By Brendan Guy and Jake Schmidt
During the investment segment of the Leaders Summit on Climate last week, President Biden announced the U.S.’s international climate finance plan. The plan outlines how the US will scale-up international climate finance, with some top-level indications of how much they are aiming to provide over President Biden’s first term. These are smart investments for America that will spur clean energy opportunities around the world, reduce the costs of disasters, and help avoid conflicts. They will help unleash stronger global climate action by mobilizing investments to slash emissions and help the poorest address the impacts of climate change.
The international climate finance plan has four key components:
1. Ramping-up public finance – spurring developing country action
The Biden-Harris administration will seek to double annual public climate finance to developing countries by 2024, including a tripling of its adaptation finance. These figures are relative to the final three years of the Obama administration when climate finance was at its highest level. That equates to a goal of $5.7 billion in public climate finance per year by 2024, with around $1.5 million for adaptation finance (up from $2.8 billion and $500 million, respectively, during fiscal years 2013-2016). This would be an important increase in U.S. investments from the last fiscal year and an increase from the amount that President Biden recently requested for the coming fiscal year.
The U.S. is moving quickly to dig out from the giant hole from the last four years and go well beyond the climate financing of the Obama administration given the greater need and urgency. The figures outlined in the plan should represent the floor from which the Biden-Harris administration should work with Congress to significantly ramp-up U.S. investments in international climate action. And the U.S. should continue to provide high percentages of climate finance as grants (rather than loans) to best support vulnerable countries in combatting climate change.
Many of the U.S.’s partners are already sprinting ahead, having doubled their climate finance from 2015-2020 and seeking to double it again from 2020-2025. Importantly, the U.S. will be hamstrung in unlocking climate action from other major emitting countries if it doesn’t significantly scale-up its climate finance. Major countries are already pointing to the U.S.’s lack of ambitious climate finance as a reason to doubt its climate influence, so bolstering American global climate leadership requires strengthened finance commitments.
2. Deploying all the financial tools of the U.S. – a true whole-of-government strategy
The climate finance plan recognizes that to scale-up resources and be even more effective, it is essential that all the U.S. investment tools are deployed towards a net-zero emissions future. That means deploying traditional mechanisms by which the U.S. supports climate action through multilateral funds—like the Green Climate Fund (GCF), Montreal Protocol, Global Environment Facility (GEF)—and bilateral mechanisms—such as the U.S. Agency for International Development (USAID), State Department, Department of Energy, and Commerce Department. But it also means deploying other tools like the International Development Finance Corporation (DFC), Millennium Challenge Corporation (MCC), and U.S. investments through the multilateral development banks (MDBs) such as the World Bank, Asian Development Bank, and African Development Bank. Each funding mechanisms has its own need to step-up investments in climate-friendly strategies and away from investments that are driving the climate crisis. And each brings a different tool that needs to be aligned to work in synch to realize a net-zero emissions future.
The plan calls for the new International Development Finance Corporation (DFC) to transition its portfolio to net-zero emissions by 2040. The DFC is a powerful tool to mobilize finance at scale for the global clean energy transition and create export opportunities for U.S. workers. It should seek to align its portfolio with net-zero emissions early in this decisive decade with negligible ongoing emissions. It will be difficult to reconcile one arm of the US government conducting fossil fuel deals while other arms are prioritizing renewable energy projects.
The plan also calls for the Millennium Challenge Corporation (MCC) to allocate more than 50 percent of its funding to climate-related investments over the next five years. MCC needs to ensure its investments in this decisive decade are aligned with a clear 1.5 Celsius (2.7 Fahrenheit) trajectory.
Finally, the plan calls on the Treasury Department to push multilateral development banks to set and adhere to ambitious climate finance policies, as well as to channel export financing away from climate polluting activities (additional context below).
3. Ending public financing of overseas fossil fuel projects – stop digging and drilling
The plan provides new signals of how the U.S. intends to drive forward efforts to “end international official financing for carbon-intensive fossil fuel based energy.” This is an urgent priority since the U.S. has provided over $44 billion dollars for fossil fuel projects overseas in the last decade. The plan must be followed by more concrete implementation measures for all agencies and institutions.
There are models that can be strengthened to help deliver this needed shift. They include enhancing the Treasury Department guidance on how the U.S. votes at the multilateral development banks to cover the full supply across the fossil fuel value chain and apply to all funding streams. And they include looking at how the European Investment Bank—with some similarities to the DFC—is transforming itself into a “climate bank”.
This is a clear signal the United States will move away from financing coal, oil and gas projects overseas.
4. Shifting the trillions of private finance – getting on track for zero emissions
The plan also outlines some steps to help drive private finance away from dirty energy and deforestation and towards net-zero emissions before 2050. This includes engaging through international forums to require financial risk disclosure and helping develop “bankable” projects. The plan contains several indications that the U.S. is going to assist developing countries in attracting private finance for their projects such as through using U.S. public technical and financial support to develop scalable projects that are ripe for attracting the trillions of private investments that are ready to be deployed for climate action.
Laying the foundation to finance a net-zero emissions future
This plan is an important step toward providing the high-impact U.S. climate finance needed to mobilize the world around the climate challenge. The plan must set in motion a robust process for all agencies to put addressing climate change at the center of their financial programs. And it must ensure the U.S. provides both the quantity and quality of climate finance required to effectively address the climate crisis starting now.
The administration’s international climate finance plan lays the foundation to take U.S. climate finance to the next level.