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U.S Treasury Issues New Guidance On Funding Coal Plants Abroad

10/29/2013 06:33 pm ET | Updated Oct 30, 2013
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WASHINGTON -- The Treasury Department issued new guidance on Tuesday that makes it even more clear that the Obama administration will no longer approve financing for conventional coal plants abroad, except in "very rare" cases.

The guidance deals with funding for coal projects through multilateral development banks like the World Bank, and it essentially ends U.S. support for new coal plants or significant modifications to existing coal plants unless they include carbon capture and sequestration technology. Projects that get U.S. funding through those banks would need to meet the same greenhouse gas emission requirements as those laid out by the Environmental Protection Agency has for new domestic power plants, according to a Treasury Department official who spoke on background with reporters on Tuesday. Those rules basically mean that a new coal plant would need to have the same or lower emissions than a comparably sized natural-gas power plant.

The rules do leave an exception for the poorest countries (as defined by the World Bank), in cases where "there's a material development impact and there are no alternatives," said the official.

The Treasury Department has been operating under guidance since 2009 that discouraged funding for coal plants. But coal projects were still receiving U.S funding despite the earlier, vague guidance, and in President Obama's big climate speech in June 2013, he made a more direct pledge to stop funding fossil fuel projects abroad unless they came with carbon-capture technology. The Treasury official said that the revised policy issued Tuesday "makes those circumstances even rarer."

Lael Brainard, the undersecretary for international affairs at the Treasury, said in a statement that the new policy is an important step in helping developing countries "embark on a journey towards a clean energy future." She also said the administration believes it will push private investment away from fossil fuel projects. "We believe that if public financing points the way, it will then facilitate private investment," Brainard said.

"What we're trying to do is to use the leverage associated with public finance to help developing countries move in the direction of cleaner energy," Brainard added.

As the World Bank's largest shareholder, the U.S. holds considerable sway over how the Bank spends its money. While the World Bank put out its own energy guidance earlier this year, it has been accused of continuing to support coal projects.

The new U.S. guidance only applies to the funds that the Treasury Department provides through multilateral development banks, however. Other entities of the U.S. government that provide financing to projects abroad, like the U.S. Export Import Bank, will issue their own separate guidance. ExIm has also funded a number of coal and other fossil fuel projects abroad, such as a 4,800-megawatt plant in South Africa.

Representatives from environmental and international groups briefed on the new policy said that the first major test of the new guidance is likely to be a proposed coal-fired power plant in Kosovo that the World Bank is expected to consider financing in 2014. Kosovo is included on the World Bank's list of poorest countries, but environmental and civil society groups in Kosovo and the U.S. have been pushing for the Bank to decline funding for the project, arguing that there are better alternatives for the country. The Treasury official declined to comment on the specifics of the Kosovo plant, saying that it cannot be fully evaluated until there is a formal loan proposal before the World Bank board.

"Kosovo doesn't meet the test of the President’s action plan," said Nezir Sinani, climate change coordinator at the Bank Information Center and a Kosovar activist who's against the coal plant funding. "This is the test case, and all eyes are on the U.S. government to see if they are serious." Sinani criticized what he called "loopholes" in the U.S. policy, which include unclear standards around how to look at alternatives to fossil fuel projects and how to evaluate what is considered "feasible" in a country.

Jake Schmidt, the international climate policy director at the Natural Resources Defense Council, praised the fact that the new policy likely means the U.S. will vote against funding many new coal plants abroad. But he noted that the policy does not appear to extend beyond power plants themselves -- i.e., the U.S. could still fund mining operations abroad, based on his understanding of the guidance.

"It's less than impressive," said Karen Orenstein, international policy analyst at Friends of the Earth. "It leaves us with more questions than answers."

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