The solution to global warming is obvious—reduce greenhouse gas emissions. Accomplishing that goal, however, requires radical action. Few understand that better than Richard Kauffman, an ex–Goldman Sachs and Morgan Stanley banker whom New York Gov. Andrew Cuomo appointed last year as the state’s first energy czar. Kauffman has visions of New York as a 21st-century clean-tech powerhouse. But for now, he admits, it remains more of a 20th-century energy dinosaur.

“We’re not on a sustainable path either environmentally or economically,” says Kauffman of his state. “We’re not installing enough renewables, and we’re not getting the economic-development boost that a transition to a new-energy economy can provide. We need to rethink what we do.”

To kick-start that process of reinvention, Kauffman has taken some radical actions of his own: Earlier this year he rolled out a state-owned financing startup with $1 billion in assets called N.Y. Green Bank. The hope is that, through strategic lending, the state can give the private sector the incentive to help transform New York State’s power system. If it works, the project could provide a template for other states to follow. According to the OECD, N.Y. Green Bank is only the second state-run institution of its kind in the U.S. Connecticut launched a green bank in 2011 but on a smaller scale, with $117 million in net assets.

“We want to be on the frontier of new markets, providing the necessary support to get the private sector fully engaged.”

—Richard Kauffman, New york States energy czar.

New York’s list of energy challenges is long. It lags behind California and other big states in the adoption of renewables. Last year, for instance, the Golden State installed 2,621 megawatts of solar energy, compared with New York’s paltry 69 megawatts. New Yorkers pay some of the highest electrical rates in the nation. At the same time, the state’s utilities are struggling. Electricity demand is weak, and the cost to maintain an aging grid is rising. The price tag simply to keep New York’s antiquated grid running over the next decade is an estimated $30 billion.

Gov. Cuomo has given Kauffman the clout to make big changes. As New York’s chairman of energy and finance, he has the sway and the budget to push for change in almost every aspect of the state’s energy system. He has already launched a multi-front offensive. Kauffman is pushing for regulatory reform that would encourage the state’s utilities to run more energy-efficiency programs and make smart-grid investments to reduce load and the need to maintain expensive backup power plants. He’s also pushing for utilities to invest more in clean, distributed energy.

Other states have tried such measures with only moderate success. Although wind and solar power are growing quickly, their share of the nation’s total power generation is only about 4%. Kauffman is hoping the Green Bank can push New York way past that level in coming years. The bank, funded by a surcharge paid by utility customers, aims to help finance clean-energy projects throughout the state. The Green Bank plans to announce its first investments this fall.

When he took the energy czar job, Kauffman, 59, brought with him a strong belief that the government was lousy at picking winners and losers. (Consider the Energy Department’s disastrous $535 million investment in solar-panel maker Solyndra.) He began searching for private sector solutions to the state’s energy problems. “It’s going to be the markets that will give customers what they want,” says Kauffman. “I have no idea what new energy systems are best. Apple, for example, allows outside programmers to make apps for its products because that’s the way innovation happens—you open up competition.”

So the Green Bank will not dole out grants or fund risky clean-tech startups. Rather, it will offer “gap” financing. That means providing loans, debt guarantees, and other financial products to help private sector bankers fund more clean-tech deals—whether for solar, wind, smart-grid technology, battery storage, or energy-efficient buildings. Says Douglas Sims, the director of strategy and finance at the Natural Resources Defense Council and an adviser on the project: “They will provide comfort to private lenders who want to employ capital in this space. They’re enablers. To me, that’s the most radical thing about it.”

While large-scale wind and solar projects can typically get financing, Kauffman says that there are many smaller clean-tech projects that are viable but just can’t find the right debt structure. For example, universities, hospitals, and municipalities that want to install solar systems or energy-efficiency technology often have good credit ratings but don’t have the upfront capital. A bank might be willing to offer a 10-year loan, but the organizations might need a 15-year loan to make the debt service more affordable. So the Green Bank could step in and provide the financing for years 11 through 15. Another area where it could help is in solar installation. Companies such as SolarCity, Sunrun, and Sungevity have little trouble raising financing for residential customers who have top credit scores of around 700, but they find it much harder to raise money for leases or loans for those with scores of 650—even though these customers are considered creditworthy. The Green Bank could guarantee the financing on those deals.

