Engaging the Private Sector – Green Opportunities for MCC’s new CEO

At his first public outreach meeting, MCC’s new CEO Daniel Yohannes expressed his interest in MCC doing more to engage the private sector and his desire to see more investments in wind, solar and hydroelectric energy.  As a former CEO of an investment firm focusing on green energy among other sectors, co-founder of New Resource Bank in California, and co-chair of the Mayor of Denver’s Greenprint Council, Mr. Yohannes has ideal experience to lead MCC in this new direction. By leveraging the private sector and ‘greening’ MCC, Mr. Yohannes can help President Obama fulfill his campaign promise to “incorporate climate change and energy development goals into all tools of U.S. economic engagement, including assistance programs.”  Moreover, he can help MCC respond to Executive Order 13514, which directs U.S. agencies to set a target to reduce direct and indirect greenhouse gas emissions and requires that each agency develop and implement a plan to evaluate “climate-change risks and vulnerabilities to manage the effects of climate change on the agency’s operations and mission in both the short and long term.”To be sure, the new CEO’s agenda will involve figuring out how MCC fits in the larger aid architecture, including through participation in the Presidential Study Directive and the Quadrennial Diplomacy and Development Review.  But even as MCC confronts these and other reforms, including priorities highlighted in recent CGD analysis, MCC can take steps to engage more closely with the private sector, explore potential investments in clean energy and make progress on confronting climate change.  Here are five suggestions for future action:First, MCC can incorporate climate change considerations into the due diligence process of compact development.  The agency has already included important questions about climate change in its infrastructure due diligence questions; other sectors, such as land and agriculture, should also be considered.  Here, the agency may be able to leverage and expand its relationships with other donors, such as with the UK Department for International Development (DFID), which has an active climate change program, collaborate with private sector firms active in renewable energy with whom it has existing ties, such as GE, or develop closer ties to other institutions such as the World Bank, which has climate change toolkits.  Closer collaboration can help ensure future investments take advantage of cutting edge technology for mitigation, include consideration of low-carbon alternatives when appropriate, and are sustainable in the face of potential changes in future climate conditions.Second, MCC can engage the private sector and explore potential  investments in renewable energy through carbon finance – offering MCC partner countries the opportunity to work with private sector project developers to capture the value from international carbon credits that flow from compact investments.  At least six of MCC’s current compacts – including Georgia, El Salvador, Nicaragua, Mozambique, Morocco and Tanzania – include specific climate change or carbon finance project activities in the signed compacts.  MCC should help ensure that partner countries capture as much of this value stream as possible to enhance the sustainability of its investments.  MCC’s Private Sector Initiatives already have carbon finance as part of its private sector toolkit.  Taking advantage of these potential revenue streams where they are available and make sense should enhance project returns on investments; capturing them also raises the chances of long-term sustainability of MCC investments.Third, MCC can leverage private sector investment by enabling partner countries to increase returns by tapping carbon finance from future investments, particularly in new compacts.  It will be interesting to see if cases emerge where countries ask for these types of investments.  One potential country is Indonesia, where the combination of the Indonesian finance minister’s expressed interest in climate change-related projects and a recently-completed draft interim report on economic constraints (which noted that insufficient mainstreaming of climate change in development planning impeded environmental sustainability and missed opportunities to tap into available funding sources such as carbon credits) may result in a productive dialogue on climate change investments in the compact development process.Fourth, more broadly, MCC can provide guidance to partner countries and private sector stakeholders on the beneficial impact of renewable energy investments on economic growth and poverty reduction, much as it already does for other sectors – see agriculture, infrastructure, property rights and land policy, health, education and financial and private sector reform.MCC CEO Yohannes’ stated goals of promoting private sector involvement and renewable energy investments can go hand-in-hand and complement each other.  Early action on this front will not only underscore continued U.S. leadership in climate change as a key development issue but also support the broader goal of leveraging private sector investment to ensure sustainable long-term growth in MCC partner countries.