Rising geopolitical tensions mark the enduring need for international leadership from the United States, not only for our energy security and clean energy goals but also for U.S. allies and partners. The U.S. has made significant strides toward reducing carbon dioxide emissions while improving its energy security over several decades. However, reducing global emissions and curbing the ambitions of America’s adversaries will require both the deployment of next-generation clean energy technologies domestically and abroad.

U.S. export and development financing are key dimensions of American engagement around the world to address the dual imperatives of energy security and clean energy deployment. To this end, the International Development Finance Corporation (DFC) is a key, independent agency within the U.S. government that works with the private sector to finance projects that address pressing international challenges, including energy and critical infrastructure.

Congress formed the DFC in 2018 with bipartisan support amid growing competition for overseas infrastructure projects. Alongside partner agencies, the DFC brings unique flexibility and capabilities – such as direct equity investments – that are important for U.S. energy diplomacy. The DFC’s upcoming reauthorization in 2025 will provide an opportunity to reinforce and enhance its unique capacity to drive international impact with American-backed energy.

Making Energy a Priority

Since its creation, the DFC has made some notable geostrategic clean energy investments. For example, the DFC recently invested in TechMet Limited to develop nickel and cobalt resources in Brazil and approved a $500 million loan to set up First Solar’s India factory, both of which help to diversify clean energy supply chains away from China.

Additionally, in 2020, the DFC removed its moratorium on funding nuclear energy projects. Lifting this ban enhanced DFC’s potential impact by allowing it to support the commercialization of clean, firm energy in strategically important areas and create markets for the U.S. nuclear industry. The DFC has submitted letters of interest to support $1 billion in advanced nuclear projects in Poland and Romania. Although the DFC has expressed interest in these cases, it is yet to robustly engage in supporting nuclear energy projects.

The DFC committed to growing its climate-focused investment to 33% of new investments by fiscal year 2023. However, this will likely require significant expansion of energy investments, which only made up 18% of outlays from 2020-2022.

DFC Energy Financing (2020-2022)

Source: USASpending.gov,ForeignAssistance.gov; Data represents the DFC’s total outlays and does not include political risk insurance.

Energy systems” pertains to projects broadly aimed to improve energy reliability and affordability.
“Other” includes a combination of smaller scale clean energy projects such as a hydrogen project, geothermal project, agriculture project and a critical minerals project.

Looking Ahead: Enhancing DFC’s Clean Energy Capabilities

The DFC is slated for reauthorization in 2025, presenting an opportunity to improve its efficiency and impact. Six improvements that could significantly expand DFC capabilities to promote U.S. national and economic security through energy investments, while retaining its core developmental mandate are:

1. Expand Expertise with Personnel – The DFC could have a greater impact with more geographical and domain-specific expertise. The DFC was originally constructed in teams based around its products. However, the DFC’s leadership has proposed reorganization to focus on sectors like energy. In doing so, it will be important for the DFC to build personnel capabilities in areas such as nuclear power, long-duration energy storage, carbon capture and critical minerals in order to better structure deals and make strategic investments.
2. Investment Scoring Fix – Despite being the only agency with Congressional authorization to make direct equity investments, this critical tool has largely gone unused. This is due, in part, to how the investments are “scored” from a budgetary standpoint. In particular, the DFC’s equity investments are scored like a grant instead of a loan, so it assumes no return on the investments made. Thus, this method of scoring requires significantly more budget authority, especially for larger projects, which limits the ability to invest in such projects. In a recent Senate Foreign Relations hearing, DFC CEO Scott Nathan noted that fixing the equity scoring challenge was his “highest priority.” Senators John Cornyn (R-TX) and Chris Coon (D-DE) recently introduced legislation (S.3005 – Enhancing American Competitiveness Act of 2023) proposing a fix.
3. Contingent Liability Cap – The DFC has the authority to maintain up to a $60 billion project portfolio from the U.S. Treasury. In comparison to the capital expenditure needed for large-scale infrastructure projects, including clean energy, $60 billion in total financing is not adequate. For perspective, since 2000, Chinese state-owned banks have provided over $234B in international financing just for energy sector projects. Expanding the DFC’s liability cap to $100B, as proposed in S.3005, or introducing an automatic inflation adjustment would give significant breathing room to make more impactful investments.
4. Loan Size Cap – Large projects like nuclear power plants, mines for critical minerals and energy supply projects require large investments. The DFC currently has a hard cap of $1 billion for an individual loan or guarantee. Raising this, tying it to a fraction of the portfolio, or removing it entirely would allow DFC greater flexibility to invest in large-scale energy projects.
5. Middle-income country restrictions – The DFC currently requires a waiver to work outside low-income countries. Expanding the DFC’s country eligibility would allow for higher-impact investments in Southeast Asia, South America and Eastern Europe, all aligned with strategic goals. This is relevant for larger economies where global carbon emissions carbon emission reduction potential is greater but still requires significant developmental support.

