Rare agreement in Congress could lead to climate lending

Source: Jean Chemnick, E&E News reporter • Posted: Tuesday, April 24, 2018

Legislation to reform the way the United States does international development finance stands a chance of becoming law by the end of this year.

In a rare example of bipartisanship in Washington, bills in both chambers of Congress have the support of Republican committee chairmen, Democratic lawmakers and the White House.

The legislation seeks to modernize U.S. development aid to make it competitive with China’s sweeping Belt and Road Initiative and European development banks.

In an appearance at the Center for Strategic and International Studies on Thursday, Sen. Chris Coons (D-Del.), who sponsored a bill with Foreign Relations Chairman Bob Corker (R-Tenn.), said the reorganization would also support the 2015 U.N. sustainable development goals. That includes tackling climate change, ensuring water and food security, and expanding clean energy access.

“I believe the United States should and can play a leadership role in marshaling the world’s efforts toward achieving these goals by 2030,” said Coons, who also serves on the Foreign Relations Committee.

He added that large grants made by the United States to other countries, the traditional way of financing projects, are not the “the most effective or the most efficient way to harness the resources necessary to bring the world’s poor out of poverty.”

Instead, he prescribed finding ways to mobilize private capital to meet objectives including poverty alleviation and climate adaptation.

The Corker-Coons bill and a similar one introduced in the House by Reps. Ted Yoho (R-Fla.) and Adam Smith (D-Wash.), which has already received a hearing in the Foreign Affairs Committee, would overhaul the U.S. lending process. The bills would create one self-sustaining international development agency, in place of four institutions sometimes described as duplicative. Three of the existing programs are housed at the U.S. Agency for International Development, and one is the Overseas Private Investment Corp. (OPIC).

The proposed agency, called the International Development Finance Corp., would be authorized for an extended period of time to make it less exposed to annual government funding battles. The Senate proposes authorizing it for 20 years, and the House offers seven years.

Unlike OPIC, it would be allowed to buy equity in projects. Chinese and European institutions have long done that, and proponents of the U.S. legislation say it would allow the United States to invest in riskier, more impactful projects.

The new lending corporation would be allowed to take on up to $60 billion in liability, compared with the $29 billion limit at OPIC. Supporters say the higher limit could help the proposed institution leverage more private capital.

OPIC has invested about $1 billion annually in renewable energy abroad, driven by demand in those countries and by an internal policy on greenhouse gases. If those activities are transferred to the proposed agency, it could become a major custodian of U.S. climate finance for years to come.

Kelly Stone, a senior policy analyst at ActionAid USA, questioned whether leveraging profit-seeking private capital is the best way to fund development work.

“The danger becomes that it’s a product or a solution that’s in search of a problem, as opposed to starting with the community and learning what their needs are and then having them dictate where they want to go,” she said.

Coons said he hopes the Foreign Relations Committee will vote on the bill in May. He predicts it could become law by year’s end.

It’s a bright spot in an otherwise divisive time for the committee. Corker presides over a committee vote today on the nomination of CIA Director Mike Pompeo to be secretary of State — a vote Coons said Friday he would oppose.

The bid to streamline development finance also comes as the State Department and USAID are emerging from a year in which U.S. influence abroad has wavered. President Trump withdrew from the globally popular Paris climate agreement, antagonized trading partners by seeking to reopen trade deals and introduce tariffs, and demanded that allies shoulder a greater share of mutual defense costs.

Meanwhile, China continues to consolidate its economic and diplomatic influence abroad through its $1 trillion Belt and Road Initiative, a massive global infrastructure program operating in 70 countries.

Much of the energy infrastructure China builds abroad is not low-carbon. Chinese lending institutions have pumped billions of dollars into coal-based infrastructure in countries like Indonesia, Bangladesh and Vietnam over the last 15 years.

The European Investment Bank, the European Union’s nonprofit lending institution, debuted its first green bond to support climate-related projects in 2007. On Friday, it used the International Monetary Fund and World Bank spring meetings in Washington, D.C., as a backdrop to introduce a new bond to finance sustainable development projects like water infrastructure. It’s unclear what countries would be the beneficiaries.

Simon Zadek, co-director of a U.N. inquiry on sustainable financial system design, said the United States doesn’t need its lending institution to drive climate mitigation.

“Focus on where the money is,” he said. “It’s never going to be in the U.S. development bank. It’s going to be in the United States’ extensive and deep capital markets, the most important capital markets on the planet.”