Opinion: DFC — end fossil fuel financing for good

As the world’s newest development finance institution, the U.S. International Development Finance Corporation — formerly the Overseas Private Investment Corporation — has a great opportunity to become a leader in sustainable energy. With the outsized impact that climate change has on low- and middle-income countries, investing in projects that promote a clean and sustainable environment is critical if DFC intends to make good on its mission to reduce poverty and support sustainable development. COVID-19 has only made this more urgent, demonstrating the need to invest in projects that do not intensify pollution or that put workers and communities at risk. A surge in support for both renewables and fossil fuels A new report from Friends of the Earth shows that until 2010 OPIC provided nearly no support for renewable energy projects. Recently OPIC has taken positive steps, investing an average of almost $800 million each year in renewable energy projects over the past decade. While much of this money has gone toward large renewable energy projects, many of these investments have helped fund smaller off-grid and minigrid renewable energy projects. However, OPIC’s investments in fossil fuel projects have also increased. Over the past 15 years, OPIC has invested an average of $357 million into fossil fuel projects annually; in 2019, it provided almost $1.8 billion for fossil fuel projects, including a $450 million investment to support two fracking projects in Argentina’s Vaca Muerta basin. This development is having severe impacts on the environment and Indigenous communities in the area. For example, the drilling has resulted in water pollution and negative health impacts on the Indigenous Mapuche and their livestock. Additionally, most OPIC investments were skewed toward wealthier countries and larger economies such as Chile and India. DFC should follow the U.S. African Development Foundation’s lead, which has invested in 75 off-grid energy projects in low- and middle-income countries, illustrating how finance institutions can improve access to clean and affordable electricity. Increase support for renewables while phasing out support for fossil fuels While OPIC made many positive strides in the past to support renewable energy projects, there is much work for DFC to do. By increasing investment in renewables and cutting fossil fuel investment, DFC will be better positioned to deliver on its mission to reduce poverty and aid sustainable economic development in the world’s poorest countries. Renewable energy, especially small-scale renewables, is the best way to provide LMICs with energy access that is clean and less expensive than fossil fuels. Many such countries do not have the energy infrastructure necessary for fossil fuels, making them better suited for renewables. In order to aid renewable energy development in these countries, DFC should continue to fund smaller companies. It also needs to cut its support for fossil fuel projects. The billions that OPIC, and now DFC, have invested in fossil fuels has severe consequences for the environment and local communities. Continued support for fossil fuel projects directly undermines DFC’s goal of improving economic development in LMICs; DFC’s investments in fossil fuel projects will now trap such countries into relying on polluting energy for decades to come. Furthermore, fossil fuel projects will exacerbate the effects of climate change, which disproportionately impact LMICs and economies. Strengthen emission cap and reduction schedule In 2009, U.S. Congress mandated that OPIC develop a climate policy to cap and phase down fossil fuel investments and increase renewable investments. This came in the wake of a lawsuit brought against OPIC by Friends of the Earth U.S., Greenpeace, and several U.S. cities. This Congressional mandate required OPIC to reduce greenhouse gas emissions associated with its projects by 20% in 10 years, and to reduce fossil fuel financing by 30% in 10 years, and 50% in 15 years. However, OPIC wrote its policy to only apply to direct emissions in its active investment portfolio. This meant that it did not have to report any emissions from projects where financing had been terminated or report any upstream and downstream emissions from their projects. OPIC’s climate policy did reduce its annual greenhouse gas emissions from the projects it financed. However, the flaws in OPIC’s climate policy implementation are clear and DFC must learn from those past shortcomings. Since the creation of OPIC’s climate policy, the science and global understanding of climate change has improved significantly, and DFC should improve its policies accordingly. DFC must account for greenhouse gas emissions for the entire lifetime of its projects, not just for the time projects are in its portfolio. These projects continue to pollute even after DFC’s investment in the project is done, so those emissions should continue to count against its emission cap. DFC should also account for all emissions, both direct and indirect, from its supported projects. All of these emissions should count toward DFC’s greenhouse gas emissions cap to accurately reflect the true impact of their financed projects and push DFC to continue making progress to address climate change. Currently, many other development finance institutions around the world have more advanced climate policies. The European Investment Bank, for example, plans to cut virtually all coal, oil, and gas investments by 2021. DFC must learn from the shortcomings of its predecessor and the examples of other DFIs and develop policies to invest more heavily in renewables and end fossil fuel financing for good.