U.S. lays out strict limits on coal funding abroad

by Reuters
Tuesday, 29 October 2013 20:59 GMT

Labourers work at a coal dump site outside Kabul, Afghanistan, Sept. 3, 2013. REUTERS/Mohammad Ismail

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By Anna Yukhananov

WASHINGTON, Oct 29 (Reuters) - The United States said Tuesday it plans to use its leverage within global development banks to limit financing for coal-fired power plants abroad as part of Washington's international strategy to combat climate change.

The U.S. Treasury said it would only support funding for coal plants in the world's poorest countries if they had no other efficient and economical alternative.

For richer countries, it would only support coal plants that deploy carbon capture and sequestration, an advanced technology for reducing emissions that is not yet commercially viable. That essentially means the United States would limit coal funding to only the world's poorest nations for now.

The rules affect U.S. support for new coal-fired power plants funded by multilateral development banks such as the World Bank. The United States is the world's second-biggest greenhouse-gas emitting nation after China and has sought to cut pollution blamed for warming the planet.

"As developing economies embark on a journey towards a clean energy future, today's announcement marks an important step in helping them reach this goal," U.S. Treasury Undersecretary for international affairs Lael Brainard said in a statement.

President Barack Obama said in June the United States would stop investing in most coal projects overseas, part of a broad package of climate measures, and called on multilateral banks to do the same.

Shortly after, the World Bank also agreed to a new energy strategy that will limit the financing of coal-fired power plants to "rare circumstances" for countries that have no alternatives. It did not go as far as the U.S. guidelines in specifying the funding would only go to the world's poorest countries.

"What they have put out is an incredibly important political signal about the future of coal internationally," Justin Guay, associate director for climate at the Sierra Club, said about the new U.S. guidelines.

"They said essentially that coal is not an acceptable fuel source for the 21st century."

Treasury's move came on a day when miners from West Virginia, Kentucky and other states held a rally outside the U.S. Capitol to protest the Obama Administration's regulatory policies, which they say are damaging the coal industry.

A House of Representatives energy panel also gathered coal-state witnesses to discuss the Environmental Protection Agency's "threat to affordable, reliable energy."

The wider impact of a new U.S. global energy strategy would likely not be seen immediately, since bilateral donors and the private sector will still continue to finance coal.

But some analysts think strict limits on public funding could send a signal that coal is a risky investment and prompt countries to turn to alternative energy sources.

"We believe that, if public financing points the way, it will then facilitate private investment," Brainard told reporters at a briefing.

The real test of the strategy could come next year, when the World Bank is expected to decide whether to provide loan guarantees for a Kosovo power plant fired by lignite coal.

A coalition of civic groups in Kosovo has asked the United States to lean on the World Bank to withhold funding for the plant, arguing there are better alternatives.

The U.S. Treasury declined to discuss the project specifically because it had not yet been presented to the World Bank's board.

The United States is the World Bank's largest and most powerful member, but likely would still have to build coalitions with other countries if it wanted to block funding for a specific coal project.

The World Bank last approved funding for a coal-fired power plant in 2010 in South Africa, despite lack of support from the United States, Netherlands and Britain based on environmental concerns.

Institutions such as the World Bank have been criticized for urging global action to cut emissions of carbon dioxide, while at the same time funding coal-fired projects. But others also fret that a lack of public funding for coal could impair energy access in poor countries struggling to raise their standard of living.

(Reporting by Anna Yukhananov; Editing by Ros Krasny, Cynthia Osterman and Andre Grenon)

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