Perhaps the biggest impact the Green Bank could make is in securitization. (Think mortgage-backed securities with better due diligence.) So far the bond market has been largely absent when it comes to financing renewables. Why? Big banks don’t like to dabble in small loans. The Green Bank plans to securitize clean-energy projects—bundling 40 or 50 solar loans, each worth about $1 million, into one security and then selling the $50 million bond to institutional investors. That would open an entirely new source of capital for the sector and spur growth, Kauffman believes.

As promising as the Green Bank sounds, some in the environmental community worry that even $1 billion in capitalization won’t be enough to turn New York green. After all, energy is an extremely capital-intensive industry.

But Kauffman believes that the first step is for the Green Bank to show that it can make money. If the bank is profitable, it will be self-sustaining, he argues. And it can leverage that $1 billion in a way that would have a significant, long-term impact on the clean-tech industry. “We want to get a market rate of return and then step out of the way,” says the energy czar. “We want to be on the frontier of new markets, providing the necessary support to get the private sector fully engaged.” And if that happens, Kauffman’s radical plan might make a real impact.

This story is from the September 1, 2014 issue of Fortune.

By Internet standards, crowdfunding has been around forever. The idea to tap into online communities to raise money first became popular in 1997, when fans of the British rock group Marillion raised $60,000 to fund a U.S. tour for the band. Since then crowdfunding sites such as Kickstarter have been used to raise money for everything from blogs to clothing design companies and independent films. Now investment firms are getting into the act.

Today Mosaic. an Oakland startup, announced that it is going national in its effort to raise money from online investors to fund rooftop solar systems. It is, in a sense, the first crowdfunded green investment firm. Says Co-founder Billy Parish, who previously had launched the Energy Action Coalition, a non-profit that gets youth involved in clean energy and climate solutions, “We’re creating a new platform where people can profit from the clean energy revolution.”

Each investor in Mosaic is promised a return on his or her investment, typically around 4% to 6% a year over 5 years. So far Mosaic has raised $1.1 million from 400 individuals to fund the installation of solar systems on twelve projects including a $40,000 system on a building housing an Oakland non-profit called the Youth Employment Partnership. Mosaic keeps a fee of 1% of the money raised, and its investors get a fixed return.

The two year-old company, which in addition to the money it has raised online, has received $3.4 million in seed money from San Francisco-based venture capitalist Sunil Paul of Spring Venture as well as others. Mosaic also got a $2 million Department of Energy grant in June 2012. Now it wants to scale. But there’s a problem: the Securities and Exchange Commission. It’s one thing to solicit small amounts of money from individuals and groups Mosaic knew. It’s another to start peddling hundreds of millions in equity to the general public over the Internet.

Wanting to help entrepreneurs create jobs, Congress as part of the JOBS ACT created a provision for “cloud funding portals. President Obama signed it into law in April of 2012 and gave the SEC a deadline to create rules and guidelines to protect investors who want to invest in online outfits like Mosaic. The SEC has yet to issue their regulations.

In the meantime Mosaic has done an end run around the SEC by working with state securities laws. It can now offer its investment to anyone in California or New York. In the other states, investors have to be “accredited” which means hefty net worth and income requirements. (A net worth of over $1 million excluding one’s house and an annual income of over $200,000.) If the SEC eventually approves cloud funding portals, investment companies like Mosaic could go national without registering in each state.

If cloud funding gets the green light, it could eventually disrupt a financing model that so far has been the purview of big banks. “We like decentralized investing, says Parish, “Individuals can directly invest in clean energy projects and get a great return.” So instead of putting money in the stock market, you’ll be able to invest in companies like Mosaic and maybe even feel good about making the world a bit cleaner.

Ive written a handful of times in the past year about signs of a green backlash and a bubble in alternative-energy investments. Im not one of those global-warming deniers. though. Nor do I think reducing carbon emissions is a waste of time and money. (After all, I spent oodles of time co-writing generally favorable articles about ethanol in 2006 and Al Gore in 2007.) I just know a good old-fashioned investment bubble when I see it. A smart idea first attracts true believers, then clever opportunists, then momentum investors and finally the rubes who invest their money at the top of the cycle. Bubbles are productive. by the way, as they usually lead to positive change. You just dont want to be the investor left holding the bag.

I gained more confidence in my thesis this week when I learned that Firsthand Funds, a San Jose, Calif.-based mutual fund company, has started a new Alternative Energy Fund (ALTEX). Firsthand is a near-perfect bubble indicator. Its run by a smart guy named Kevin Landis who has been particularly adept over the years at starting new funds and attracting new investors to them.

