Should the US government really be allocating public funds to support oil drilling in the Middle East?
This question comes sharply into focus as the board of directors of the Export-Import Bank of the United States (ExIm) is slated to vote on Thursday whether to provide financing for a fossil fuel project in Bahrain. A controversial vote last month at the Export-Import Bank of the United States, or ExIm, has already led multiple members of the bank’s Council on Climate to resign in protest.
Public financial institutions, especially those with the power to shape the global energy landscape, are central to the challenge of confronting the climate crisis. ExIm and other export credit agencies are the single largest group of public finance institutions supporting fossil fuel projects all around the world. Such investments constitute a substantial portion of ExIm’s portfolio. At least 60% of ExIm’s current $40+ billion portfolio directly supports fossil fuel-producing or dependent sectors like oil, gas, and aviation, an analysis by our organizations, Oxfam America and Perspectives Climate Research.
ExIm’s investments also show only modest achievements in green finance. Despite a charter requirement to allocate 5% of its funding to renewable energy, energy efficiency, and storage, ExIm’s actual commitments fall far short. Just $72 million – or 1.25% of its 2021 authorizations – are deemed environmentally beneficial, and a mere 0.2% are dedicated to renewable energies. Such figures are disappointing and indicative of a broader issue of insufficient commitment to the clean energy transition.
In comparison, Denmark’s Export Credit Agency has dedicated at least $1 billion, or 75% of its portfolio, to such initiatives annually since 2015. The ten European countries that are members of the Export Finance for Future (E3F) Coalition have collectively increased the share of renewables in their energy portfolios from 31% in 2015 to 84% in 2022, and are now providing more than $5 billion for clean energy. This starkly contrasts with ExIm’s performance, underscoring the potential for ExIm to significantly amplify its support for clean energy projects.
Climate finance mobilization
In 2021, President Biden’s 2021 International Climate Finance Plan committed to scale up climate finance at home and abroad to tackle global warming. “International climate finance is an investment in our own security,” reads the plan, which envisions a key role for the Export-Import Bank. Indeed, to meet US international climate commitments, ExIm and other US agencies must be fully on board and cease providing public finance for all fossil fuels, while ramping up investments in renewable energy and other climate-friendly exports.
Just as American ‘mission orientation’ and a “whole of government” approach helped the US put a man on the moon, it is now necessary for the large-scale transformation of the energy system required to solve the climate crisis.
ExIm has taken steps toward becoming more climate-friendly, by setting modest targets on clean energy finance, creating a Council on Climate, and aiming to reduce its project-related greenhouse gas emissions. However, the bank seems determined to undermine these steps: it recently approved a $100 million loan for an overseas fossil fuel project in Indonesia and $400 million in assistance for US methane gas exports. And it is considering financing multi-billion dollar fossil fuel projects in Papua New Guinea, Guyana, and Mozambique.
The $100 million+ Bahrain loan would finance some 400 oil and gas wells.
Reforming ExIm for climate and competitiveness
The Biden Administration sees the Export-Import Bank as a key element in doubling American international climate finance, but more needs to be done. To stay relevant in the rapidly changing global trade landscape and to take the latest climate science seriously, Congress should revise ExIm’s charter to more explicitly support American exporters that genuinely advance the global climate transition while securing well-paying jobs at home. But ExIm can also take action directly by prioritizing alignment with US climate finance policies and commitments and internationally-agreed climate goals in its planned revisions of its Environmental & Social Guidelines (ESPGs).
President Biden’s climate ambition offers a window of opportunity for ExIm to transform itself into a globally leading ECA with regards to the clean energy transition. Reta Jo Lewis, the President and Chair of ExIm appointed by President Biden in 2022, is taking the issue seriously, as she demonstrated in a meeting with climate researchers and NGOs in December 2022. However, there are still many gaps in aligning ExIm with the Paris Agreement that must be addressed quickly.
Reforms at ExIm to shift its portfolio from fossils to renewables would greatly boost the competitiveness of the American clean tech companies against rapidly rising Chinese competition. They would improve the reputation of American exports globally and bolster the leading role of the US in the global transition towards clean energy systems. Moreover, shifting export finance from fossil fuels to clean energy has the potential of generating more and better-paying jobs.
The choice for ExIm and similar institutions is clear: adapt and lead in the transition to a sustainable global economy, or remain tethered to outdated practices that jeopardize both their relevance and the health of our planet. The world cannot afford our continued subsidization of fossil fuel extraction through public finance, and ExIm should not be financing oil and gas drilling in Bahrain or elsewhere.
The path forward must be paved with ambitious commitments to renewable energy, reflecting a genuine dedication to combating climate change and fostering sustainable development. In doing so, ExIm can redefine its legacy, from a supporter of the past’s energy sources to a champion of tomorrow’s solutions.
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Igor Shishlov is Head of Climate Finance at Perspectives Climate Group. Tawanda Mutasah is Vice President of Global Partnerships and Impact at Oxfam America
