By Kyle Murphy, Senior Advisor to the CEO and Andrea Orr, Editorial Director
Last week on Earth Day, U.S. International Development Finance Corporation (DFC) unveiled a series of initiatives that will transform the way we invest in development to significantly reduce emissions over time and partner with vulnerable communities to respond to the impacts of climate change they are experiencing today and that are likely to grow in the future.
As America’s development bank, DFC plays a central role in mobilizing private investment in emerging markets, which are often the most vulnerable to climate change. DFC has more than $5 billion invested in renewable energy projects in developing contexts and has committed to focusing at least one-third of its new investments on climate beginning in 2023.
Technological advances and cost reductions have made renewable energy more attractive than ever as a core element of increasing global access to electricity and the tremendous opportunities it brings. DFC will meet its recently announced goal of achieving a net zero portfolio by 2040 by also pursuing ambitious development objectives in Sub-Saharan Africa, Southeast Asia, and Latin America.
The countries that make up these regions contribute only a small amount of global emissions, but they are vital partners in effecting a just transition to an inclusive global economy that is powered by renewable resources and prepared for the impacts of a changing climate. Many factors underpin the outsize importance of developing countries to the global effort to address climate change.
Unmet demand and expected growth
Extreme energy poverty and the obstacles it creates to an effective COVID-19 response, producing and transporting food, and accessing economic opportunity is a global justice issue. In Chad, for example, where DFC is supporting a project to introduce battery-powered solar kits, less than 10 percent of the population has access to electricity. DFC will be a partner in addressing not only today’s shortfalls but also in building the capacity to meet the expected increases in demand for energy as populations and economies in the developing world grow rapidly. Investments now to meet more of this demand through renewable resources will help limit future emissions growth.
Potential to skip carbon-intensive technologies
In India, Sub-Saharan Africa, and other parts of the developing world, many communities are not connected to a central electricity grid. But with mini-grid and off-grid solutions such as home solar kits, they can obtain enough electricity to meet basic needs for lighting, cooling, and refrigeration. Global Partnerships, a DFC partner that supports microfinance lending and other services for low-income communities around the world, estimates that its work supplying solar home systems to off-grid communities has benefitted six million people. For population centers connected to a centralized grid, there is also enormous potential to provide zero emission grid-stabilizing and reliability resources driven by renewable energy and storage at scale.
A need for climate resilience
Renewable energy technologies are critical to reducing emissions over time, but responding to climate change will also require building resilience to the changes that are already happening and on track to accelerate. This need is often most acute in the developing world, where smallholder farmers may lack the technology or other resources to adapt to changing climate patterns, and where infrastructure is not sufficient to respond to severe storms and rising sea levels. DFC is actively investing in projects, such as this insurance project for smallholder farmers, to help mitigate climate-related risks to people in the developing world. Investments in training, infrastructure, and technology will also be essential to save lives and preserve livelihoods.
The seriousness and scale of these challenges requires a massive, global mobilization of public and private resources. Development finance institutions like DFC, in partnership with developing countries, will bring private investment into markets that most need rapid and innovative action to address the crisis. These partnerships can not only tackle unjust discrepancies in global access to energy but also be the laboratory for pioneering approaches to mitigate climate change and adapt to its unavoidable impacts. Innovations initiated and tested in developing contexts can help shape global efforts to prepare for rising sea levels, more extreme weather, and major changes to agriculture among other effects of climate change.