June 29, 2021 - From the June, 2021 issue

US Development Finance Corporation’s First Chief Climate Officer—Jake Levine on Slingshotting Global Development Beyond Fossil Fuels

In alignment with the Biden administration’s commitment to a government-wide approach to combatting the climate crisis, Jake Levine was appointed to serve as the first Chief Climate Officer of the US Development Finance Corporation tasked with guiding the agency to a net-zero portfolio by 2040. With $60 billion to invest through a variety of financial instruments, in this TPR interview, Levine shares how the DFC is totally rebalancing its investments towards clean energy and supporting climate adaptation, resilience, and economic development globally. 


Jake Levine

"Because climate change is so central to this administration's priorities and to our work on development abroad, the DFC has essentially created the most ambitious climate agenda of any major development finance institution in the world; we adopted a goal to be net-zero by the year 2040 and to invest at least one-third of our portfolio in climate-linked investments."—Jake Levine

Jake, comment on what your appointment by President Biden to be the first Chief Climate Officer for the US Development Finance Corporation says about the President’s priorities. 

As you know the Biden administration has made climate change one of its top priorities. Addressing the climate crisis is central to a number of the other issues core to the administration’s agenda in terms of economic revitalization, both domestically and internationally, and also in terms of how the administration orients itself around the crises of racial inequity, income inequality, and economic injustice. 

It is striking how much these crises, which are playing out inside the United States, also have their echoes felt abroad and around the world. A number of the most important opportunities that we have in front of us, especially on climate but on each of these issues, fall outside of the borders of the US. Just one example, if you look at where emissions will be coming from, something like 85-95 percent of global greenhouse gas emissions will come from outside the United States in the next 80 years. And so, if the US is seeking to rebuild economic stability and create economic opportunity and opportunities for growth, and especially growth in the global middle class, doing that in a climate smart and resilient way is sort of central to what this administration is doing. 

You mentioned the agency where I'm working, it's an agency that was created by a 2018 statute – the BUILD Act – and is called the U.S. International Development Finance Corporation (DFC). The mission of the DFC is to mobilize the private sector to invest in development abroad. And because climate change is so central to this administration's priorities and to our work on development abroad, the DFC has essentially created the most ambitious climate agenda of any major development finance institution in the world. We adopted a goal to be net zero by the year 2040 and to invest at least one-third of our portfolio in climate-linked investments. 

We are authorized by Congress to spend up to $60 billion through a variety of financial instruments, ranging from technical assistance and equity financing to debt and project financing and insurance, and so we intend to bring those tools to bear against those goals.

Speak to the feasibility of actually sling-shotting low-income countries past fossil fuel investments and overcoming the notion that economic development for those countries necessarily results in increased emissions—as that seems to be the challenge you face.

It's a huge challenge, and it’s a challenge that's different depending on what region of the world you're talking about. But one thing that we're seeing generally—and we saw this in California starting in the 1970s—is that growth in GDP and growth in energy consumption, and particularly in the use of fossil fuels to create energy, are decoupling from one another; and there are increasingly very exciting opportunities to create economic growth with clean energy. 

So, in South Africa, Vietnam, or Brazil, you might not have seen a competitive bid for a solar and storage facility like the kind that LADWP signed a PPA for in 2019,  but you now see those projects around the world. We saw a tender come in recently in West Africa for solar and storage at 15 cents a kilowatt hour, so that's competitive with the types of prices that we're seeing here. 

It is still very difficult.  A lot of people talk about this notion of leapfrogging and taking some of the lessons that we've learned from telecommunications—where you don't necessarily have to build all of the poles and wires because everyone's just going to go wireless—and applying that to the energy sector.

