President-elect Trump has a number of opportunities to return non-renewables such as coal and natural gas to their rightful place as legitimate sources of energy along with new renewable sources. All of these are used not only in the United States, but by many poor countries. The Obama Administration has spent the last 8 years trying to de-emphasize and even delegitimize non-renewables especially coal and has used its influence, direct and indirect, on U.S. government and international finance institutions to reduce financing for coal, natural gas, and other non-renewable sources of power. Even if the “on the books” these institutions could finance coal and natural gas, the reality is that the message has come down from the US and other shareholders to not finance these sources or to slow down the process with delays and various “studies” designed to discourage the construction of these power plants. The United States and its partners should instead provide financing for the appropriate mix of power generation at the country-level, including coal and other non-renewable sources.
A Trump Administration through the Overseas Private Investment Corporation (OPIC), the Export-Import Bank, and Treasury Department’s oversight of MDB policy should signal clearly that this must now change. The regional development banks particularly the Asian Development Bank and the African Development Bank would be willing to finance more coal and natural gas projects, but have been stopped or discouraged by the Obama Administration and a number of European shareholders. If the World Bank management does not demonstrate a recognition of the changing landscape, the Trump Administration and the US Congress should be prepared to shift resources to the upcoming World Bank’s IDA 18 replenishment to the African Development Bank and the Asian Development and the other regional development banks.
Just as the United States and Germany use coal as a major source of power, many poor countries see non-renewables as a part of their future energy mix. Without being able to call upon U.S. support or MDB support for the latest, cleanest and most efficient technologies, these countries instead turn to older, less efficient and dirtier technologies often made and financed by China. There are literally hundreds of millions of people without electricity, and many poor countries would happily choose coal and natural gas-fired power plants to allow for their citizens to have access to all the conveniences of modernity. There are several opportunities for the incoming Trump Administration.
First, the MDBs should end their de facto or actual prohibitions on lending and investing in non-renewable related projects. The United States is the largest or one of the largest shareholders of these multilateral development banks and has used that leverage to reduce financing for non-renewable power sources. The World Bank recently, for example, announced that it had not financed a green field coal project in 5 years. As a result, the Chinese “policy banks” now lend to and in the future the new Chinese multilateral competitor to the Asian Development Bank-the AIIB- will very likely lend to non-renewable projects. There is a growing demand for these sorts of power projects in Asia including Indonesia, Vietnam, India and China, as well as in Africa and Latin America.
In 2017, The World Bank will seek money from the U.S. congress for its triennial “IDA replenishment.” The US congress and the Trump Administration should ask for several things in return for giving the World Bank this money and one of those requests should be an easing of or removal of the lending prohibitions. Japan and Australia would enthusiastically support a Trump initiative and so would most of the recipients of World Bank monies.
Second, remove the anti-coal rules at the EX-IM Bank through new Trump Appointments to the Ex-Bank board and reversing the 2013 vote against coal. This recommendation assumes that President-elect Trump will appoint and the Republican Congress will approve new board members to the EX-IM Bank and increase its lending levels above $10 million. The Ex-Im Bank is supposed to be solely about supporting US jobs. The Obama Administration through its Ex-Im Bank appointees imposed a “no coal” rule on providing EX-Im bank loans to US technology related to coal. Much of the new coal technology being purchased today is Chinese which is lowering quality and dirtier.
Third, a Trump Administration and a Republican Congress should end the so-called “carbon cap” on OPIC. OPIC does important work and is now seen as a “development finance institution”. At the same time, through its activities, OPIC enables US jobs by enabling US investment overseas. The Bush Administration made an error in imposing a so-called carbon cap to mollify environmental groups in 2007. The Obama Administration has maintained it. A Trump Administration should correct this error. The “carbon cap” is a self-imposed limit on the number of oil, gas, and coal projects that OPIC will finance every year. In essence, the carbon cap has limited OPIC to perhaps one gas deal and the carbon cap has been a de facto barrier to OPIC financing any coal projects in years. No other DFI of a major G7 country imposes a “carbon cap” on itself. OPIC can continue to finance solar and wind projects but there is no reason why OPIC should not be financing oil, gas and coal projects when they make sense and when they help developing countries determine their own mix of energy.
Of course, the US and MDBs should finance renewables and the US should finance and even increase research into newer, cleaner energy sources. At the same time, it is a mistake to not support non-renewable projects. The incoming Trump Administration has an opportunity to reduce or remove implicit or explicit these restrictions on financing non-renewable projects. Coal and natural gas is a legitimate part of the global energy mix. These power plants can offer access to electricity to those who do not have it and the US should help enable that where it makes sense.
Article Published in Forbes.com on November 17, 2016.