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United States: Pitching Fossil Fuels

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The US is pushing for policies at the World Bank that could see government-backed financing go to oil, gas and coal projects, a potential reversal of pledges by the multilateral development bank to end funding for some fossil fuel projects. The effort comes amid concerns worldwide that greenhouse gas emissions are rising when scientists say deep cuts are necessary to avoid the worst effects of climate change. "The US has an 'all-of-the-above' view on energy -- having strong baseload electricity is clearly one of the most important ways to address energy poverty, which is a central element of the Bank's mission of eradicating extreme poverty," the US representative on the World Bank's board, DJ Nordquist, said in an email to Energy Intelligence. "All options need to be on the table." That stance echoes the current administration's vocal support for coal, oil and gas development and use at home and abroad (EC Jul.20'18). But the position is a shift from previous pledges World Bank leadership has made. In December 2017, former World Bank President Jim Yong Kim pledged to end financing for upstream oil and gas projects after 2019. Last year, the Bank decided not to provide a loan guarantee for a coal plant in Kosovo, the last coal project it had been considering, although it still has investments in coal mainly through its investment arm, the International Finance Corp. (IFC). Those policies have drawn the ire of Republican lawmakers in the US. "The World Bank has essentially prohibited public financing of high-efficiency power stations fueled by coal in the developing world," Wyoming Sen. John Barrasso wrote in an Oct. 31 letter signed by 11 other Republicans to World Bank President David Malpass, an appointee of US President Donald Trump. Urging Malpass to reverse the policies, Barrasso said the US otherwise "must, I think, re-evaluate our support" for the World Bank. In August, Republicans backed a draft energy bill that would require the US representative at any multilateral development bank to oppose policies that would decide funding for energy projects based on fuel type. The effects of such a policy may depend on how it's implemented, one former official at a multilateral development bank said. If a policy bans discrimination based on fuel type alone, the IFC could still use a carbon price -- as it does now, of between $40-$80 per metric ton, to evaluate energy, chemicals and cement projects -- to account for climate risk. This would make funding for coal, oil and gas projects less likely, particularly carbon-intensive coal. But a stricter interpretation of such a directive could ban the use of a carbon price altogether, he said. Nordquist emphasized that the Bank's pledges to reduce certain fossil fuel investments always had limits. "The board never approved any policy to end all fossil fuel project financing," she said. Indeed, the World Bank's 2016-20 climate strategy says the organization will continue to support natural gas as a source for power generation. "The issue of types of energy sources is one that many members of the board have raised recently, with robust discussion that fossil fuels should be an option with a transition to greener sources as part of the planning." But environmental groups are increasingly calling for private and public financiers alike to end support for any fossil fuel development (EC Sep.13'19). "The use of any public assistance for fossil fuels is a subsidy and provides an incentive to emit [greenhouse gas] emissions" and thus is not in alignment with the Paris climate agreement, Heike Mainhardt with the German group Urgewald wrote in a paper prepared for the climate negotiations currently taking place in Madrid. Urgewald calculates that the World Bank has more than $12 billion in fossil fuel projects. The majority of that investment -- $8.47 billion -- is in gas-only projects. For years, energy industry players and government officials alike have viewed gas a potential "bridge" fuel between more carbon-intensive coal and renewables. But support is dwindling for the strategy from environmental groups, which view any additional carbon emissions as a step in the wrong direction. Which Direction? The US has heavy influence at the World Bank in particular, points out Bronwen Tucker at Oil Change International, a group that campaigns against public financing for any fossil fuels. But "there is a lot of momentum from other players" toward portfolios that are better aligned with the Paris Agreement. Last year, the European Bank for Reconstruction and Development ruled out direct financing for coal plants and mines over US opposition. More recently, the European Investment Bank added natural gas to its list of blacklisted projects, with financing slated to end by 2021. That move is already raising questions about the viability of new natural gas developments, with Cypriot Energy Minister Georgios Lakkotrypis saying East Mediterranean gas development will have to rely on more expensive commercial lenders. Still, a recent analysis by the group E3G of six multilateral development banks operating in Asia found that despite relatively good progress on promoting green finance and incorporating climate risk, the banks were slower at establishing fossil fuel policies and increasing the ratio of "green" energy investments. Emily Meredith, Washington Compass Points • SIGNIFICANCE: The US is pushing the World Bank and other multilateral development banks to remain open to financing carbon-intensive projects, a policy shift that Oil Change's Tucker says "would stall the process we really need to be seeing in both the public and private finance realms." • CONNECTION: The debate over whether a project benefits or harms climate goals can be nuanced. In November the IFC announced approval of a loan to the Royal Dutch Shell-led Basrah Gas Co. to expand its gas-processing capability -- considered a "green" loan given Iraq's chronic problem with gas flaring. But groups like Urgewald view it as underpinning years of carbon-emitting natural gas and natural gas liquids. • NEXT: Watch for commitments from multilateral development banks on the close of UN climate negotiations this week. Nine, including the World Bank, have pledged to bring their portfolios in line with the Paris Agreement objectives, but specifics are thin.

Topics:
Security Risk , Low-Carbon Policy
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