President Biden’s Executive Order on Tackling the Climate Crisis at Home and Abroad (E.O. 14008, signed January 27, 2021) called for the preparation of a Climate Finance Plan (herein “Plan”). This Plan – the first of its kind in the U.S. government – focuses on international climate finance. For the purposes of this Plan, “climate finance” refers in part to the provision or mobilization of financial resources to assist developing countries to reduce and/or avoid greenhouse gas emissions and build resilience and adapt to the impacts of climate change.
1. Scaling-Up International Climate Finance and Enhancing its Impact
The Administration is embracing ambitious but attainable goals regarding the quantity of public climate finance provided by the United States, recognizing the urgency of the climate crisis, confronting the sharp drop in U.S. international climate finance during the FY 2018-2021 period, and understanding the need to re-establish U.S. leadership in international climate diplomacy.
The United States intends to double, by 2024, our annual public climate finance to developing countries relative to the average level during the second half of the Obama-Biden Administration (FY 2013-2016). As part of this goal, the United States intends to triple our adaptation finance by 2024. The Biden Administration will work closely with Congress to meet these goals.
U.S. agencies, working with development partners, will prioritize climate in public investments, enhance technical assistance and long-term capacity, align support with country needs and priorities, and boost investments in adaptation and resilience. For example, the U.S. Agency for International Development (USAID) will release a new Climate Change Strategy in November 2021, at the 26th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP26). The U.S. International Development Finance Corporation (DFC) will update its development strategy to not only include climate for the first time, but also to make investments in climate mitigation and adaptation a top priority. The Millennium Challenge Corporation (MCC) will adopt a new Climate Strategy in April 2021, centered on investing in climate-smart development and sustainable infrastructure, and aims to have more than 50 percent of its program funding go to climate-related investments over the next five years. Treasury will direct U.S. executive directors in multilateral development banks (MDBs) to help ensure MDBs set and apply ambitious climate finance targets and policies, in partnership with other shareholders.
U.S. departments and agencies will enhance strategic coordination on providing and mobilizing international climate finance and technical assistance to ensure the complementarity of agency efforts, instruments, and expertise. Departments and agencies will increase collaboration and adopt best practices on incorporating climate considerations into their international work and investments, such as screening all projects for climate-related risks to ensure they are resilient.
2. Mobilizing Private Finance Internationally
Public interventions, including public finance, must also mobilize private capital. Several efforts will help mobilize more private finance. For example, MCC will expand partnerships and the use of blended finance to catalyze private capital for climate projects. DFC will increase its climate-related investments beginning in FY 2023, so that at least one-third of its new investments are linked to addressing the climate crisis. The Export-Import Bank of the United States (EXIM) will identify ways to significantly increase, as per its mandate, its support for environmentally beneficial, renewable energy, energy efficiency, and energy storage exports from the United States. U.S. agencies, including DFC, U.S. Trade and Development Agency, EXIM, the Department of State, MCC, and USAID will work together to build a strong investable project pipeline.
3. Ending International Official Financing for Carbon-Intensive Fossil Fuel Based Energy
Scaling back public investments in carbon-intensive fossil fuel-based energy is the necessary corollary to increasing investments in climate-friendly activities. Departments and agencies will seek to end international investments in and support for carbon-intensive fossil fuel-based energy projects. Departments and agencies will work with other countries, through bilateral and multilateral fora, to promote the flow of capital toward climate-aligned investments and away from high-carbon investments. Treasury, in partnership with other Organisation for Economic Co-operation and Development (OECD) countries and other U.S. government departments and agencies, will spearhead efforts to modify disciplines on official export financing provided by OECD export credit agencies, to reorient financing away from carbon-intensive activities.
4. Making Capital Flows Consistent with Low-Emissions, Climate-Resilient Pathways
Financial markets are increasingly demanding investment opportunities that are consistent with low greenhouse gas (GHG) emissions and climate-resilient pathways Supporting the flow of capital toward activities that are consistent with those pathways involves building an ecosystem of data, information, practices, and procedures that enable financial market actors to internalize climate-related considerations into their decisions. This concept is embodied in the Paris Agreement’s Article 2.1(c) and has been widely embraced by financial policy makers and regulators around the world. The Treasury Department, in coordination with other U.S. agencies and regulatory bodies, as appropriate, will continue to promote improving information on climate-related risks and opportunities; identifying climate-aligned investments; managing climate-related financial risks; and aligning portfolios and strategies with climate objectives.
5. Defining, Measuring, and Reporting U.S. International Climate Finance
Drawing on over a decade of experience in tracking climate finance, the United States intends to ensure that our future reporting is on the cutting edge of transparency and evolves along with our strategic approach to climate finance. This will include more detailed reporting, tracking finance for vulnerable populations, and enhanced reporting on mobilization and impact.
The National Security Council staff will conduct a review of this Plan in FY 2023 to take stock of progress and assess whether changes are needed to increase ambition and impact.
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