US Climate Policy Helps Energy Access in Africa
by Kyle Ash
September 12, 2013
Richard Mark Dobson
Melita Steele, climate and energy campaigner of Greenpeace South Africa, is a co-author of this blog
The United States Congress passed a climate policy, and President Obama signed it. The Republican-controlled House has made no attempt to weaken the law, passed in 2010, which requires a 50 percent reduction from 2007 levels by 2023, and 30 percent reduction by 2017. This climate pollution cap applies to the portfolio of theOverseas Private Investment Corporation(OPIC), a development finance agency. OPIC financing is key to both Obama’sPower Africa Initiative as well as his administration’s accounting ofclimate finance commitmentsit made in the UN climate talks.
Climate disruption ishardest on the poor. Surprisingly, some organizations ostensibly focused on combating povertywant to weakenOPIC’s climate policy. They believe that because OPIC’s policy theoretically restricts funding large fossil fuel projects, the policy precludes expanding energy access. Thiswrongheaded viewreflects a misunderstanding of unfortunate flexibility in the policy, as well as an arcane ‘trickle-down’ strategy for energy development.
While OPIC’s climate policy is overly flexible, it has nonetheless helped greatly to increase focus on renewables. And it may be the only finance institution in the world with such a climate pollution cap, an important precedent for sustainable development. There are also plenty of other finance institutions willing to fund large gas projects – say, for example, the US Export Import Bank. But Ex-Im should stay out of such projects too, because utility-scale fossil fuel plants are not the answer to energy poverty.
OPIC started funding projects in 1971, coincidentally the same year Greenpeace was founded. While it has remained obscure to the public at large, OPIC has funded over $200 billion in projects in about 150 countries around the world. Too much of this investment in the past has gone to coal, oil, and gas.
A climate pollution cap for OPIC isnot just required by legislation. Greenpeacesued OPIC, along with Friends of the Earth and 4 municipal governments in California and Colorado, pointing out that OPIC-supported fossil fuel projects abroad contribute to climate impacts locally. We achieved an important legal precedent as the court agreed this argument is legitimate. The eventual settlement agreement required a climate pollution cap in 2009, subsequently reinforced by legislation. OPIC’s funding for renewables jumped from$10 million to over $1 billion.
The first, most obvious flexibility of the policy is that the climate pollution cap is only 50%. In 2023, OPIC’s climate footprint will still be 25 million tons of CO2e. In other words, it can always have on its portfolio the equivalent smokestack pollution from 8,600 gigawatts of combined cycle gas power plants.
Second, the climate pollution cap only includes projects while they exist on the portfolio – after which OPIC regains that space under their cap to fund more polluting projects. Even if those projects pollute for many years longer than they are on the portfolio.
Financingterms are 3 to 15 years, while the lifetime of a utility-scale gas plant could be 50 or more. OPIC also provides other types of support, such as political risk insurance, where terms may be longer.
Right now there are 34 million tons of annual emissions from the 17 projects registering enough climate pollution to be covered by OPIC’s cap. One coal plant and three gas plants in OPIC’s portfolio represent around 22 million tons of climate pollution per year. These four projects originated in 2000 or earlier and are therefore unlikely to be in OPIC’s portfolio by 2017. The would leave OPIC with only 12 million tons of climate pollution in its portfolio, well within its 25 million ton cap requirement and 6 years earlier than required by the policy.
Elizabeth Littlefield, OPIC’s President, defended the climate policy in a recent briefing on Capitol Hill, arguing expansion of its energy portfolio is an issue of staff resources. It’s not that ‘tweaks‘ need to be made to its policy, as some have suggested.
But let’s pretendExxonor some large gas-turbine builder had some sway over OPIC’s project focus, or perhaps President Obama really wanted fossil financing by OPIC to be part of his legacy. There would be no need to touch OPIC’s policy. Looking at OPIC’s current GHG inventory, OPIC could still fund four gigawatts of gas plants with 15 year terms.
Third, there is unfortunately no requirement to ratchet down pollution each year. OPIC could keep 36 million tons in its portfolio at the end of 2022 as long as it gets to 25 million tons the following year. If 22 million tons falls off the portfolio by 2017, as is expected, OPIC could just replace it. This means, under Obama’s leadership, OPIC could fund about 8 gigawatts of utility-scale gas projects with 10 year, or shorter, terms.
A fourth piece of flexibility is that, like most government agencies, OPIC gives short shrift to climate pollution caused upstream and downstream of its projects. Only emissions at the power plant would count, ignoring pollution caused byfrackingfor gas that is liquefied, transported thousands of miles, and then re-gasified. This often represents the majority of emissions associated with natural gas power plants usingliquid natural gasimports. OPIC is also victim to the typical climate accountinggroupthinkwhich spreads warming potency of methane over 100 years, even though mitigation should focus on the next decade to avoid runaway global warming.
Finally, OPIC’s climate pollution cap does not register projects emitting fewer than 100,000 tons of annual CO2e (although OPIC reports on 25,000 tons or more). So the pollution from a 30 megawatt modern gas plant would not have to be counted. OPIC’s policy theoretically allows infinity 30 MW gas plants, eachproducing powerfor 18,000 American-sized homes.
Based on its improving portfolio, OPIC realizes the importance of its pioneering role as an institution focused on renewables.
Developing countries often don’t have transmission infrastructure, nor sufficient domestic fuel sources, nor sustainable income to import fuel, nor capacity to handle waste streams caused by fossil fuel combustion, nor available water resources to cool power plants. All these reasons are why both theWorld Bankand theInternational Energy Agencysay universal energy access requires a focus on development of decentralized energy sources like wind and solar. OPIC is perhaps the only public finance institution in the world poised to do exactly that.
Investments in fossil fuels put the people living inAfrican countriesat risk of increased pollution, water, health and climate change impacts. The reality is that sustainable sources of finance are urgently required to enable universal access to renewable energy across the continent. This would empower countries to leapfrog dirty energy sources, while meeting crucial development goals.
There is a serious opportunity cost to development from locking in dependence on fossil fuels for decades. OPIC’s climate policy is part of many steps we must take to help the world avoid higher than 2 degree Celsius rise in global temperature. This internationally-agreed goal gives us a 50/50 chance of keeping the planet largely habitable. Global energy investment and lack of national policies has us on track to a4 degree risein temperature, or worse.
OPIC has been doing a great job of focusing on the type of energy development the world needs – climate-friendly sources that really do increase energy access. We should hold up OPIC’s climate policy, even with its foibles, as the first step in the right direction for all development institutions.