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Michelle Chan

Michelle Chan

Posted: July 15, 2010 05:33 PM

The Export-Import Bank's new carbon policy fell victim to swing state politics yesterday.

The Export-Import Bank (Exim) is an independent U.S. agency that provides loans, loan guarantees, and export financing for U.S. companies doing business abroad. Under pressure from the Obama administration, the Bank announced yesterday that it has backtracked on a decision to reject financing for a massive coal mine and refinery in India.

Sponsored by India-based Reliance Power, the mine and refinery (called the "Sasan project," named after a nearby village in the state of Madhya Pradesh) would emit more than 26 million tons of carbon dioxide per year -- more than all the direct emissions from Exim Bank's 2009 projects combined. Many additional co-pollutants would also be produced, including lead, arsenic, mercury, smog-causing nitrogen oxide, and acid-rain forming sulfur dioxide.

Three weeks ago, the Exim Bank's board rightly voted to reject this project due to the environmental damage it would cause. But Wisconsin-based Bucyrus, a company that will benefit from the deal, retaliated with a media offensive and major bout of political lobbying. Bucyrus claimed that it would not be able to sell its equipment to the project if Exim failed to provide the project with U.S.-taxpayer-backed loan guarantees. The timing was exquisite. Coincidently, President Obama visited Racine, Wisconsin, for a pre-scheduled town hall meeting the week after the Exim board's vote. If the president wanted to avoid an embarrassing scene, he'd have to strike a deal and backtrack on the Exim decision. Literally hours before Air Force One was scheduled to land in Wisconsin, Exim Bank invited Reliance Energy to resubmit its application.

According to Wisconsin Governor Jim Doyle, President Obama's involvement was "absolutely critical" in producing the Bank's flip flop. But the president wasn't the only one involved; Bucyrus CEO Tim Sullivan gave props to Doyle as well as Senators Herb Kohl and Russ Feingold and Representatives Gwen Moore, Paul Ryan and Jim Sensenbrenner for pressuring Exim to change its mind.

What's particularly worrying is the precedent that this investment will create. The Sasan deal was the first major test of Exim's new carbon policy (which resulted from a 2002 lawsuit that Friends of the Earth filed in response to the agency's failure to consider the greenhouse gas implications of its financing activities). Although the policy is not nearly as robust as Friends of the Earth would have hoped, it does empower the Exim Board to reject applications at an early stage because of their carbon emissions. The fact that congressional and White House pressure caused Exim to reverse course on a decision made under this new policy does not bode well for the other four big coal deals in the Exim pipeline, including the 4,800 megawatt Kusile coal power project in South Africa, which would emit 30.5 million tons of carbon dioxide annually (South Africa's annual carbon emissions only amount to some 450 million tons in total). If every proposed project is determined by political lobbying from the fossil fuel industry, how will Exim ever make decisions with environmental integrity? Exim's energy portfolio is already 90 percent focused on fossil fuels.

But the Sasan reversal wasn't just a victim of swing state politics, it was also the victim of the jobs vs. environment argument, a false dynamic that has nevertheless captivated the minds of many in Washington. In this case particularly, it's hard to argue that scarce public resources should have propped up the dinosaur coal industry. A recent report showed that for every million dollars invested, 13.5 jobs are created in the United States' clean tech export sector, versus just 3.7 jobs in the U.S. oil and gas industry or 4.9 jobs in the U.S. coal industry.

It's clear that the era of fossil fuels is coming to a close. Whether it's destroying mountains to extract coal, turning to ultra-dirty tar sands for oil, going to further and deeper extremes for offshore oil, or most starkly, destroying the earth's life support systems through climate change, our dependence on fossil fuels is pushing our world beyond its ecological limits. Transitioning to a clean, low-carbon economy is the only sane path forward. Plus, it creates more jobs and does more to improve U.S. competitiveness than subsidizing fossil energy.

The administration often seems to get this, but then undercuts itself with blunders such as the Sasan reversal. For example, just a few months ago, the U.S. Executive Director to the World Bank (a Treasury Department post) withheld U.S. support from another massive coal project, the Medupi coal plant in South Africa. The Medupi plant would have similar environmental impacts, emitting at least 26 billion tons of carbon per year. And last fall, the Obama administration mounted an international initiative at the G20 to phase out fossil fuel subsidies.

But by pushing Exim to reverse its decision and okay the dirty Sasan project, the Obama administration has undermined these efforts. It must not make the same mistake twice.