Since 2009, the U.S. has increased its climate finance for developing countries fourfold to $2.6 billion in 2015. U.S. climate finance was spent across three main areas: mitigation, such as clean energy; adaptation, such as helping farmers integrate weather risks into their production to build resilience; and supporting improved forest management and reducing emissions from deforestation and forest degradation. The United Nations refers to these activities as REDD-plus, but the U.S. categorizes them under the broader term “sustainable landscapes.”
In Nov., then President-elect Donald Trump said he would “cancel billions of dollars in global warming payments to the United Nations.” Trump’s presidential transition team also asked State Department officials to disclose which funds it gives annually to international environmental groups and has raised doubts about America’s future commitment to the Paris climate deal. Shortly after Trump took office, the official White House website deleted almost all mentions of climate change, except for Trump’s promise to get rid of the Obama administration’s climate change policies.
While no one knows for sure exactly what the Trump administration’s climate change policies will be, there are plenty of questions over what will happen to the billions of dollars the U.S. government dedicates to the cause.
Answering some of those questions starts with understanding how the U.S. spends this money and what is potentially at stake under the Trump administration. So Devex examined the three main funding channels for U.S. international climate finance flows and how each might be affected by President Trump.
Congressionally appropriated grant-based assistance
Congress allocates support for climate-relevant projects through both multilateral and bilateral channels. Bilateral assistance is programed directly through country-specific, regional and global programs, primarily under the U.S. Global Climate Change Initiative. The GCCI is one of three pillars of Obama’s Presidential Policy Directive on Global Development — the first of its kind under any U.S. administration. It was launched in 2010 when the U.S. Agency for International Development and the Departments of State and the Treasury started working together to undertake a more extensive climate change program. From 2010 to 2016, funding for the USAID Global Climate Change Initiative hovered between $300 million and $400 million.
As part of the broader GCCI effort, starting in 2012, USAID set out a new and more comprehensive approach to addressing climate change in the developing world. USAID’s 2012 Climate Change and Development Strategy focused on clean energy, adaptation and sustainable landscapes. It also prioritized integration. The agency aimed to account for climate change in all of its programs to strengthen development outcomes and where possible, reduce greenhouse gas emissions.
While USAID administers most of the government’s bilateral assistance programs for climate change, it receives support from the Department of State, the Millennium Challenge Corporation — an independent U.S. government foreign aid agency — and other U.S. agencies. Since the George W. Bush administration, the U.S. has had bipartisan support for investment in climate change initiatives, but there is significant speculation that could change under Trump and a Republican-controlled Congress.
“While I don't expect President Trump to lead on international climate finance, U.S. programs that support low carbon development abroad will not disappear as some fear," said Nigel Purvis, who served in the State Department under both Presidents Bill Clinton and George W. Bush and now heads the D.C. consulting firm Climate Advisers.
Purvis’ position is based on the following argument: Programs that promote U.S. clean energy exports to developing countries are likely to continue because they are good for American companies. Furthermore, efforts to create more resilient societies can be defended on national security and humanitarian grounds rather than as climate adaptation, and international forest conservation programs tend to be popular with liberals and conservatives in Congress, he said.
An adviser to the Indian government warns of a cooling in relations if the incoming administration reneges on funding commitments. He and other climate experts have high hopes for riskier and more "business-driven" climate investments under the Donald Trump administration.
On the other hand, U.S. support for multilateral climate funds is less likely to survive, said J. Timmons Roberts, Ittleson professor of environmental studies and sociology at Brown University. Obama made waves last month when he pushed through a second $500 million installment to the Green Climate Fund despite Republican opposition. The U.S. originally committed to transferring $3 billion to the GCF, a key element of the 2015 Paris agreement on climate change.
Trump told the New York Times in Nov. that he would keep an “open mind” on the agreement. But, Myron Ebell, the former head of the president’s Environmental Protection Agency transition team, told reporters recently that Trump “will definitely pull out of the Paris climate change deal.” The United States’ $2 billion outstanding payment to the GCF is “very much in danger right now,” Roberts said.
Aside from the GCF, the U.S. provides money to numerous other multilateral climate funds. Between 2013 and 2014, the U.S. committed a total of $921 million to eight multilateral climate change funds, according to the 2016 Second Biennial report of the U.S. under the U.N. Framework Convention on Climate Change. The largest contributions went toward the Climate Investment Funds at the World Bank and the Global Environment Facility, which is the longest running dedicated public climate change fund.
Development finance through the Overseas Private Investment Corporation
The Overseas Private Investment Corporation is a U.S. development finance institution that mobilizes private capital to help solve critical development challenges. OPIC provides U.S. businesses with insurance, loan guarantees and other services needed to enter new or uncertain markets and help push forward U.S. foreign policy goals.
