Biden administration tightens rules for government-backed energy projects
A new policy from the Biden administration increases the country’s pressure on the rest of the world to move away from fossil fuels.
The policy “rules out” U.S. government support for most new coal-fueled power generation projects overseas, as well as limiting assistance for carbon-intensive oil and gas projects, too.
In addition to denying financial assistance, the policy also ends diplomatic and technical help.
Intended to speed up the transition to renewable energies in the global battle against climate change, it was explained in a Dec. 10 cable to U.S. embassies and obtained by Bloomberg and other news organizations.
It follows through on President Joe Biden’s January 2021 executive order calling for directing more funding to energy projects aligned with the administration’s goal to fight climate change.
The new guidance hits hardest at coal-fueled power plants.
“Engagements related to coal generation must be related to full abatement of emissions and/or accelerated phase-out,” the policy said.
“Our international energy engagement will center on promoting clean energy, advancing innovative technologies, boosting U.S. clean-tech competitiveness and providing financing and technical assistance to support net-zero transitions around the world,” according to the cable.
The new policy makes a distinction based on greenhouse gas emissions. For example, a traditional combined-cycle gas-fueled power plant could exceed emissions standards and still lose access to U.S. assistance, according to the guidance sent to embassies.
But a combined-cycle gas plant that employs carbon capture and sequestration to keep the carbon dioxide emissions out of the atmosphere could avoid the restrictions and receive U.S. help.
In one of several exemptions, U.S. support will be allowed for oil and gas projects, including pipelines, power plants and liquefied natural gas import terminals, if they significantly advance compelling national security concerns or foreign policy considerations.
Expanding energy access for vulnerable populations around the world also rates an exemption.
Environmental groups question the exceptions.
They are particularly upsetting to Friends of the Earth, which said the policy allows the U.S. Export-Import Bank — which helps finance projects worldwide that promote U.S. goods, services and jobs — to seek an exemption for “financing the sale of certain U.S.-made goods.”
The finance agency “will merely need to say that not funding a fossil fuel project will hurt the interest of a U.S. company and then it can support the project,” the environmental organization said in its analysis.
Federal agencies can seek exemptions on a case-by-case basis through a formal review process that will ask, among other questions, whether there are cleaner options for developing or delivering the energy.
The policy took effect immediately and applies to “infrastructure directly related to the production, transportation or use of fossil fuels.”
The new policy does not apply to existing projects that are already receiving U.S. government support.
The federal government provided an average of $16 billion a year 2017-2019 in public finance, including equity, loans and loan guarantees, for natural gas projects, four times as much as wind and solar, according to a recent report from the International Institute for Sustainable Development, a 31-year-old think tank based in Canada.
For example, U.S. international financing agencies have committed more than $6 billion for two liquefied natural gas export projects in Mozambique.
LNG import projects that have not already lined up U.S. government financing could be hit hardest, such as plans for new receiving terminals in the Caribbean and Eastern Europe, growing markets for U.S. LNG suppliers.
One paragraph of the policy seems to hold the door open for U.S. businesses to work and make money on overseas energy projects, even without federal assistance.
“As long as there is demand for fossil energy products, technologies and services in global markets, the U.S. government will not stand in the way of U.S. companies that are ready and able to meet those needs,” said the guidance to embassies. “The U.S. government will continue to help U.S. energy companies, especially small- and medium-sized businesses, achieve their commercial objectives without compromising global climate ambitions.”
Some projects are automatically exempted, such as those designed solely to stop or limit methane leaks from gas pipelines and other infrastructure.
The guidance also would allow U.S. support for some projects that reduce greenhouse gas emissions. The policy provides an automatic waiver for projects if agencies can “demonstrate with confidence that there is a binding and enforceable guarantee” that average emissions over the development’s entire lifespan will be below predetermined thresholds.
In addition to questioning the exemptions, the anti-fossil fuel Friends of the Earth said the policy does not go far enough.
“The guidance put forward today looks like it was written a decade ago when climate change’s severity was less understood,” Kate DeAngelis, international finance program manager at Friends of the Earth U.S., said in a prepared statement.
Another environmental group, Oil Change International, was less cynical in its assessment of the policy.
“If the exemptions are implemented in good faith, this guidance should end almost all U.S. international finance for fossil fuels,” Bronwen Tucker, global public finance campaign co-manager at Oil Change International, was quoted by Bloomberg.
Tucker added in an interview with S&P Global Platts: “We are still missing the fine print.”
The U.S. is expected next year to move into the No. 1 position among the world’s LNG exporters, as the nation’s gas producers and LNG terminal operators continue expanding on a profitable business. Supporters of the industry are skeptical — but not surprised — of the new Biden administration policy.
The president of the U.S. LNG Association said the policy is about what the industry expected from the administration, though he also called it a “sea change” in comments to the news media. Fred Hutchison, president and CEO of U.S. LNG, told S&P Global Platts the policy is “a tightening of the rules on fossil fuel engagement abroad with some limited exceptions.”
Until specific projects are reviewed for exemptions, “it is tough to judge how this will affect foreign LNG and natural gas infrastructure development,” he said. “It’s not closing the door to gas but setting the bar a lot higher than it had been set in the previous administration,” Hutchison said.
Larry Persily can be reached at [email protected]