Three important disclosures. First, Kevins a nice guy who, back when I started covering stocks in Silicon Valley, was always generous to me with his time though media exposure, of course, is central to the mutual-fund game of attracting more assets and collecting more fees. Second, Kevins performance, especially at his only big fund, the Technology Value Fund (TVFQX), hasnt been half bad. Its 15.3 percent annualized return since its inception in 1994 has trounced the 10.8 percent performance in the same time frame of the Nasdaq composite index. As you can see here. its 1-, 3-, and 5-year performance has been great too. Only Tech Values 10-year numbers stink. Which leads to my third important disclosure: I bought into the fund in 2000, when its net asset value per share was twice what it is now. Ive hung onto the investment as a reminder of the perils of buying a hot sector fund.

The Firsthand Funds lesson, though, isnt so much about Tech Value, which at $300-some million in assets is a shell of its formerly hyped self. Its in the other funds Landis has started along the way. Importantly, its also about when he started them. The Global Technology Fund, for example, launched in Sept. 2000. Ooops. It has had good years and bad. but its down overall and has just $13 million in it. Similarly, the e-Commerce Fund looks great if youve owned it for five years. If you bought when it began in Sept. 1999? Not so much.

Which gets us back to the new alternative energy fund. Landis started it in October. This week he disclosed its top holdings include the likes of Applied Materials (AMAT), Corning (GLW) and Suntech Power (STP). (Corning is a top holding in two other Firsthand Funds, which is how you know Landis really likes it.)

Whats funny about all this is that Landis always billed himself as an expert in information technology, which is why investors should trust his, ahem, first-hand knowledge. In this regard hes no different than the scores of other Silicon Valley professionals who are busy re-branding themselves as alternative-energy experts. (Landis has help in this fund, by the way, who presumably have first-hand knowledge of their own. They are the noted investors Audubon, Defenders of Wildlife, National Wildlife Federation, the Sierra Club and World Resources Institute.)

Will the new fund do well? Who knows. Is this a time when everyone and their sister are investing in alternative energy? Sure feels like it. Has Kevin Landis called a top in a market again by starting a new fund? Thats what potential investors will need to judge for themselves.

Fittingly for the day of the Iowa caucuses a day when presidential wannabes pay obeisance for the last time of the year to the ethanol gods a high-profile renewable energy company announced a setback.

Imperium Renewables, a Seattle company founded by a former executive at Microsoft (MSFT), the noted energy company, withdrew its plans for an IPO, citing poor market conditions. The company didnt elaborate on just what market conditions it referred to. But clearly its not the market for IPOs. NetSuite (N), despite early criticism from ill-informed pundits. proved that the market always is receptive to the right kind of IPOs. No, the market conditions Imperium must mean are the markets for alternative fuels, like ethanol and biodiesel, Imperiums particular blend of non-petroleum elixir.

Imperium had hoped to raise $345 million, which would add to the gusher of money flowing into ethanol and other alt-fuel projects. (Reuters has lots of good details in its dispatch on the withdrawal.)

Its been clear for some time now that the renewable fuels investment craze is a classic bubble. Thats not to say ethanol and biodiesel make no sense. They do make sense at some scale and over some time period. But it means that not every project makes sense and that a whole lot of investors will lose plenty of money.

For Imperiums part, it had intended to use $240 million for three additional biodiesel plants. One wonders if the market conditions will be right for those either.

Its almost comical the amount of money that keeps getting invested in ethanol. Ive commented on this before. how despite the weak performance of the existing crop of ethanol companies, like VeraSun (VSE), Aventine, (AVR) and Pacific Ethanol (PEIX) investors keep pouring in more money. The latest example: the tepid showing of BioFuel Energy (BIOF), which lowered its offering range from as high as $18 before going public last week at $10.50, where the stock has pretty much stayed. Unlike the others, BioFuel hasnt even built any plants yet, though it does have a tight tie-up with privately held power Cargill.

On Thursday, a California company called AltraBiofuels announced that it had raised $165.5 million in debt to build more ethanol plants. Last week the Wall Street Journal ran a curious article speculating on ethanol-industry consolidation. I say curious because there doesnt seem to be any evidence, only wishful thinking of the inevitable.

This is, of course, how bubbles work. They expand and expand well beyond where the pundits expect. Then they pop. This one will too.