools, will play a central role in leveraging future savings to reduce the upfront capital requirements of EV adoption. Financial innovation is needed to address real and perceived technology and counterparty risks to draw private capital into the MHDV segment. These tools may disrupt traditional business models, depending on how risks and responsibilities are allocated for critical assets (such as battery health) and services (such as managed charging) required for electrification. Importantly, innovation can meet the needs of specific communities by offering features like flexible term lengths and preferential interest rates.

Mobilizing financial institutions is timely and necessary to sustain momentum in transportation decarbonization. As electrification scales, financial solutions for MHDVs will reduce costs, broaden adoption and address systemic inequities in access, participation and benefit-sharing.

Community to Advance Finance for Electric School Buses Initiative

To address this need, WRI’s Electric School Bus Initiative and Clean Energy Works convened the Community to Advance Finance for Electric School Buses (CAFE), an action-oriented community of practice in which leading green and social impact finance practitioners and transportation equity groups collaborate to develop and implement innovative financing solutions for electric MHDVs.

WRI and Clean Energy Works host monthly facilitated discussions that surface key financial barriers, promote cross-pollination of ideas and rapid iteration of potential solutions, and strengthen relationships among stakeholders across geographies. They also share resources and provide technical assistance. CAFE members shape the community’s priorities and goals, while the WRI and Clean Energy Works coordination team facilitates the work and offers technical expertise, raises collective ambition and ensures solutions are responsive to member and community needs.

Impact to Date

Through more than 15 convenings, direct one-on-one engagement and technical assistance over the past year and a half, CAFE has demonstrated significant results. A major outcome came in December 2024, when the Connecticut Green Bank announced a first-of-its-kind financing program for electric MHDVs in the U.S., using blended-finance structures that can leverage federal and state grant funds. The Green Bank is leading with innovation and accessibility in structuring their program by offering features like below-market interest rates, tailored repayment schedules aligned with school revenue cycles, and loan terms matched to asset lifecycles. Because of Connecticut’s financing program, students in the state will experience zero-emission rides to school.

Connecticut is a model for scaling ESB fleet adoption through its requirement to transition all school buses that serve Environmental Justice communities to electric by 2030, and all school buses by 2040. The state’s Green Bank has committed to a minimum 60% federal Low-Income and Disadvantaged Communities target when making ESB investments. Not only is the Connecticut Green Bank on the cutting edge of ESB financial solutions, it is also investing in the communities most affected by the dangers of diesel pollution. This is essential, especially in today’s political environment, when programs benefiting environmental justice and underserved communities are under fire.

What’s Next?

The target outcome is for CAFE members to deploy at least three new financial solutions by December 2027. These solutions will be developed jointly with CAFE members based on market needs, such as residual value guarantee products or procurement aggregation platforms. CAFE members are exploring ways to bring electric MHDVs to depots and routes in underserved communities that currently rely on diesel vehicles, leverage private capital to achieve greater scale, reduce technology and implementation risks (which, in turn, will lower financing costs), and create replicable financial models that can be shared across the CAFE community and with private capital providers.

In the medium term, as community members deploy financial products, the initiative will serve as a space to capture lessons learned and support the development of financial product offerings for electric MHDVs from market-rate commercial capital providers. Green banks and social impact financial institutions regularly take on risk levels or terms not found in the mainstream market to demonstrate proof of concept for new technologies and business models. The goal of this work is to lay the groundwork for mainstream capital providers to step in and scale. WRI and Clean Energy Works will track and publicize the deployment of these financial products.

WRI and Clean Energy Works’s convening power can also bring CAFE members and market-rate actors together to share insights and co-develop solutions that address remaining barriers for private capital providers. A future goal for CAFE is to involve private capital providers in deals led by CAFE members. When CAFE members encounter policy or regulatory barriers to developing and implementing financial products, CAFE coordinators can support them through engagement with state and federal policymakers to address these challenges.

With a proven model now in the market and ambitious goals ahead, CAFE is positioned to catalyze the next wave of electric MHDV financing centered on community needs and climate impact. As the initiative continues to develop and deploy new financing models, CAFE invites additional partners to help scale electric MHDV adoption and ensure equitable access to the benefits of transportation electrification.