China Hawks vs Climate Hawks: Showdown at the DFC
Why focused flexibility is better than spaghetti bowls or single-issue absolutism
Single-issue extremism is easy. Maybe too easy for US policy. And it could have a damaging impact on US energy investment at exactly the wrong time.
In my experience, sensible policies arise when decision-makers have a clear articulation of the tradeoffs they face, along with the flexibility to try to find a pathway that best balances multiple objectives. That’s the art of effective diplomacy and sound policymaking. Such an approach is essential for the United States because our government has so many different agencies involved in every decision and a nearly endless list of national interests. The unique penetrability of our Congress and federal agencies by outside groups is partly to blame. That’s a feature, not a bug, of our democracy. I wouldn’t have it any other way.
But most advocacy groups are single-issue. Senators and senior officials hear pitches every day from someone arguing why we cannot compromise on X. No one is lobbying for “a sensible balance between our national security, economic, and ideological goals.” Single-issue advocates make zero-sum policymaking more likely – and thus US policy worse overall.
One extreme → If we have 50+ priorities, then we have no priorities
This is not new. Long before she was director of the National Economic Council and a top official at the Fed, Lael Brainard wrote an important book Security By Other Means about US foreign aid that contained a chart that I think of often (I even used it in 2013 Senate testimony.) Her foreign assistance spaghetti bowl shows 50+ mandates, objectives, and organizations. The chart is unreadable… which is exactly the point.
And sadly, if anything, our aid system has gotten messier since Brainard wrote that book 18 years ago. We obviously need some house cleaning. I’m not hopeful that’s coming, but I do see worrying signs of a problem in the other direction.
The other extreme → The misguided allure of the single-issue red-line
The extreme counter to this unworkable mess is a single unflinching objective. Let’s just prioritize fighting terrorism or domestic jobs or freedom or whatever under all circumstances. No compromise! Zero tolerance! Never surrender! etc all sound good politically. But that approach is also a massive problem because the US will always, always, always have multiple goals that need to be balanced in different situations. I explained the healthy tug-of-war that happens after a coup in an interview for Statecraft. Policy tensions among different objectives are especially relevant in economic development. In the energy sector, tradeoffs are literally everywhere. So, the costs of single-issue dominance are high.
We’re seeing this play out right now with two competing camps pressing the Development Finance Corporation (DFC), the main US tool for catalyzing investment overseas, to take a hard line.
China Hawks want the DFC used mainly to counter Chinese influence and are urging a policy where no DFC project could ever work with any Chinese organization or have any Chinese involvement in the supply chain.
Climate Hawks want the DFC used mainly for decarbonization and are urging a policy where no DFC project could emit CO2 or play any role in any carbon-intensive economic activity.
I’m overstating these positions, but not that much. The DFC is currently debating internally and at its board whether its projects can contain any Chinese content or partner with an entity that has previously accepted Chinese support, even if the project would be highly valuable in supporting other US objectives. The DFC is also waiting for updated guidance from the White House on whether or when it can support projects that would result in any net increase in CO2, even if the project would be highly valuable in supporting other US objectives.
If either absolutist wins, the other loses big time.
Here’s my concern:
A strict zero tolerance for Chinese involvement would in practice force DFC to withdraw from most energy investments. Chinese content is so prevalent in the solar industry, for instance, that it’s impossible to avoid. (And it’s not just solar power. As I look around my office right now as I type, it’s hard to find a single item that doesn’t have some Chinese content.) So a China Hawk win might feel good to announce but it would spell the end of DFC’s role in wide swaths of infrastructure – and thus handicap its ability to serve other US interests, especially our global clean energy goals.
A strict zero-emissions policy would in practice mean DFC could no longer support projects for cooking fuels, fertilizer, diesel- or natural gas-powered electricity, and most industry or mining. Despite the amazing growth of low-carbon energy options, at least some carbon-intensive activities are still the most economically viable and thus likely to have the greatest impact. (Again, looking around my office, fossil fuels are literally everywhere in my heat, electricity, plastic, and even my clothing). So a Climate Hawk win might feel good to announce, but it would spell the end of DFC’s role in many development projects – and thus handicap its ability to serve other US interests, especially our attempt to provide alternatives to China (or Russia).
In other words: rigid hardline policies in one realm destroy our ability to meet other national objectives.
A Hawk win might be a loss for their own side too
I think it’s potentially even worse. A short-term win of a hardline policy at DFC might provide a brief moment of celebration, but it would be a pyrrhic victory because inflexible policies likely undermine the hardliners’ specific goals too.
A myopic inflexible zero-China policy would probably weaken our efforts to provide a viable alternative to China by ceding the field to, (who else?) China. If we reject an infrastructure project because of Chinese involvement, however minor, what is the host country’s likely next move? We’re vastly overstating our relative influence. US credibility for its claims to provide a real alternative to Chinese infrastructure packages is already shaky. Blind rigidity would only weaken us further.
And a myopic inflexible zero-emissions policy would probably weaken our efforts to encourage a global clean energy transition by ceding the field to other actors, including China. If we reject an infrastructure project because of emissions, however minor, what is the host country’s likely next move? We’re vastly overstating our relative influence. The US is already viewed skeptically over its global climate leadership claims (quick, what country is the world’s leading LNG exporter?). Blind rigidity, especially toward the poorest nations, would only weaken us further.
So hardline positions are not only bad for balancing other goals, they can also be bad for their own purported objectives.
Flexibility for the win-win
If that all sounds depressing, here’s the good news: a little bit of policy flexibility can turn this double loser into a double win. A sensible China-content policy could lean on the scale for US or allied suppliers while allowing some wiggle room for inputs where alternative options are unavailable or too expensive. For instance, DFC could institute a justifiable ban on forced labor in the supply chain but not necessarily exclude all projects with any Chinese connection.
At the same time, a sensible carbon policy could prioritize the cleanest technologies while allowing clear exceptions where carbon-intensive options are the most affordable or practical. The Treasury Department’s fossil fuel guidance for multilateral banks is pretty close to this compromise on paper, although I have concerns that in practice it can act like a blanket ban. The new White House guidance could fix this – or make it worse.
Capitol Hill can also help or hurt. Congress can block good projects for political theater. Or it can help find a sensible compromise that’s supportive of both countering China and spurring clean energy — and keep the US on track as a global leader. I understand that several projects are under debate right now that could set the tone for the remainder of this administration. Congress can also influence these policies positively via the upcoming reauthorization of DFC. My colleague Katie Auth and I have a list of eight changes we’d like to see, including tweaking incentives that would allow the agency to more effectively balance the panoply of US interests around the world.
The original BUILD Act that created the DFC was very clear about the multiple development and national security mandates for the new agency. Surrendering now to single-issue extremism would be a self-inflicted loss.
Thanks for this!
I'm pretty extreme for helping the worst off, in whatever way does the most good.
https://www.mattball.org/2024/02/taking-armageddon-seriously.html
Great insight that "single issue" focus is the root cause of this. I see myself as a single issue voter in the US (Pro nuclear power) but I wonder if that has unintended consequences? Also being single issue pro vs. single issue anti might have quite different effects.