Policy Memo: Why the U.S. Development Finance Corporation Should Invest in Critical Mineral Supply Chains

To: The U.S. Development Finance Corporation

From: Yvette Loch-Temzelides

Executive Summary

The DFC, as the US’s Development Finance Institution (“DFI”), should launch a Critical Mineral Supply Chain Initiative, leveraging existing financial incentive tools to promote US interests in global supply chains - diversifying mineral supply, stabilizing clean tech costs, and ensuring the U.S. maintains a competitive edge in the energy transition. The Trump Administration’s “America First” approach can be attained by leveraging U.S. foreign investment tools to strengthen domestic supply chains and global markets. DFI’s are uniquely placed to ensure project success: incentivizing private and direct investment, ensuring risks are properly managed and national interests secured.

The Problem: Increasing Vulnerability in US Energy Security Supply Chains

The technological dominance and the clean energy transition depends on open markets and a secure mineral supply. According to the 2024 IEA Global Critical Minerals Outlook, between now and 2030, there will be 70-75% projected supply growth for refined lithium, nickel, cobalt and rare earth elements expected to come from the world’s top 3 producers (International Energy Agency, Global Critical Minerals Outlook, 8) - consolidated in the hands of a few, the global economy risks an oligopoly.

In comparative terms, China is expected to control 50% of the market value from refining of rare earth minerals by 2030, benefiting in turn from their rise in market value (International Energy Agency; Global Critical Minerals Outlook 2024, 7). This dominance exposes U.S. industries to cost shocks and strategic leverage while also limiting America’s ability to serve as a reliable supplier for other nations. Already, Beijing has restricted graphite exports for both materials and technologies (U.S. Geological Survey, Mineral Commodity Summaries 2024, 5) and imposed licensing on rare earths, underscoring how mineral dominance can become political leverage. 

The U.S. risks falling behind from a technological perspective, with exclusion at each step of the supply chain ceding market share of minerals and refinement to Chinese autonomy in favor of recent heightened focus on fossil fuels. 

The Solution: How Targeted Direct and Supported Investment Can Shore Up Supply Chains

Existing DFC mechanisms can uplift both US and mineral rich nations’ interest, bolstering local economies and securing equitable access to critical minerals. Partial Credit Guarantees and Co-Financing structures incentivize investment in high risk jurisdictions and industry of metals and mining. Bankability is also enhanced by the longer tenor (15 yr+) cover of the DFC, enhancing completion risk by limiting the amount of fundraising required.

1. Partial Credit Guarantees (up to 80%): enhances bankability of a project by shifting repayment exposure on the covered portion from the borrower (~BBB rated) to DFC (AA+ rated); reducing financing costs in challenging economic jurisdictions. (U.S. International Development Finance Corporation, Finance Program FAQs) 
2. Co-Financing as Anchor Investor: leverage to enforce ESG standards in mining, where environmental and community risks are substantial. While the primary funding (up to $1bn) is provided directly by the DFC, financial institutions come in alongside, offering due diligence, market soundings and structuring services.

DFC involvement mitigates completion risk as countries or projects are unlikely to default on U.S. Government loans or affiliated projects. In order to ensure US benefit from either DFC instrument, projects should be tied to one or more Eligibility Criteria: 

• Offtake contracts with U.S. companies 
• Offtake contracts with non-Chinese companies that will ultimately supply U.S. clean tech initiatives, 

• Equity or voting share with U.S. owned company

   

Key Considerations: Risks, Mitigants and Broader Impacts

 Potential Risks and Mitigants

• Concerns of Quid Pro Quo: an explicit requirement of direct US nexus for DFC involvement in a project could invite World Trade Organization or other interest group concerns around tying, the conditional sale of goods or services, or quid pro quo arrangements. The proposed program inherently mitigates this concern, with a proposal for U.S. nexus as with a broadly proposed Eligibility Criteria. The intention is to open the global market, and all RFPs and considered parties should be chosen on their merit and expertise.
• Host-Country Pushback: While the projects are intended to be additive to the local economy, foreign involvement could be considered extractive if protections are not in place. DFC involvement should be conditional on wherever possible local and regional supply capacity in equipment, goods, personnel. or even source materials themselves to balance interests and ensure that the country and community are made better for the project. 

• Environmental Impact: All equipment and mining, as well as locations must also adhere to environmental and social standards, vetted by the DFC and external third parties to ensure that approaches are sustainable, land use is adequately compensated, and long term impacts in and around the mining site assuaged. Technologies like GHG emission scrubbing, safe waste management, and water conservation, should also be required in order for the project to benefit from continued DFC involvement at each milestone.

   

Broader Impacts

The benefits of a DFC backed Critical Minerals Supply Chain Initiative manifest both with immediate and downstream effect. Both in country, and within the US these projects contribute to economic development: creating infrastructure, jobs, tax revenues at the host nation level, as well as the economic benefits and promotion of US goods and services at home. 

Consumers in turn benefit from a diversified supply chain, stabilized in terms of price with the diversification of sourcing translating to a steadier stream of available technologies at manageable price levels, and, without tariffs adding to consumer costs. A more stable critical mineral market also invites technological advances as market players are incentivized to participate and compete, constantly improving the product landscape - a global and balanced market means no one country can chose a “winner”, rather this is led by the consumer. 

Conclusion 

The clean energy transition depends on secure access to critical mineral supply chains. U.S. economic competitiveness and global leadership are also at stake with rising Chinese hegemony. Without supported critical mineral supply chains, U.S. clean tech deployment will remain vulnerable to China’s leverage, threatening costs and stability. The U.S. DFC already has the tools to act. By creating a Critical Mineral Supply Chain Initiative strategically focused to deploy partial guarantees and/or co-financings tied to U.S. interest under the proposed Eligibility Criteria, the agency can secure inputs, stabilize costs, and expand American influence, reclaiming ground and market share back from China. The structure of the guarantees to mobilize private sector financing also ensures limited US government funding and project success leading to a return on investment - additive to the taxpayer and not costing them. If the U.S. can diversify global supply chains, it not only secures minerals for its own clean tech initiatives but also positions itself as a provider of stability for allies, a strategic arbitrage opportunity. 

Bibliography

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U.S. International Development Finance Corporation.

(1) A financial obligation to another person or entity; (2) An obligation which is created by borrowing; or (3) The sum of all of the financial obligations of a person or entity.

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