Why the U.S. Should Not Reverse Course on Coal and the MDBs

The Trump Administration recently weakened the Guidance for how the U.S. representative at the multilateral development banks will vote on future projects being financed. The new guidance calls for increased fossil fuel projects to be financed by the multilateral development banks, in direct contrast to what MDBs have been doing in recent years. Increasing support for fossil fuels, especially coal, produces several severe negative impacts for the climate, environment and public health. Trying to increase support for fossil fuels in developing countries not only increases carbon emissions – the key contributors to climate change, it contradicts the aim of the Paris Agreement to make “financial flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.”

The new White House guidance will affect the way the U.S. votes on project proposals for energy projects as a shareholder in the following institutions: World Bank Group (17.2 percent of total voting power), African Development Bank (6.6 percent), Asian Development Bank (15.6 percent share of votes), European Bank for Reconstruction and Development (10.1) percent, and Inter-American Development Bank (30 percent share of votes). As mentioned in a previous post, the most direct impact of the new policy guidance is that the U.S. would push for increased support for coal projects overseas.

Over the last decade, direct project financing for coal projects from the multilateral development banks for coal projects has fluctuated, with a marked decline since 2016. The banks have provided several billion dollars in support for coal projects, but in 2016 and thus far in 2017, they have not provided direct project financing for coal projects. Projects that could still receive funding in the future include the Nacala Rail and Port Project (from the African Development Bank and IFC), Moatize Coal Plant (from the African Development Bank) in Mozambique, the Lamu Coal Plant in Kenya (from the African Development Bank) and the Ulaanbaatar Coal Plant (from the Asian Development Bank and European Bank for Reconstruction and Development.)

Support for coal power megaprojects included the Mundra plant in India in 2007 and the Medupi project in South Africa funded in 2009-2010. Medupi has been delayed by several years, with massive cost overruns. The Mundra project faced strong opposition within India.

The decline in support for coal projects is due to a recognition that (1) coal plants produce far more carbon emissions than natural gas or renewable resources, (2) coal mines and coal plants produce high levels of pollutants harmful to human health including sulfur dioxide, nitrous oxide, particulate matter and mercury, (3) the cost of new coal projects cannot compete against the rapidly falling costs of renewables (in fact solar and wind are already cheaper per kilowatt-hour than power from new coal plants in several countries), (4) many coal power projects, which are prone to cost-overruns and becoming more expensive in order to comply with stronger environmental standards, are already becoming “stranded assets” because they will not be competitive or profitable due to the high costs to build and operate them compared to cheaper wind and solar power plants.

Instead of financing costly coal projects with severe negative health, climate, and economic impacts, the United States should continue to support the transition of the multilateral development banks to financing more low-carbon projects.