DFC Energy Financing by Region (2020-2022)

Source: USASpending.gov,ForeignAssistance.gov; Data represents the DFC’s total outlays and does not include political risk insurance.

6. Addressing Currency Risk – One of the biggest challenges for developing bankable projects in emerging markets is currency risk (e.g., when the local currency loses value while the original liabilities remain denominated in U.S. dollars). The DFC already has statutory authority to make loans in local currencies but could benefit from additional safeguards. Taking on some currency risk, either by lending in local currency or by cost-sharing risk out of its program account, could make some projects more viable for the DFC.

For a relatively new federal agency, the DFC has already established itself as a key player in the United States’ global strategic and development efforts. To hone the DFC’s capabilities, targeted improvements and enhancements can allow it to make the most efficient use of relevant resources. The 2025 upcoming reauthorization for the DFC is an opportune time to cut bureaucratic red tape and make meaningful changes, empowering the DFC to be an even more impactful player in America’s clean energy strategy around the world.

Monsoon rains lashed a hazy coastline as energy ministers gathered in Goa, India, for the G20 Energy Transitions Ministers’ Meeting last month for the latest rounds of deliberations, quarrels, and announcements about the world’s clean energy and climate future. Modest progress was made among the parties to acknowledge and advance the role of critical technologies like hydrogen and carbon capture utilization and storage (CCUS); however, other conversations predictably broke down casting a gloomy picture for global clean energy deployment.

Russia and Saudi Arabia shoved back an agreement to triple renewable generation capacity by 2030, and China blocked cooperation on critical raw materials. Officials failed to agree on language criticizing Russia’s invasion of Ukraine that threw energy markets and supply chains into turmoil. Ultimately, the negotiations closed without an agreed joint communique ahead of the G-20 leaders meeting next month, instead settling for a non-binding “outcome document and chair summary.”

As intermittent blackouts shut out the lights in my hotel room in Goa, the plodding diplomatic progress of the G-20 ministers’ meeting stood in stark contrast to the immediate opportunities that exist to deliver energy security for the U.S., India, and other like-minded countries and address the global climate challenge.

Alongside the G-20 discussions, the Clean Energy Ministerial and Mission Innovation (CEM/MI) held its annual meeting. The CEM/MI is the only regular gathering of energy ministers focused exclusively on clean energy, with the hosting of the Ministerial meetings changing every year among the CEM/MI member governments. These conversations helped bring perspective to rapidly developing nations like India where energy security and reliability are equally imperative to deploying more clean energy. For the early part of this century, the country has exuded optimism and expectation for a brighter future, and it is remarkable to see the growing vibrancy of India’s clean energy policy ecosystem. However, on this trip I also heard true anxiety from friends in India – young urbanites in comfortable jobs, not subsistence farmers – about their future ability to live in the country with increasingly harsh weather conditions. Unfortunately, these worsening conditions and this growing anxiety are not unique to India.

That is why pragmatic American leadership with international partners – like India – is needed at multilateral energy and climate forums like CEM/MI to drive forward better understanding of next-generation technologies. It was very encouraging to see the prominent and deeply technical debates about CCUS technology happen in Goa. A decade ago, this was not the case with many in India and other countries outright dismissing the technology. Hydrogen was another hot topic of promising debate with thoughtful conversations about the pros and cons of green hydrogen versus – pick your color hydrogen – and the crux of ultimately figuring out how demand can meet supply.

