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A commitment to cut fossil fuel funding for overseas projects from the new Joe Biden administration looks set to have a major impact on the activities of the Export-Import Bank of the United States (US Exim). But while climate activists are welcoming the move, there are suggestions that the bank could continue supporting oil and gas projects in some capacity.

Last week, special climate envoy for the US John Kerry said that the country would put forward a plan to end financing of international fossil fuels.

Speaking as part of an online panel at the World Economic Forum, Reuters reports that the former secretary of state under Obama announced the US would draft a plan for US climate finance, though he didn’t provide any further details.

Meanwhile, that same day, President Joe Biden issued an executive order for “tackling the climate crisis at home and abroad”, which mandates US Exim and other government agencies – such as the International Development Finance Corporation (DFC) – to work towards “ending international financing of carbon-intensive fossil fuel-based energy”.

In a statement, climate activist organisation Friends of the Earth praised Kerry’s announcement, while also criticising the billions of dollars provided to fossil fuel projects by the DFC and US Exim in the past five years.

“It is high time that Exim, DFC, and the rest of the US government stop destroying local communities and the environment by propping up fossil fuel projects abroad. We look forward to an immediate end to this dirty financing,” says Kate DeAngelis, international finance program manager at Friends of the Earth.

For its part, in 2020, US Exim was one of a number of export credit agencies (ECAs) to support a major onshore liquified natural gas (LNG) project in Mozambique, approving a direct loan of nearly US$5bn.

The bank also backed US oilfield equipment and services exports to both Argentina and Mexico.

In August, US Exim penned a US$75mn credit guarantee facility with Argentinian state-backed energy company YPF, and that same month, it also voted to notify congress of two transactions – a US$350mn general facility and US$50mn small business facility – for Mexico’s state-owned petroleum company Petroleos Mexicanos in support of the US oilfield services industry.

Against this backdrop, the proposed ban would represent a sea change for US Exim, which championed LNG during former President Trump’s term in power, and also remained open to backing coal projects.

But while Kerry’s announcement seems to suggest the US government will put a block on support for fossil fuel projects abroad, there are suggestions from some quarters of possible exemptions in this new policy.

Nikos Tsafos, deputy director and senior fellow on the energy security and climate change programme at the Center for Strategic and International Studies (CSIS) – a Washington-based thinktank – says there could be “conditions” imposed on any outright ban of fossil fuels.

Speaking about what these conditions might look like, he says: “In a narrow sense, the exception could be for projects that have a clear developmental benefit and where alternatives are not commercially viable.”

Or, he adds, fossil fuel projects may be approved if there is a national security exemption, and it’s deemed that the deal serves a “core US foreign policy goal”, but says that “that’s less likely”.

Another question mark remains over whether US Exim will be blocked from lending support to domestic exporters in adjacent industries, such as oilfield services.

Ultimately, Biden’s strategy to move the American economy and its exports away from fossil fuels could come under increasing pressure, Tsafos notes, with critics already voicing concerns that Biden’s proposed clean energy economy will kill jobs in the oil and gas sectors.

“The political question is, do you want to pick the extra fight? Or do you want to create some specific conditions under which you would allow these exports? I don’t know where they’re going to land at the moment,” he says.

In the final days of the Trump era, US Exim had been looking to ramp up support for domestic LNG exporters, signing off on a supply chain finance (SCF) loan guarantee in January.

The deal, which marked the first time the ECA had ever backed a domestic LNG exporter, saw the bank agree to provide a 90% guarantee for a US$50mn SCF facility from Greensill Capital to Houston-based Freeport LNG Marketing.

 

Boosting renewables

Even before Kerry’s announcement last week, US Exim had been instructed by congress as part of its reauthorisation in late 2019 to boost its share in renewables, and set the ECA a goal of reserving 5% of its financing authority – equivalent to roughly US$6.5bn – for renewable energy projects.

Nevertheless, Biden’s executive order on the climate crisis looks set to bring US Exim’s energy activities under closer oversight.

The order states that US Exim and other agencies must not only “identify steps” through which to end international financing of fossil fuels, but that they must also simultaneously advance “sustainable development and a green recovery”.

Tsafos expects there to be a “huge shift” towards renewable energy projects across various agencies, saying that US Exim has “not been very good at supporting” the renewables sector in recent history.

“By my count, they’ve only allocated about US$1.7bn over the last 10 years cumulatively for renewable energy. They did almost three times as much in one LNG project [Mozambique],” he notes.

However, while Biden’s executive order may suggest a policy shift for US Exim – which could potentially see a boost in the volume of renewables transactions recorded on its authorisation sheet – the bank’s ability to support renewables exports hinges, at least in part, on broader changes within the American manufacturing space.

Any major overhaul in energy policy at US Exim will have to confront certain “obstacles”, Tsafos says, such as China’s dominance in areas such as solar, as well as batteries and electric vehicles.

According to a report from the International Energy Agency (IEA) released last year, China accounted for two-thirds of solar photovoltaic module shipments in 2019. Malaysia, the country with the next highest total of shipments that year, accounted for 12%.

Until the US addresses the disparity in the manufacture and export of renewable energy technologies, US Exim’s ability to help drive Biden’s climate plan could be constrained, Tsafos says.

“You have to ask, what is the bottleneck there? Because in reality, the US is not incredibly competitive in some of the technologies that we’re deploying now for renewable energy… Remember, Exim is about exporting. And if you don’t have a manufacturing base at home, there won’t be any renewables exports to support.”

Transforming the US into a “clean energy economy” was one of Biden’s key campaign promises, and the new administration has pledged to put US$2tn towards boosting green energy in domestic industries, such as transportation – offering rebates to consumers in a bid to expand the use of cleaner cars, for instance – as well as the electricity and building sectors.

In terms of electricity, the Biden clean energy plan talks up the switch towards solar and wind, and sets out a target to make the domestic power sector carbon neutral by 2035.

Biden’s policy adds that by shifting the power sector towards clean, “American-made” electricity, the US will “lead the world in inventing, manufacturing and exporting clean energy technologies”.