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The US Department of the Treasury released guidance urging
multilateral development banks to finance methane reduction as well
as carbon capture, use and storage (CCUS) at existing fossil fuel
projects and to end support for expanding or building new ones.
"We are open to supporting CCUS and methane abatement solutions
as standalone investments for existing fossil fuel projects
assuming they do not expand the capacity of the existing project or
a significantly extend its operational life," the Treasury guidance said.
Issued 16 August, the Treasury guidance responds to President
Joe Biden's international climate financing
plan, which was released during the Leaders Summit on Climate
in late April to bolster support for clean energy technologies and
to essentially end support for fossil fuel energy projects.
The plan directed the Treasury to develop guidance to end
multilateral development bank financing for fossil fuel energy
activities so the agency could use it as part of criteria when
casting US votes on specific projects. Treasury did not announce
when the guidance would take effect.
The US is the largest shareholder in the development bank
system, which includes the World Bank, the Inter-American
Development Bank, the Asian Development Bank, the African
Development Bank, and the European Bank for Reconstruction and
Development.
The guidance builds on G7 leaders' June call for an
end to investment in new "unabated international coal generation,"
but not domestic generation, by the end of 2021, to eliminate
inefficient fossil fuel subsidies, and to phase out
carbon-intensive fossil fuel generation "as soon as possible"
except under limited circumstances.
"We will work with [multilateral development bank (MDB)]
management and shareholders to prioritize clean energy, innovation,
and energy efficiency. When considering projects, we will advocate
for MDB staff to assess these options first, and only consider
fossil fuels if they are unfeasible," the guidance said.
Methane abatement technologies available
Reducing methane emissions is critical for reducing the rapid
rate of global warming in the near term, as methane, though a
short-lived GHG, has a global warming potential that is 84-86 times
that of CO2 over a 20-year span.
A UN study released in May said
readily available technologies to capture methane from the fossil
fuel sector, along with some additional measures such as fuel
shifting to renewables, would avoid nearly 0.3 degrees Celsius of
global warming by 2045 and would be consistent with keeping the
Paris Climate Agreement's goal within reach.
According to this study, a majority of methane abatement
potential can be achieved at low cost, less than $600/mt of
methane, especially in the waste sector and the coal subsector in
most regions of the world, and for the oil and gas subsector in
North America.
More carbon capture needed
The Global Carbon Capture and Storage Institute (GCCSI), an
international think tank, was pleased that the guidance recognized
CCS.
"We want to see the deployment of more CCS and unlocking finance
is a really important part of that. So, we're glad to see that CCS
projects are allowed in this guidance," Matt Bright, GCCSI senior
advocacy and communications adviser, told Net-Zero Business
Daily.
According to GCCSI, multilateral development banks have a key
role to play in promoting CCS through issuing term debt in
low-income member countries.
In its "Unlocking Private Finance to Support CCS
Development" report, the GCCSI said the objectives of
multilateral development banks, their experience and diplomatic
leverage "often enable them to provide cover for risks in countries
and projects that would otherwise struggle to access funding."
According to the think tank, there are 66 CCS projects around
the globe at the moment: 26 in operation (actively capturing CO2);
two with suspended operations (meaning that the facility can
capture CO2 but currently is not); four under construction
(investment decision made to construct); and 34 under development
(conducting feasibility studies).
Approximately 2,000 commercial CCS facilities constructed
between now and 2050 will be required to meet the International
Energy Agency Sustainable Development Scenario to meet net-zero
goals, which the GCCSI said would require capital investment of
about $655 billion and $1.280 trillion.
The financing would come from a mix of private investment,
multilateral banks, and other sources.
Gas generation financing remains intact
While the Treasury's guidance was welcomed by groups for its
support for CCUS and methane abatement, it also was criticized
because it will allow continued—and possibly expanded—use
of natural gas in power generation and transportation.
Although this guidance puts an end to financing for gas
exploration and drilling, it allows multilateral development banks
to support gas-fired generation and pipelines in small island
nation states, such as those found in the Caribbean; countries the
World Bank has identified as conflict-ridden and fragile;
and countries eligible for the World Bank's
International Development Association (IDA) credit lines with gross
national incomes per capita below a poverty threshold, which is
$1,205 for fiscal year 2022.
Multilateral development banks under this guidance also would be
allowed to support gas projects when "there is no economically and
technically feasible clean energy alternative" or "when the project
has a significant positive impact on energy security, energy
access, or development."
It does end direct financing—as well as through policy-based
operations and financial intermediaries—for coal-fired
generation unless the funds are used to decommission plants, and it
ends oil-fired generation financing unless used for backup power in
emergencies or for home heating and cooking.
The American Petroleum Institute (API) said addressing the risks
climate change pose while ensuring access to affordable, reliable
energy remains one of the greatest challenges.
"As countries grow and economies expand, the world will need
more energy and US natural gas will play a critical role in
providing that supply while helping to reduce GHG emissions by both
replacing more carbon intensive fuels, like coal, and aiding the
deployment of renewable energy in developing nations," Dustin
Meyer, API vice president of natural gas markets, said in a
statement.
Good start or lip service
Tom Sanzillo, financial analysis director for the nonprofit
Institute for Energy Economics and Financial Analysis, called the
guidance a "good start."
"This policy statement is sound and comprehensive. It has
important safeguards to protect against unintended consequences,
but it will require ongoing monitoring, transparency, and debate to
move this from a good policy statement to an effective tool to
combat climate change," Sanzillo told Net-Zero Business Daily.
For instance, the guidance would not apply to the $20 million
the World Bank has already promised under its IDA program "to
strengthen institutions, laws, and regulations to promote good
governance and prudent management of Guyana's oil and gas sector."
It also would not affect Mozambique's $20 billion LNG
project, which has been beset with delays, most recently
violence in the country, and is now projected for completion in
2024.
However, the nonprofit Friends of the Earth lambasted the
guidance, saying "it pays a lot of lip service but has little
teeth."
"Continued support for fossil fuel expansion in developing
countries will subject the world's most vulnerable communities to
displacement, illness, and livelihood loss, and developing
economies to the risks and injustice of a delayed transition to
clean energy," Luisa Galvao, the group's international policy
campaigner, said in a 16 August statement.
Posted 18 August 2021 by Amena Saiyid, Senior Climate and Energy Research Analyst