That notion gets a fair amount of pushback when you're talking about parts of the world, like in Sub-Saharan Africa where 600 million people still have no access to electricity to speak of. I had an interesting conversation today with somebody who's very active in Nigeria in terms of clean energy investments and resilient infrastructure and doing a ton of work on e-mobility and electrification of the transportation sector.  She said one of the key challenges to vehicle electrification is not just putting the charging infrastructure in the ground – it’s that even then, there’s just not electricity. On the other hand, from another recent conversation with the finance and foreign ministers of an Eastern European country, I can report that there is serious interest from the highest levels of government in financing infrastructure pathways that seek to skip the conventional investments in fossil fuels, and move right on to clean energy. 

So, these are very different markets in terms of applying this question of a slingshot or leapfrog approach, but there are real opportunities to skip over fossil fuel infrastructure and that's really where DFC sits in this ecosystem.  These projects that are just on the cusp of being commercially feasible without public financing, we can push them over the edge by providing low-cost debt or technical assistance funding to get over the hurdle. 

With DFC an agency now only a couple years old and you only a few weeks on the job, what's the nature of the start-up conversations you're now having? 

First of all, it's been a treat to have calls every day with people who are at the leading edge of this challenge. They’re bringing really innovative thinking to bear on the most difficult markets and in business environments in the world where, for example, we might do a renewable energy deal that also has a component addressing unexploded ordnance from previous wars. So, there's a real excitement and sense of mission around what we're doing every day. 

I also want to just note that while it's true the agency is technically only a couple of years old, it was also really an amalgamation of a couple of existing agencies, plus some new people. It's important to recognize the really unbelievable work of the people who have been at the Agency for, in some cases, decades. These are folks from the US Agency for International Development (USAID), the Development Credit Authority, and also from the Overseas Private Investment Corporation (OPIC), who are non-political investment professionals.  They come in day in and day out, and their mission in life is to provide financing to help people essentially come out of poverty with access to education, energy, gender equity, and now a focus on climate. For me it's like being a kid in a candy store. I love it.

Elaborate on the Agency’s process for identification, maturation, and commercialization of these relevant technologies.

Absolutely. This is the really the fun part of working in a US administration. We get to leverage the tools of the entire US government towards these ends. We work very closely not only with our international climate finance buddies—which include predominantly the Special Envoy on Climate John Kerry and his team, the State Department, and USAID—but we work really closely with the Department of Energy, including the National Labs and some of the programs housed there around energy innovation, like ARPA-E and the Loan Program Office. And we also are able to work with partners in this community of climate focused allies around the world. 

It's an interesting question because on the one hand, some people might argue that what DFC should be focused on is just scaling technology that we already have. You might say, there's no time to deal with the innovation and you don't really need it because what we really need is bunch of wind, solar, and batteries just deployed at scale all over the world. 

But there are other folks who would say that's true, but in order to get there we need to be financing and supporting entrepreneurship, the growth of companies, and new technologies that can help enable that. So, we're kind of at each layer of the overall lifecycle—going from inception to commercial scale, and the gift of having such a range of financial tools, from grants to equity to debt, allows us to play in each of those sectors. And where we don't ourselves have the ability, we can hopefully line up support from our friends in the private sector and from other government agencies.

Jake, you’ve been ‘in the room where it happens’ in California and in Los Angeles and have observed the evolution of the public-private dance with cleantech and financial innovation. Are those lessons that you've learned stateside easily applicable to the international challenges you've now assumed?

Unquestionably. And you can use LA and California as a model for so much of what we want to do. I'll give you a couple of semi-concrete examples without disclosing any nonpublic information. 

There's a port project under consideration now, which is highly strategic for the US government to be involved in and is an opportunity to think about really decarbonizing and enhancing innovation in the way we do our global shipping and commerce. Part of what's interesting about what the DFC does—and this is written into the BUILD Act statute actually—is that we are very intentionally meant to be providing an alternative to financing that might come from non-democratic authoritarian governments who are interested in a kind of coercive, and sometimes exploitative, debt trap diplomacy and financing, deployed to advance dirty fossil energy projects around the world.

 And so, we think about these projects very carefully because we want to not only finance the economic growth potential that they have, but we also want to make sure that we're influencing the substance of the project so that when they're done, they can be a model for clean energy and resilient infrastructure elsewhere, where we may not be involved. 

