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New guidance restricts US overseas fossil fuels project investments

13 December 2021 Kevin Adler

The Biden administration, in new guidance issued to US embassies on 10 December, outlined a policy that "rules out" US government discussion or support of new unabated or partially abated coal generation projects worldwide, as well as restricting engagement on other types of high-carbon energy projects. The guidance takes effect immediately.

The cable to the embassies describes the document as an interim guidance that builds on Biden's Executive Order 14008 issued on 27 January 2021. The order "promotes ending international financing of carbon-intensive fossil fuel-based energy" and "intensifying international collaborations to drive innovation and deployment of clean energy technologies."

The interim guidance is one part of fulfilling the US' pledge made prior to the G7 meeting in June to end public financing of unabated coal projects this year and a promise at COP26 in November that the US, alongside 34 other nations and five international financial institutions, will stop support for unabated/partially abated coal projects by the end of 2022.

The guidance covers any project in which US government expenditure is more than $250,000.

It says that exceptions to the guidance could come in "rare cases" where there are compelling national security, geostrategic, development or energy access benefits, and no viable lower-carbon alternatives accomplish the same goals.

"The issuance of the US interim international energy engagement guidance to overseas posts … continues the whole-of-government approach by the Biden administration to imprint its climate policies across all agencies," Susan Farrell, independent energy adviser, commented.

According to Oil Change International, an advocate of ending the use of fossil fuels, the US has spent at least $11.3 billion in public funds on overseas oil, natural gas, and coal projects since the Paris Agreement was signed in 2015. It said $8.8 billion was directed at gas projects, including activities such as the US Export-Import Bank supporting the Mozambique LNG project.

The US LNG industry expressed concern about the new policy, though it said that actual experience with the guidance will determine whether it has an impact on the growth of that export sector.

"The Interim Guidance seems, on initial review, to be what we have been expecting since it was first announced right after the Inauguration—a tightening of the rules on fossil fuel engagement abroad with some limited exceptions," said Fred Hutchison, president of LNG Allies, in an email. "However, as is true with any broad guidance document, it is tough to judge how this will affect foreign LNG and natural gas infrastructure development until specific projects are brought forward for US government support."

The US Trade and Development Agency has financed a few feasibility studies on LNG import and gas-to-power projects, he said, and the US Commercial Service (part of the Department of Commerce) worked with LNG Allies to produce LNG educational events in Berlin, Rio de Janeiro, Warsaw, and Brussels during the Trump era. These types of programs are at risk, Hutchison said.

Definition of "carbon-intensive"

The interim guidance defines carbon-intensive projects as those that would lead to GHG emissions with emissions intensity above a life-cycle value of 250 grams CO2/kWh.

Under this definition, the following projects would not qualify for engagement:

  • Coal-fired power: 1,062 grams CO2/kWh
  • Oil-fired power: 1,020 grams CO2/kWh
  • Biomass co-firing with gas, coal: 740 grams CO2/kWh
  • Gas-fired combined-cycle power: 450 grams CO2/kWh
  • Jet fuel (conventional): 320 grams CO2/kWh

The following technologies potentially would be eligible for US support, as they are below the carbon threshold:

  • Coal with carbon capture and sequestration (CCS): 220 grams CO2/kWh
  • Coal gasification with CCS: 200 grams CO2/kWh
  • Ethanol: 193 grams CO2/kWh
  • Gas-fired combined-cycle with CCS: 170 grams CO2/kWh
  • Sustainable jet fuel: 160 grams CO2/kWh
  • Biodiesel: 78-126 grams CO2/kWh
  • Solar PV (utility): 64 grams CO2/kWh
  • Solar PV (rooftop): 41 grams CO2/kWh
  • Hydropower: 24 grams CO2/kWh
  • Nuclear: 12 grams CO2/kWh
  • Offshore wind: 12 grams CO2/kWh
  • Onshore wind: 7 grams CO2/kWh

The guidance also allows for—and encourages—projects in the gas industry that would reduce methane leakage at any part of the supply chain. "Projects dedicated solely to advancing methane abatement through leak detection and repair, vapor recovery systems, or other viable abatement solutions are considered net-negative emission projects and do not necessitate an exemption," it said.

It also supports "technology-neutral assistance" that improves the general capability of the power sector in a country, such as building power transmission lines.

"The focus on life cycle is clarified as well, with the guidance explicitly citing production, transportation, and consumption of energy-intensive fuels projects. That covers a broad range of investments, including power transmission and distribution linked to a new emissions-intensive project," Farrell said.

Mixed reactions, implementation questions

Environmental groups in the US were warily supportive of the announcement. Noting that the US is one of the world's leading financiers of fossil fuel energy projects, Jake Schmidt, senior strategic director for Natural Resources Defense Council, issued a statement on 10 December calling the guidance "an important, overdue step that must be followed with concrete action."

The guidance builds on the Fossil Fuel Energy Guidance for Multilateral Development Banks, created by the Treasury Department in August develop policy on fossil fuel energy investments by multilateral development banks, Shruti Shukla of NRDC wrote to Net-Zero Business Daily in an email. This guidance states that the US: "... will oppose new coal-based projects"; "... oppose oil-based projects"; "... oppose natural gas upstream projects"; and support, under limited conditions, use of natural gas for heating and cooking.

If the US shifts investments to clean energy projects, it could provide a signal "to persuade other countries still financing dirty energy projects overseas to put their faith and fortune into the burgeoning global clean energy economy," Schmidt said.

Farrell observed that by incorporating a lifecycle emissions threshold of 250 grams CO2/kWh into the guidance, the US government is saying that only gas-fired power projects incorporating carbon capture would be eligible for support. This is "signaling that gas must be clean and not just cleaner than other fossil fuels," she said.

But LNG Allies' Hutchison pointed out that the hard limit on gas-fired power might have negative impacts that undermine US interest in reducing global emissions. Gas exports enable countries to close coal-fired power and reduce emissions quickly, Hutchison said. He noted that the EU's Green Taxonomy appears supportive of gas as a transition fuel, implying that the US policy should see gas in the same light. In fact, he asked how not supporting gas could be justified. "How does it help nations such as India that have said that their net-zero transition will take until 2070 and require natural gas to displace coal and accelerate the deployment of renewables? How does it help alleviate energy poverty and bring economic prosperity to Africa?" he asked.

Whether a gas-import project would qualify for an exemption under the guidance (due its ability to replace coal power, for example) is unknown until applications are made, Hutchison said, though he told Net-Zero Business Daily he hopes "some gas support is still possible."

Of course, one person's exemption is another person's loophole. "If this guidance is implemented well and loopholes are minimized, this is a major step forward to align our overseas spending with climate goals. Other countries should follow suit, particularly the world's largest providers of overseas oil and gas finance, including Canada, South Korea, Japan, and China," said Collin Rees, US program manager for Oil Change International.

But US policy itself can be inconsistent, Hutchison explained. The US International Development Finance Corp. (DFC) can provide loans, guarantees, and insurance for projects around the world, and it mostly targets developing nations, though some funds can flow to Europe as well.

"DFC can finance gas projects in Europe," Hutchison wrote in an email. "Such support was explicitly authorized in Sen. Chris Murphy's European Energy Security and Diversification Act of 2019, enacted as part of the Further Consolidated Appropriations Act of 2020."

But does this new guidance reflect administration plans to change the rules for DFC in other ways? That remains to be seen.

Posted 13 December 2021 by Kevin Adler, Chief Editor

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