Biden aims to end funding for overseas oil and gas projects in final weeks

The most important player in the international fossil fuel financing landscape is an obscure government agency known as an “export credit agency.” These institutions provide financing to companies seeking to build large, risky infrastructure projects, often in developing countries. In return, developers of those projects buy construction materials and other goods from the agency’s countries. For example, an oil pipeline company might obtain financing from a German export credit agency in exchange for using German steel in its pipelines.

Export credit agencies have become one of the world’s largest sources of public financing for energy infrastructure, providing far more funding than multilateral institutions like the World Bank while avoiding intense public scrutiny. .

Now, as President Joe Biden’s administration nears its end, government officials are working with international partners to push for a deal that would see export credit agencies withdraw nearly all funding from oil and gas projects, but Donald Trump This is a measure that the administration was hesitant to support before the president took office. Re-elected.

The talks are being held within the Organization for Economic Co-operation and Development (OECD). The Organization for Economic Co-operation and Development (OECD) is a group of 38 rich countries that coordinates export credit terms to prevent one country from distorting trade relations. The two countries are fast-tracking an oral agreement this month on how to regulate export credit agencies.

Such an agreement would force major changes in the policies of America’s own export credit agency, known as the Export-Import Bank of the United States (EXIM). This independent agency is one of the last remaining channels for the U.S. government to provide financial support to fossil fuel interests overseas. If the OECD agrees to suspend fossil fuel export credits, Export/Import would have to stop approving loans for oil and gas infrastructure, potentially eliminating billions of dollars in future support for such projects. be.

Almost a decade ago, former President Barack Obama’s administration helped lay the groundwork for the kind of deal Biden is trying to achieve. In 2015, President Obama joined a group of OECD countries that agreed to end financing for high-emission coal-fired power plants. When President Trump took office in 2017, his administration did not seek to withdraw from the agreement or fund new coal-fired power plants. The remaining OECD members then coalesced around an agreement to halt funding for nearly all coal projects. This reduced coal funding from group member countries by about $4 billion a year. China, which is not part of the group, quickly followed suit, effectively halting public financing of coal around the world.

“There’s very little export credit agency financing for coal projects,” said Kate DeAngelis, deputy director of international financial policy at the climate change advocacy group Friends of the Earth. “There are a lot of projects that we were tracking, but what we saw was that they weren’t getting financing.” This is especially true in Vietnam, where many coal developers are planning DeAngelis added that the company has decommissioned its power plants and import terminals.

However, coal projects account for a small portion of total export credit financing, with most of it going to oil and gas production and transportation. Reducing these fuels will become even more difficult. In fact, many companies supporting abandoned coal projects in Vietnam are looking to reuse their infrastructure to build liquefied natural gas import terminals, DeAngelis said.

In 2021, shortly after taking office, Mr. Biden announced: presidential order This aimed to limit international public funding for fossil fuels across all government agencies. Since then, the U.S. Export-Import Bank has financed a number of large oil and gas projects, including an oil refinery expansion in Indonesia.

The most notable such project was a $500 million oil drilling expansion in Bahrain. Bahrain, unlike most countries that receive export credit financing from the US or EXIM, is neither a developing country nor a particularly risky investment destination. The Biden administration has not taken any steps to overturn approvals for import-export fossil projects. Following the approval of the Bahrain project, two members of EXIM’s climate advisory committee resigned.

When asked in the past about OECD proposals to restrict oil and gas financing, EXIM leaders said they were constrained by language in the bank’s charter that prohibits “discrimination on the basis of industry.” But Stacey Swan, one of the EXIM climate council members who resigned, said the language was not necessarily the barrier that bankers saw as problematic. Swan also heads Resilient Earth Capital, an investment firm focused on climate change.

Neither the U.S. Export-Import Bank nor the Treasury Department responded to requests for comment.

Momentum to extend the promise of coal to oil and gas is coming from Europe. Last year, the European Union proposed a framework to curb oil and gas export credits to other OECD countries, with Britain and Canada also signing on. The UK was one of the earliest countries to propose abolishing fossil fuel export credits in the OECD, and its export credit agency has already cut most of its support for oil and gas projects – in fact, the agency’s energy A former head of finance said: He previously oversaw fossil fuel loans and is now the agency’s “head of renewable energy and transition.” It also provides export credit financing to decommission Brazil’s fossil fuel infrastructure.

At the time, the United States refused to support this framework. It wasn’t until after Trump’s reelection that the White House reversed course and endorsed it.

“The big change is that Trump won the election,” DeAngelis said. “If Harris had won, I don’t think we would have seen any difference. I think they would still be plodding along. All of a sudden they’d say, ‘Okay, the clock is ticking, Biden climate. I realized that I only had two months left to do something that could have a huge impact on the variable legacy.”

Even so, support from the Biden administration does not guarantee a deal. Some other countries, such as South Korea (which has a robust shipbuilding industry that relies heavily on oil and gas customers), have balked at approving the deal.

After closed-door negotiations on a fossil fuel deal last month, member states took the unusual step of scheduling an extended virtual meeting to finalize the deal. After holding a virtual meeting this Tuesday, they scheduled the following: another An extension meeting is also scheduled for next week, which could indicate a deal is nearing completion.

“I think the fact that the OECD has a unified view on this and that the United States is joining them is a great message,” Swan said. But, she continued, “If you think that will stop other countries from supporting oil and gas in other ways, you’re kidding yourself.” She added that private banks could also step in to fill the gap. He added that it is sexual.

The International Energy Agency says nearly all new coal, oil and gas projects will need to be halted to keep global temperature rise below 1.5 degrees Celsius, but these projects are still underway. . Export credit agreements may not kill these projects, but they free up capital and capacity for exporters to invest in renewable energy, making it harder for riskier oil and gas projects to succeed in the future. There is a possibility that it will become.

“It’s not a death knell, but it will have a serious impact,” DeAngelis said.