Think about what the CPUC, the Energy Commission, and the state did on something like shifting into high gear on energy storage procurements in California both through statute and regulatory work but also on individual matters as they came up. Like on the Aliso Canyon procurement—recognizing that we have more work to do on Aliso Canyon— but that there was you know a consortium of companies like AES, Tesla, Greensmith, and others that came together to really quickly to deploy battery storage in that case. That's a lesson for us. Like right now, South Africa is dealing with load shedding and grid capacity issues, and they've got a huge amount of coal that the international community is asking them to retire ahead of Glasgow. If we can apply some of the lessons of how California and LA have confronted these challenges, I think that could be really useful in the developing world context.

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For our VX readers who are interested in some of these technologies and initiatives—you've mentioned solar storage, baseload power, and transportation—elaborate on the priority technologies or initiatives that already occupy much of your attention.

When we think about looking back on what we've done in three to five to ten years, we want to be able to articulate a cutting edge, diversified climate portfolio of projects that touch an array of industries. It's not just the energy sector or what you think of typically as climate projects like renewables, but we're also talking about transportation, supply chains, and industrial processes, such as decarbonizing cement and steel production.

 To that end, we would really welcome input from the community of readers that you have and consistently assemble. And I would note that there are a couple of specific live calls for interests that are out right now. We issued a call for applications for climate-focused funds, which can leverage some of our new authority under the BUILD Act to make equity investments. We can be a minority investor, and so we're looking for opportunities to team up with creative investors who are thinking about decarbonization writ large. 

We also have a call for applications for distributed renewable energy projects, which we would like to deploy specifically in regions of the world that have real issues around energy access and remote communities, either rural or otherwise. 

We are also contemplating how we might issue future calls for participation from the private sector in areas such as adaptation and resilience.

And we have an interest in supporting demonstration projects in some of the hard to decarbonize sectors like shipping, or in innovations that have breakthrough potential, such as green hydrogen, or long duration storage. These are big questions that everybody is grappling with, those are some areas that we're focused on.

You have asserted that DFC has the most ambitious Net Zero policy of any development finance institution in the world, which opens the door to the question: have you had an opportunity to have discussions with other country finance development institutions, and what's the nature of those conversations?

Let me just clarify, we’ve set 2040 as our net-zero target. Some might argue with my description because there are a couple of development finance institutions that have historically never invested in fossil fuels. But considering where we were—and particularly where we were after the last administration, which made some intensive fossil fuel commitments abroad—getting to net zero by 2040 is significant and it's going to be difficult. 

It essentially means that we're totally rebalancing all of our investments towards clean energy, and we have to count the emissions profiles of our non-energy sector investments. But to answer your question. It's really opened the door to really important conversations across the DFI community. 

A number of other countries would like to match what we're doing and understand how we are doing our accounting in terms of project-by-project emissions. We are in regular discussions with a number of them, such as our friends at the UK’s CDC Group. What are we thinking, for example, in terms of the carbon removal side of the equation, both in terms of being an off-taker for carbon credits and also investing in the types of technologies, including ocean-based and nature-based solutions that will be in much higher demand in a world where there's a price on carbon.

It's really been a door opener, and also something that I think allows us to provide some leadership and ambition on the world stage and encourages others to do the same. You may have seen that the G7 announced a pretty big announcement actually in the last meeting of the environment ministers a couple of weeks ago that they were no longer are going to finance coal projects overseas. I think that there's just this real momentum now, especially in the lead up towards Glasgow and a little bit of a friendly competition amongst the leading economies of the world to see who can do the most on climate

We’ve not yet mentioned one country in this conversation, India, to which the administration may appoint a very close friend of yours to be the ambassador. Elaborate on the potential of that relationship in the work that you do. 

It's probably the most important relationship that we have. I haven't mentioned it, but in some of the projects that I've alluded to, they've been India projects. We already have a sizable portfolio of renewable investments that we've made, of which a major portion of them are in India. We  actually would like to probably get out of some of them because we have country limits, and we want to do more, so we don't want to hit our limit too soon. 

