In alignment with the Biden administration’s government-wide commitment to combatting the climate crisis, Jake Levine serves as the first Chief Climate Officer of the US International Development Finance Corporation. As a global development finance institution, in this exclusive interview with VX News, he elaborates on the agency’s goal to drive a surge in climate finance in countries around the world focused on clean energy, ports, agriculture, the blue economy, and more.
Jake, let’s begin by noting that you were appointed by the Biden Administration to serve as the first Chief Climate Officer of the U.S. Development Finance Corporation. Remind our readers of the mission and priority goals of DFC and your responsibilities as Chief Climate Officer.
Jake Levine: DFC, the U.S. Development Finance Corporation, was created just a few years ago and is really the U.S. development bank, with a dual mission to advance economic development in the poorest parts of the world and to advance the US strategic interest in key regions around the world.
One of the central organizing principles of both our developmental mission and our work to advance U.S. foreign policy is that you can't do that without addressing climate change. In fact, the single biggest opportunity that we have to advance both of those is this once-in-a-generation opportunity to win the clean energy economy of the future and to invest in the jobs, the innovation, the ingenuity, and the growth that the climate opportunity represents across a whole host of industries: energy, transportation, the built environment, nature-based solutions, industry, and, really, across the entire economy.
Elaborate on efforts currently underway to position DFC as “the” climate finance destination.
We are working to scale and diversify the work that we're doing on climate. Last year, in FY22, we did a total of $7.4 billion of new commitments across all areas of our investments. That’s not just climate, but health and gender equity and digital technology and other key sectors. Our climate-linked investments were about $2.3 billion—a record year. Out of that $2.3 billion, almost $400 million of DFC’s financing went specifically into climate adaptation projects, and another $200 million into projects that will have adaptation co-benefits.
I was proud of that number because the work that we're doing to diversify our investments in climate is not just bread-and-butter solar projects and wind energy project finance. It’s looking at climate-smart agriculture and protecting supply chains and building cold chain infrastructure in the food security space. It’s not just looking at the transportation infrastructure that our predecessor agencies and the rest of the international finance agencies have looked at, but how are we advancing electrification of transportation and building out a value chain all the way from responsible critical mineral mining down to consumer businesses around e-mobility.
Diversification is a big theme of what we're doing. It’s also then really scaling and bringing in the private sector. We can use our tools like guarantees, technical assistance, and equity, in particular, to de-risk investments in a way that allows institutional private sector investors to want to take on some emerging market risks and co-finance with us.
Regarding DFC’s climate-linked investments, share your current processes for identification, maturation, and commercialization of these emerging market investment opportunities?
It's actually an area that we're seeking to kind of blow up, frankly, because at the start of the Biden Administration, we noticed that there was something like a rate of 98 percent repeat client borrowers on DFC’s books. That stemmed all the way back from the Overseas Private Investment Corporation days, where we were in a different world; the priorities were different and the agency came up with a lot of the conventional energy players in the market and did a lot of fossil investing. We were working with a borrower base that didn't match the needs and priorities that we have today.
A lot of my job is to spend time communicating with the market so that they and counterparties aligned with DFC’s new mission know that we are available as a financing partner. For example, we're working a lot with the Glasgow Financial Alliance for Net Zero —a host of financial services sector companies, every major bank in the world, and multinationals who have committed to net zero and are willing to put their balance sheets to work to invest in the energy transition.
On any opportunity that I have to travel, we work with our embassy partners at Post in countries to tap into the private sector. Instead of simply asking them to set up meetings with the energy or transportation or industrial folks, we provide an affirmative set of goals around what we're actually looking for in terms of clean energy businesses and climate-linked financing opportunities.
It's a slow process, but it's something that we're already starting to see real progress around. I think that the $2.3 billion in FY22 was really an enormous accomplishment. In the prior year, we had roughly $500 million of climate-linked finance. I don't want to set the expectation that every year we're going to have a 4 or 5 times growth trajectory on climate, but we are going to continue the trend of doing more every year, including as a percentage of our overall financing.
