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The Export-Import Bank of the United States (US Exim) should update its mandate and adopt a fossil fuel exclusion policy to avoid falling behind on its climate commitments, a recent report says.

Released last week by German climate policy think tank Perspectives Climate Group and Oxfam, the report looks at how well aligned US Exim is with the country’s climate and development policies.

It calls on US Congress “to explicitly prohibit Exim from supporting fossil fuel projects, including companies with value chains that significantly rely on fossil fuels”.

Although US Exim is required to use at least 5% of its annual financing to support renewable energy, energy efficiency and storage, the report shows that just 1.25% of its new authorisations were deemed environmentally beneficial in 2021, while 0.2% were for renewable energies. Oil and gas made up over 25% of US Exim’s portfolio that year.

“Exim has long dragged its feet on shifting its portfolio to support the energy transition that the US needs, both to remain competitive in the global economy and to stop locking in dirty fossil fuel infrastructure propelling the world to climate catastrophe,” says Daniel Mulé, Oxfam America’s policy and programme manager for just energy transition and extractives.

The US is one of the signatories to the 2021 Glasgow statement – which aimed to end new direct public support for unabated fossil fuels by the end of 2022 – but the government has not yet released policy guidance.

Campaign groups have criticised US Exim for its support of oil and gas, including a liquefied natural gas (LNG) project in Papua New Guinea, an oil refinery in Indonesia and a deal with Trafigura to insure US$400mn in revolving credit facilities for the purchase of LNG.

Other recent approvals include a US$240mn loan guarantee for a gas project in Iraq and financing for an oil tank project in Estonia.

US Exim is also faulted in the report for a lack of transparency in its transaction reporting, especially around the support it provides to fossil fuel value chains, such as the export of equipment for coal mining.

To combat this, the study calls for legal reforms such as updating its mission and mandate to focus on “a just energy and climate transition”, and placing “absolute limits on fossil fuel production”.

US Exim could be made subject to judicial oversight by Congress, and as a last resort, the Secretary of State could also be called on to direct it to reject applications for fossil fuel projects, the report suggests.

In response, a senior US Exim official tells GTR that this year the agency’s financing “for climate and renewable transactions surpassed US$950mn, the largest amount the agency has ever authorised in this sector”.

 

Non-discrimination clause

Under particular scrutiny is a “non-discrimination” clause that prevents the export credit agency (ECA) from excluding deals purely because they are in the oil and gas sector.

The senior US Exim official says the agency “seeks to align with the Administration’s climate agenda while still complying with Exim’s statutory requirements, including the charter prohibition against discrimination based solely on industry, sector or business, and its mission to support US jobs”, adding that “any change to Exim’s charter must be passed through Congressional action”.

Yet the report says a way around this clause could also be achieved by setting maximum greenhouse gas emissions intensity thresholds.

The clause “does not effectively prevent Exim from screening projects and developing internal criteria and procedures that can screen and filter projects on carbon intensity without any explicit exclusion by industry, sector, or business”, the report says.

US Exim’s mandate does change periodically: in 1992, it was altered to require the agency to increasingly support environmentally beneficial exports, and in 2019, reforms included the requirement to commit at least 5% of its financing each year to renewable energy exports.

But changes to US Exim’s charter will require bipartisan support, which might be “difficult to achieve in the current political circumstances”, the report says.

Political consensus has proved to be a stumbling block for the ECA, which in recent years has been accused of favouring large corporates like Boeing, and distorting the free market “by crowding out private financing”.

Between 2015 and 2019, US Exim failed to get the required number of board members confirmed by the Republican party and so could not approve transactions of more than US$10mn or with tenors longer than seven years.

In its own 2022 Competitiveness Report, US Exim’s advisory committee acknowledges that the ECA “is not back up to fighting weight” since the quorum lapse, and is instead “clinging to practices designed for a different era” and “passively waiting for transactions”.

The committee recommends establishing a clean tech working group, and notes that despite the non-discrimination clause, “it isn’t mutually exclusive to recognise that reality while also substantially increasing the bank’s ability to advance clean energy solutions around the world”.

In its report, US Exim says that it authorised US$54.3mn in support of renewable energy exports last year, marking a US$12mn increase year on year, but adds that this is “well below authorisation levels from the years preceding the agency’s lapse in authority and lack of board quorum”. In 2014, the figure approached US$200mn.

“Taking the energy transition seriously and fully aligning Exim with the US climate commitments would be a clear win-win situation for Democrats and Republicans, for exporters and foreign buyers, as well as for present and future generations,” says Igor Shishlov, head of climate finance at Perspectives Climate Research and co-author of the Perspectives/Oxfam report.

The joint report also calls on the US to “demonstrate climate leadership” and ensure the global export finance system is aligned with the Paris Agreement, including tabling proposals for restricting oil and gas value chains via the OECD’s Arrangement on Officially Supported Export Credits.

Other goals include drafting a definition of climate finance and a net-zero target by 2050 at the latest.