President Obama’s June 25 Climate speech told us that the US would no longer support coal projects funded by the World Bank or other multilateral institutions. Specifically he said…
“Today, I’m calling for an end of public financing for new coal plants overseas – unless they deploy carbon-capture technologies, or there’s no other viable way for the poorest countries to generate electricity.”
Shockingly, a few days later the Bank said it would not fund new coal projects “unless”… and proceeded to list essentially the same qualifiers. Despite the qualifiers, given the existing challenges of Bank funding, and the way the Bank’s policy positions were already trending, the message for those considering such projects is clear: Forget it.
The odd thing about the fuss being made of the President’s remarks is that these multilateral institutions have funded very few coal projects in the last decade anyway, and those that it did were so bitterly contested that anyone remotely interested in such projects would seek every other option. Oil Change International, who have no incentive to downplay the numbers, estimate that the Bank has financed about $5.5B of coal projects in the last 5 years. And more than half that amount – $3.75B – was for a single plant in South Africa. [In case you wondered, the Obama administration abstained on the decisive funding vote on that one.]
Anyone familiar with a developing country project requiring financing from multilateral institutions such as the Bank knows that it is not a process to be undertaken lightly. The Bank does not work quickly. Its staff always have to look over their shoulders to ensure they are following not only often byzantine rules and policies of its governing board, but also to avoid controversy (aka the attention of those who take to the streets of DC every year outside their annual meetings). Evading such controversy was proving impossible with coal projects.
While we believe this formal death-knell for World Bank coal project finance will have little practical impact, two related issues are lurking.
First is whether the interest groups can build on this and persuade commercial lenders to adopt a similar approach, although even then the impact would be confined to western countries: it is hard, if not impossible, to imagine banks in China or India being susceptible to such pressures.
Second, will the Obama administration go further and also remove financing benefits for US exports associated with overseas coal projects, such as mining equipment or coal fired boilers. Unlike World Bank financing, such benefits have significant domestic constituents, and the British Government, which once promised it would end all such support, recently quietly reversed their position.