A geopolitical question: as DFC scales its climate-linked investments, what countries and institutions have moved to fill the vacuum to take advantage of DFC’s moving away from funding fossil fuel industries?
It's a really good question. This is an argument that you hear in the California policy environment when the state is considering tough standards on the oil and gas industry too. The industry will levy this response, which is, ‘wouldn't you rather us work in California and produce here with strong environmental standards than go to somewhere like Venezuela, where there are not those types of backstops and protections?’
It's one of the reasons why DFC is actually thinking about really innovative structures, like what we call an Energy Transition Mechanism, which would allow for somebody in DFC’s position, potentially DFC, to actually purchase coal assets in certain areas of the world, like Indonesia or South Africa, with the purpose of then accelerating the decommissioning of those assets. Then, you could achieve a major net reduction in GHG emissions.
We haven't yet successfully proceeded with one of these transactions, but the Asian Development Bank recently has completed the first of its kind. It's very much focused on this question of ensuring stewardship of even the most polluting assets so that they are not abused and exploited in a way that is irresponsible.
To directly answer your question, I would say that our counterparts in the PRC and the Asia Infrastructure and Investment Bank, for example, are still very actively financing new coal-fired generating stations and a lot of gas work. There's a reason why they have trouble working with some of the mainstream financing partners because people have moved on to clean energy mandates and goals.
You personally have just returned from Central and East Africa. Elaborate on the challenges you found and the opportunities for DFC that you've identified.
I was in the Democratic Republic of Congo (DRC) and then Kenya. It was such an inspiring week.
I'll start with Kenya even though it was the second place. Kenya is a country that people should be aware of that is delivering on the clean energy vision of the future that we've all talked about. It has a grid that is powered by 93 percent clean energy. There’s a major geothermal resource in Kenya in the Rift Valley and there are also major wind resources, not to mention all of the solar that's going to come into the market.
DFC is a very proud financier for the OrPower Geothermal Station, which is 150 megawatts in Kenya; also a major wind farm called Kipeto Power, which is delivering 102 megawatts at a 49 percent capacity factor. They are now expanding into energy storage and more wind.
Kenya is also powering this transition that we're seeing in mobility. We met with a proliferation of electric motorcycle manufacturers who are taking advantage of time-of-use pricing at night when there's a bunch of over-generation into the grid to power batteries and mobility during the daytime, using clean energy.
Congo, in contrast, was a different story. It has tremendous mineral wealth that has historically been exploited by others. Today, Congo is among the top 10 poorest countries in the world, with over 70 percent of its population having no access at all to electricity. Our focus there is a little bit different. It's around energy access. We met with several distributed renewable energy companies that are innovating in solar, both at the residential level and also at the municipal level, in the development of so-called metro grids. We met with some of the critical minerals companies that are trying to figure out, in partnership with the U.S. and Zambia, how to build a value-added and more complete value chain to that industry so that the country is not just exporting raw materials at a low price and then importing back finished goods at a very high price.
There's a lot of work to do. There are also some real challenges around corruption and rule of law and some of the enabling environment for business, but that's why we've got the U.S. Government at our backs.
Pivoting away from Africa to India. With the recent confirmation of former LA Mayor Eric Garcetti as Ambassador to India, elaborate on DFC’s work in India related to clean energy, climate-smart agriculture, and food security.
India is far and away our largest market. We've got more than $3 billion of exposure there today. It's a reflection of the incredibly dynamic private sector that exists there that is working to bring new solutions, not only into the climate space, but across the whole economy.
They have a tremendous challenge on their hands in terms of emissions, but they also have a huge amount of ambition in terms of 550 gigawatts of renewable energy that they have set as a target to generate domestically. We support solar panel manufacturing in that market. We're looking at additional transactions in that upstream clean energy supply chain space.
