Last week’s Leaders Summit on Climate simultaneously marked the return of the United States to a leadership role in the fight against climate change while also substantially raising the stakes of US climate action. The Biden-Harris administration announced its intention to cut US emissions by 50-52 percent from 2005 levels by 2030. On the international front, the administration committed to doubling its international climate financing for developing countries over the next three years (relative to the average levels sustained during the second half of the Obama administration), including tripling its adaptation finance.
The US International Development Finance Corporation (DFC) features prominently throughout the White House’s international climate agenda. The agency made bold commitments around greenhouse gas (GhG) emissions and announced its own climate finance target. DFC chief operating officer David Marchick joined CGD board member Afsaneh Beschloss last week to discuss these commitments and DFC’s broader role in US efforts to help the world’s poorest countries grapple with climate change. If you missed the event, you can watch it here.
Here are a few takeaways:
1. Greenhouse gas emissions
The core pillars of DFC’s climate agenda are achieving net zero GhG emissions by 2040 and directing one third of its annual spend to climate. (See a full list of announcements here.) DFC’s net-zero plan—which importantly does not include avoided carbon emissions or investments in improved climate technology—is the most ambitious of any of the bilateral G20 development finance institutions (DFIs). Proparco and others have announced objectives to achieve net zero, but later in the decade. The target does give DFC some flexibility to finance a limited amount of carbon intensive energy projects (think gas) in the world’s poorest countries if the development case is strong. DFC plans to make its GhG and net-zero accounting methodology public.
2. Climate finance
DFC’s climate finance target—a third of its total annual investments—would bring DFC to around $2 billion in climate finance a year, or $10 billion over the next five years. This could make the DFC the largest US player in climate finance given the administration’s ambitions of dedicating around $5.7 billion a year to global climate projects going forward (from $2.8 billion a year during the second half of the Obama administration).
Relatedly, Marchick also emphasized that DFC could mobilize considerably more private financing for climate projects over the next five years. This could be substantial especially if DFC can step up its early-stage financing and deploy more catalytic instruments like equity. The latter will require fixing the agency’s equity scoring issue (along the lines outlined by our colleague Scott Morris) where we’ve seen some potential progress thanks to a recent amendment introduced by Senator Chris Murphy and passed out of the Senate Foreign Relations Committee. We look forward to hearing more from DFC about just how ambitious it will be on mobilization.
3. Project pipeline and strategy
Finally, Marchick also laid out a proactive approach to project origination, through partnerships with other USG agencies with local outposts like MCC, USAID and TDA as well as deepening the engagement with other DFIs and the multilateral development banks. DFC has also recently issued a call for application for climate-focused investment funds and distributed renewable energy projects. The agency’s new chief sustainability officer will also have a key role to play in building DFC’s project pipeline.
In the near term, DFC plans to update its development strategy to weave its climate objectives throughout (the strategy, drafted under the previous administration, currently does not mention climate change at all). This revision also offers an opportunity to articulate the complementarity of DFC’s development agenda with its climate objective, including the objective of concentrating its new commitments in LMICs and LICs, consistent with the BUILD Act. Notably, we will be curious to see how DFC will grapple with climate adaptation, an area of particular importance for poor countries with low emissions, but still relatively untested by DFIs. Another opportunity for DFC to emerge as a leader among the DFIs. Watch this space.
CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.