Renewable energy is one of the corporation’s key priorities. According to the latest overview of the Global Climate Change Initiative published by the U.S. State Department, finance for climate-related investments channeled through OPIC jumped from $155 million in 2010 to more than $1 billion in 2015. A significant portion of this money was directed toward key energy programs initiated by the Obama administration, such as the Caribbean Energy Security Initiative and Power Africa, the U.S. government initiative to increase power generation capacity and access to cleaner, more reliable electricity in Africa.
OPIC is one of the primary channels through which the U.S. government supports clean energy in the developing world. According to a 2013 working paper published by the World Resources Institute, from 2008 to 2012, OPIC had a climate-relevant portfolio in developing countries that was four times larger than the Export-Import Bank of the United States, the third main channel of U.S. international climate finance, despite the fact that the bank had a larger overall portfolio.
Still, the corporation faces challenges. It is more policy constrained than most of the other development finance institutions and has struggled with yearly authorizations since 2007. Most recently, Congress failed to renew OPIC for six months in 2008. According to some reports, the Trump transition team is using a 2016 report by the conservative think tank Heritage Foundation as the basis for the 45th president’s first proposed budget. The report cites OPIC as a candidate for elimination as part of Trump’s overall attempt to reduce federal spending. Heritage Foundation did not respond to requests for comment.
OPIC is self-sustaining through its own revenues, which include user fees and interest from U.S. Treasury securities. The institution generated $239 million for the U.S. government in 2016. Contrary to the storyline predicting OPIC’s demise, some development and energy experts express confidence that the agency will continue to exist.
“OPIC's activities are partly driven by what U.S. investors are interested in supporting in foreign markets,” said Paul Bodnar, who served as a senior advisor to Obama on climate change issues and is now a managing director at the Rocky Mountain Institute. “The dramatic increase in clean energy lending by OPIC — again, at a profit to U.S. taxpayers — is a function of the growth of these markets and the opportunities they present for American investors. It would be self-defeating for the new administration to artificially curb these kinds of activities.”
Trump has yet to publicly announce his plans for OPIC, including whom he will nominate as its leaders. Bodnar said he expects that the new administration will explore how to overcome the current carbon cap on OPIC’s portfolio and expand its fossil fuel activities. “But it's not a zero sum game; OPIC is still well under its lending limit so it has room to explore its energy portfolio in a number of directions,” he said.
Export credit finance through the Export-Import Bank of the United States
The Export-Import Bank of the United States helps finance foreign purchases of American exports with the money the Ex-Im Bank earns from its loans and insurance lines. While the bank’s portfolio is mainly composed of big orders for aircraft and major manufacturing equipment, Congress requires the Ex-Im Bank to support renewable energy sources. It also allows U.S. exporters to sell key parts of renewable energy projects to project developers in developing countries at lower risk and hence a lower cost.
Unlike OPIC, the Ex-Im Bank offers direct loans that are generally channeled toward more developed projects and sectors. The bank combines low interest rates that decrease the cost of capital with long repayment periods of up to 18 years. This makes renewable energy projects particularly attractive since commercial lenders typically do not offer financing with such long repayment cycles. Also, unlike OPIC, the Ex-Im Bank is willing to get involved even if commercial financing is available as long as the Ex-Im Bank’s role fulfills its mandate, which is to promote U.S. exports and jobs. In 2015, the bank generated a surplus of almost $432 million, which was sent to the U.S. Treasury.
But for years some conservative Republicans called for closing the Ex-Im Bank, denouncing it as “corporate welfare” and “crony capitalism.” They succeeded in June 2015. But later that year, the Ex-Im Bank’s bipartisan supporters in Congress passed a bill authorizing the agency. The Ex-Im Bank, however, has been hamstrung by vacancies on the bank board, which means it cannot approve transactions over $10 million. Richard Shelby, a Republican from Alabama, who until recently was chairman of the Senate Banking Committee, blocked Obama’s nominees to the bank’s board, preventing it from achieving a quorum needed to approve big investments.
That seems to be having a negative effect on the Ex-Im Bank’s ability to fund clean energy. Caroline Scullin, Ex-Im Bank senior vice president of communications, said that several projects are being affected by the quorum, including a multibillion-dollar deal announced last year for Westinghouse to build six nuclear reactors in India. It is the first such deal since the U.S. and India signed a landmark civil nuclear agreement in 2008.
The Ex-Im Bank is reauthorized until Sept. 2019, but its rocky history is fueling concerns that it will not survive under the Trump administration. During the campaign, Trump said that the Ex-Im Bank “is unnecessary” and that he’d “be against it.” But, even if the bank survives, it seems likely to continue operating at a disadvantage. Shelby’s successor, Republican Rep. Mike Crapo, has voted against the bank’s reauthorization three times in four years. It seems unlikely that he will push through whomever Trump chooses to nominate to the board, if Trump does indeed nominate someone.