As you indicated, there's also a really strong need and ecosystem around food security and climate-smart agriculture, both in terms of production and the systems and the infrastructure that you need in place to reduce post-harvest losses when you don’t have the right supply chain infrastructure, cold chains, storage, and transportation. Our food security team and program is super active in the market. We've got a number of deals coming down the pipeline that are going to enhance those kind of midstream and downstream capacities for the country.
We're really excited to work with our new Ambassador Garcetti who brings such tremendous expertise and leadership on the climate front into his new role. It’s such an important moment in time to do that, and we're excited about it.
What place do working ports have in DFC’s portfolio of infrastructure investment opportunities?
As part of our infrastructure work, we do a lot of work in the port space, particularly in Eastern and Central Europe, where there is a vibrant shipping industry and under-resourced port infrastructure.
That is also key to energy security in the region and what we're seeing in the way of Russian manipulation and malign influence from the east. To the extent that DFC has opportunities to look at Greek, Western Balkan, and Central European markets, that's something that we've been looking at.
We also have recently seen some projects that remain in the government tender phase, so they're not quite ready for private investment, in the Middle East and North Africa. There, economies are growing and there are major export opportunities from Mauritania all the way to Tunisia. DFC has been looking at opportunities in that space.
I'm very excited to have the chance to learn about the leadership of the Ports of LA and Long Beach and to bring some of that expertise that they've baked into the story around electrification/decarbonization of shipments and drayage infrastructure and reducing emissions at the port into the projects that we want to be financing overseas.
Related to the POLA is AltaSea, whose mission is to create a blue economy innovation and research HUB in Southern California. Is DFC’s interested in the blue economy?
We have a really fundamental interest in the blue economy. From a climate perspective, there's an important story about resilience for communities that are experiencing impacts, whether these are cultural communities struggling with saltwater intrusion and effects of sea level rise or whether these are fishery communities dealing with migration issues of fish species and ecosystem health. It's an area of concern and tremendous creativity from a financing perspective.
Last year, DFC completed a $610 million political risk insurance transaction in connection with what still is the largest debt-for-nature restructuring of sovereign debt that's been executed. This is a financing structure that allows an indebted government to essentially refinance some of its sovereign debt, issue a new bond, and in exchange for the favorable restructuring, essentially agree to direct new debt service payments into, in this case in Belize, a fund designed for blue economy and coastal resilience funding.
This transaction enabled Belize to retire $354 million dollars of sovereign debt and raise about $80 million of investment for protection of the Belize Barrier Reef and for programs in partnership with the Nature Conservancy around coastal resilience, fishery protection, local community engagement, education, and business development. It's this kind of creative financing with DFC’s tools that allow us to bring the overall cost of capital down—and essentially thereby enable the transaction. It gives the government of Belize a very unique opportunity to save money on its restructuring and reinvest into its own blue economy.
We called that a blue bond, and that transaction received a lot of attention. Now, we're getting a lot of incoming attention from a whole host of countries that are similarly facing sovereign debt, but have enormous wealth in the way of blue economic resources or terrestrial ecosystems that represent major carbon sinks and sequestration opportunities. The sky's the limit in terms of linking blue bonds and green bonds and other structures into debt restructuring moving forward.
Lastly, your affinity for and knowledge of the global marketplace and finance is obvious. Given your return to LA next month for the VerdeXchange conference, address the value of coming back to California and what you hope to share and learn.
Well, there's no place like California. It's sort of cliche at this point in our world that California has been the leader and the model for not only the finance and the business innovation on climate, but on the policies and regulations and enabling environment that these businesses need in order to succeed and attract financing.
Any chance that I have to do a refresh on what's the latest coming out of the Energy Commission or where the PUC is focused on reforms in the electric power sector now or what the state is doing around the historic opportunity that it's now facing for water management and regeneration of ecosystems, I will take.
Everywhere that I go around the world, whether it's Kinshasa or Hanoi or Johannesburg, the credibility and the experience of California is unmatched in this space. It would be professional malpractice, from my perspective, to not periodically check in and learn what's on the cutting edge in Los Angeles and in California. I'm grateful for the chance to do that again soon.