Yet, there were notable gaps in the discussions at CEM/MI. The important role of advanced civil nuclear power in the global energy mix was mostly relegated to the far corners of conversation among us subversives who already believe in the technology’s game-changing potential for clean baseload generation. Likewise, there was surprisingly little talk about geothermal energy, hydroelectricity, and long-duration energy storage as essential pieces of the power puzzle. These areas and more should be elevated by U.S. delegates at the next CEM/MI gathering next year in Brazil.

Finally, there’s always the question of financing, with developing countries seeking solutions from developed countries. How can governments and the private sector better partner to design bankable clean energy projects at scale? The U.S. leverages agencies like the Development Finance Corporation (DFC), the Export-Import Bank (EXIM), and the U.S.-Trade and Development Agency (USTDA) to provide tools and lending options to bridge the financing gap in developing countries. But financing is not a silver bullet. In India, for example, the balance sheets of most of the public sector electricity distribution companies are not in good shape and inhibit the amount of clean energy that can be brought to the grid. The U.S. can only do so much to help partners and allies, and sometimes they need to make hard decisions to help themselves so that we can solve shared challenges together.

With every challenge comes opportunity, but you have to see it to seize it. Gatherings like CEM/MI are where problem solvers can exchange learnings and viewpoints to discover opportunities faster than they would on their own, and work toward achieving the international clean energy advancements we need.

The dual imperatives of addressing energy security and climate change are inherently international. The world needs more energy, and emissions know no borders. ClearPath sees a future where America and like-minded partners lead the world in addressing climate change by developing and deploying the most innovative, market-competitive clean energy technologies. U.S. emissions are a smaller and smaller part of the global total, now roughly 11%, which emphasizes the need for the U.S. to work effectively with international partners and allies because our efforts at home will not be enough to solve our energy and climate challenges alone.

The U.S. has built a good track record, AND we need to do more.

We must be clear-eyed about the intense global competition the U.S. faces. For instance, since 2000 China has become a dominant player of global energy finance, issuing over $234 billion in loans for energy projects to roughly 68 strategically-significant nations, with about 75% of that directed towards coal, oil, and gas development. For perspective, from 2016-2021, China provided more energy project financing around the world than all major Western-backed Multilateral Development Banks combined. In order to compete effectively, the U.S. needs to make better use of the policy tools we already have, and design new ones.

Energy Finance Commitments by Major Development Finance Institutions, 2016-2021

Official project databases of each development finance institution (DFI); China’s Global Energy Finance (CGEF) Database, 2022. Boston University Global Development Policy Center.

What’s Past is Prologue

Some of the most impactful tools in America’s toolkit are international trade and financing policies, and this is nothing new. Institutions like the U.S. Export Import (EXIM) Bank were established in the wake of World War II, engaging in the reconstruction of Europe and Japan, then evolved in the 1950s and ‘60s to help American exporters gain a foothold in emerging markets and later supported large-scale infrastructure projects in the ‘70s. In 1985, President Ronald Reagan signed the United States’ first free trade agreement into law, the U.S.-Israel Free Trade Agreement, which helped America solidify one of its closest strategic partnerships that now spans nearly every domain including commerce and clean energy technologies.

The world has changed a lot since the Reagan era. The expansion of China’s Belt and Road Initiative and Russia’s 2022 invasion of Ukraine have underscored the need for United States international leadership, not only for our own energy security, but also that of our partners. This can be supported through exports and financing of technologies that reduce reliance on adversarial nations while reducing emissions. Concerted action with our partners and allies through trade and financing can be an essential counterweight to other nations that do not have our best interests, nor the world’s climate, at heart.