India is a country that has a massive potential to be a model for moving away from coal and into clean energy, and also for developing these non-power sector interventions in decarbonization that we've been talking about whether that's hydrogen, steel, or cement because there's such a dynamism in the Indian economy and such a demand for these materials around the world. So, DFC is extremely focused on how we can help support India’s private sector with financing for a clean energy transition in India, specifically.

The other thing I should just say about it is one of the other major commitments that we've made—and this is an administration-wide commitment but

it's especially relevant to DFC—is that we're going to triple our investments in adaptation financing.  In India, there are communities that are experiencing the impacts of climate change in really truly devastating ways between drought and flooding and displacement, which leads to other security and public health issues. We feel that we have some really excellent partners on the ground who are articulating new models for how we can finance adaptation and invest in resilience. So we're going to be really focused on how we help communities to cope with the impacts of climate change that they're already feeling.

Let's close this timely and important interview with you—US Development Finance Corporation’s first Chief Finance Officer— by noting others who also have participated over the last decade in VerdeXchange’s Clean Energy and Tech Marketmakers’ Conferences that are joining you in Washington, including: Varun Sivaram with John Kerry and, Arnab Pal, who's with Senator Markley. Speak to the potential of your generation’s potential contributions to this administration, Congress, and world markets, and to the collaboration and the learning opportunities that are ahead for each of you.

I love the question, so I'll say that Varun was the first person I called when I got to DC. We got together for dinner. He and a whole cohort of people in his generation—I’ll admit that it feels like he's in generation even after mine —have come into this administration and brought a so much enthusiasm, brilliance, and creativity to our work. 

And also something that's really important is that a lot of us have worked in the private sector. We've worked in tech companies; we've worked at startups. We're excited about solving problems and thinking creatively about how to do that. I think one of the things that can be difficult about working in government is that you get to an administration, and you're thrown into a set of interagency meetings, hierarchy, and process. It’s refreshing to see government now populated with folks who’ve grown up under a different paradigm and are helping to streamline the way we get things done.

I think what this generation is bringing is sort of both that sense of hope and optimism that we can actually tackle this problem but also a set of methods and approaches that really are fresh and helpful and provide an ability see different pathways towards the goals that everybody shares. It's great. It's also nice to know, especially in someone like Varun, that we've got some representation of alums from Los Angeles and California. There are so many Californians who have joined the administration – Lauren Sanchez, who is also serving in the Special Envoy’s office, Arsenio Mataka, who is joining Secretary Becerra to lead climate efforts at HHS, Kristin Garcia, who is not a climate person, but she’s a brilliant labor advocate and a Governor Newsom alum, and now a senior appointee in the U.S. Department of Labor.  So it gives one a good feeling about the work that we can accomplish.

And there’s kind of a Los Angeles exchange in the other direction, too. For example, I spoke with LA’s Deputy Mayor for International Affairs Nina Hachigian who served as ambassador of ASEAN, and she's very familiar with a lot of the climate challenges in the Indo Pacific region, which is where we're doing a lot of work. She reminded me that there's such an opportunity for interchange and dialogue between, not just the US and these places but for LA and cities. The work that LADWP has done on LA100, and the work that the mayor's team and the state is doing on electrification of the transportation sector, these are real lessons. So if a Vietnamese electric vehicle manufacturer is interested in scaling its charging network. LA is an ecosystem where we can have that dialogue. We can bring executives from Vietnam to talk to Nancy Sutley at LADWP and others about how do you build out vehicle charging infrastructure, and how do you think about not just the tech side but the policy and the regulatory side. Same thing on the shipping discussion. Some of the innovations and the work happening at the Port of LA, they’re so transferable. And if DFC and or just the administration writ large can be a conduit for that type of interchange, then I think that that would be a good outcome for us too.

 

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© 2021 The Planning Report | David Abel, Publisher, ABL, Inc.