Biden halts federal aid for new fossil fuel projects overseas

WASHINGTON • The Biden administration has ordered an immediate halt to federal support for new coal plants and other carbon-intensive projects overseas, a major policy shift designed to fight climate change and accelerate renewable energy worldwide.

The wide-ranging directive for the first time bars US government backing for future ventures, potentially affecting billions of dollars in annual funding as well as diplomatic and technical assistance.

The move was detailed in a cable that was sent late last week to US embassies and obtained by Bloomberg News.

The policy contains significant exemptions, including for compelling national security concerns, foreign policy considerations or the need to expand energy access in vulnerable areas. It also does not apply to existing projects, including some that the US has supported under multiple administrations.

Nevertheless, the policy shift could affect a significant number of potential foreign projects, including terminals in Eastern Europe and the Caribbean for receiving shipments of US natural gas.

It also goes beyond constraining financial aid and rules out other, softer forms of government support, including diplomatic and technical assistance that benefits developers of pipelines, liquefied natural gas (LNG) terminals and other projects overseas.

The move underscores how the Biden administration has made fighting climate change one its most urgent policy priorities. Yet the approach creates a major opening for China, which is eager to fund and finance energy projects around the world, often with sums of money that the US has been unable to match.

The administration stressed that while the US government will withhold support, it will not actively seek to prevent US companies from building coal, oil and gas projects overseas.

"As long as there is demand for fossil energy products, technologies, and services in global markets, the US government will not stand in the way of US companies that are ready and able to meet those needs," said the guidance to embassies.

"The US government will continue to help US energy companies, especially small and medium-sized businesses, achieve their commercial objectives without compromising global climate ambitions."

The effort is designed to steer the government's work towards clean energy sources - not instantly cut off carbon-intensive projects, said a person familiar with the administration's thinking.

The initiative seeks to advance clean energy engagement but not prioritise it above concerns about national security, energy access or prices, the person said.

 

Environmental advocates have been lobbying President Joe Biden's administration to make such a shift, arguing that the construction of new oil pipelines, LNG terminals and similar projects is not consistent with efforts to limit global temperature rise to 1.5 deg C, a critical threshold for avoiding the most catastrophic consequences of climate change.

The policy's wide reach is critical, said Mr Jake Schmidt, senior strategic director of the international climate programme at the Natural Resources Defence Council. "The US has provided a lot of political cover or other indirect support for overseas fossil fuel projects through its ambassadors or other means," he said.

"A country will then prioritise the project - even if there are a bunch of reasons not to do it - because it doesn't want to hurt the relationship with a country as important as the US."

The US doled out an average of US$16 billion (S$22 billion) in international public finance to natural gas projects annually from 2017 to 2019 - four times as much as wind and solar - according to a recent report from the International Institute for Sustainable Development, a think-tank.

The new plan aligns with a commitment that the US made in June with other Group of Seven nations to end public financing of "unabated" coal power generation - or plants that lack emission controls to capture carbon dioxide.

And it is consistent with a pledge by the US and dozens of other nations at last month's United Nations climate summit to stop funding foreign fossil fuel projects.

Exemptions will be allowed for oil and gas projects, including pipelines, power plants and terminals, if they are deemed to significantly advance national security, imperative from a geostrategic perspective or essential to supporting energy development in particularly vulnerable areas.

Many environmental activists welcomed the plan but stressed that the effort should be complemented by a boost in US climate aid overseas.

BLOOMBERG