A recent example of the strategic role that American financing can play for clean energy is the development of Poland’s first nuclear plants. The Trump Administration led a key Intergovernmental Agreement (IGA) between the U.S. and Poland to develop Poland’s civil nuclear power program and industrial sector. That agreement clearly articulated America’s intention to leverage the U.S. EXIM Bank and other government financing institutions for Polish reactors. Subsequently, the U.S. Trade and Development Agency (USTDA) funded an initial engineering study for Poland to assess the viability of Pennsylvania-based Westinghouse Electric Company’s AP1000 reactor technology. These efforts culminated in November 2022 when the U.S. Government tabled a comprehensive, competitive technical and financing package, and the Polish Government chose Westinghouse’s reactor, in a deal worth roughly $40 billion. Building on that, in April 2023 EXIM and the U.S. Development Finance Corporation signed an agreement to finance up to $4 billion for another Polish project that could support the U.S. export of GE Hitachi’s small modular reactors. These kinds of projects bring geostrategic, economic, and climate benefits to the people of Poland and the United States, and are made possible by the backing of American financing.

Painstakingly negotiated trade agreements, like the U.S.-Mexico-Canada Agreement (USMCA), are also an important lever to promote high-standards American industrial practices abroad. Among the provisions of USMCA are enforceable requirements for Canada and Mexico to effectively implement their environmental laws, including air quality and emissions, without weakening those laws just to promote their own exports and investment. Other provisions commit the countries to enhancing trade and investment in environmental goods and services, including clean energy technologies, by eliminating tariff and non-tariff barriers. Agreements like these can help create the economic conditions to support clean technology innovation and deployment, while establishing a bulwark against nations that do not adhere to such standards. America’s network of trading partners is a powerful dimension of global leadership and should be continually expanded and improved, in part, to help combat environmental arbitrage.

Exciting Opportunities for Policy Changes

Both the example of Poland’s civil nuclear program and the USMCA – initiated under conservative leadership and implemented in a bipartisan manner – took years to come together. Unfortunately, this type of coordinated effort across U.S. federal agencies is the exception not the norm. Many of the best tools, such as the Development Finance Corporation, are often disconnected from the rest of the government financing tools and clean energy goals. This is not an effective way to compete with rival countries where there is far more strategic alignment across agencies and often their non-market, state-owned enterprises.

That’s why we need to better leverage existing tools and build new ones in order to reach our future clean energy and climate ambitions.

A good example of a needed fix is EXIM’s China Transformational Exports Program (CTEP). This program has a Congressional mandate for EXIM to support U.S. exporters facing competition from China in 10 key Transformational Export Areas. One of those export areas is “renewable energy, energy efficiency, and energy storage.” Conceptually, the program could be a valuable lever for all clean energy technology providers (and the financing needs of foreign customers) facing unfair competition. But unfortunately – to the detriment of our geopolitical, clean energy, and climate goals – limiting this program to renewable energy sources alone leaves out important technologies like advanced nuclear, carbon capture and storage (CCS), and hydrogen. In an all-of-the-above energy competition with China, CTEP deserves a common-sense revision to be more technology neutral when it comes to clean energy if we’re serious about competing and winning on exports and against climate change.

For years the United States led negotiations on a high-standards Environmental Goods Agreement (EGA) to lower trade barriers on clean energy technologies. Although the negotiations were not completed, significant progress was made. For many of the clean energy products previously under consideration for an EGA U.S. tariffs are already very low compared to tariffs American exporters face in foreign countries. Accordingly, an EGA would help open international markets to U.S. clean energy technologies that are being rapidly demonstrated and deployed. An ambitious EGA would reduce the price of U.S. clean energy abroad, helping other countries lower emissions affordably while supporting American jobs. There has been recent bipartisan interest in pursuing a new EGA to help modernize the global trading framework, and the U.S. should seriously consider getting back to the negotiating table.

Clean Energy + Trade = Jobs

These are just a couple examples as to why every tool in our policy toolkit should be available – and sharpened – to address massive global challenges like energy security and climate change. No nation will use a single clean power technology, every country will need to find the right mix given its national circumstances, geography, resource endowments, and pre-existing industry. Our competitors are bringing enormous resources to bear in an effort to dominate these markets, which requires the United States to be more agile and strategic in order to advance our long-term goals. But with the right policies in place, and in coordinated action with partners around the world, our energy and climate future will be bright, at home and abroad.