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US ends most financing of overseas coal projects

Update: October, 30/2013 - 12:32

WASHINGTON – The United States has said it would end most financing of coal projects overseas, taking a potentially significant step to curbing carbon emissions blamed for climate change.

The decision puts into action one of President Barack Obama's pledges when he announced a new climate initiative in June. The World Bank, where the United States holds the most voting power, also stated after Obama's pledge that it would stop most financing for coal, among the dirtiest forms of energy.

The Treasury Department said on Tuesday it would end support for coal plants by the World Bank and other international development institutions unless the projects involve new carbon-capture measures or if there is no other economically feasible option in one of the world's poorest countries.

Lael Brainard, the Treasury undersecretary for international affairs, said that the Obama administration's decision marked an "important step" in supporting cleaner energy.

"By encouraging the use of clean energy in multilateral development bank projects, we are furthering US efforts to address the urgent challenges of climate change," she said in a statement.

The effort comes amid forecasts that the world must do far more to achieve a UN-supported goal of limiting global warming to two degrees Celsius (3.6 Fahrenheit) above pre-industrial levels.

The UN's Intergovernmental Panel on Climate Change warned in a report last month of destructive effects from warming, including floods, droughts and rising seas.

But major economies including China – which accounts for nearly half of global coal consumption – and the United States face political pressure against curbing coal use as industry groups warn of job losses or rising electricity bills.

Obama has used executive authority to limit carbon emissions from new US power plants, despite fierce opposition from the rival Republican Party. But will China follow?

Justin Guay of the Sierra Club, a leading US environmental group, hailed Obama's decision and voiced hope it would make private investors think twice about choosing coal.

"The precedent that the US has set is essentially saying to the international community that coal is no longer an acceptable fuel source," Guay said. But a study last year by the World Resources Institute found that 76 per cent of proposed new coal power would be in China and India, which are not dependent on foreign aid.

The study found that new coal-fired plants had been proposed in 10 nations that produce little coal at home including Cambodia, Guatemala, Laos, Senegal and Sri Lanka.

Report co-author Ailun Yang said that China, a growing donor, was increasingly the top player in coal rather than Western nations and multilateral banks.

"The US decision is a nice political gesture, but the question is what kind of follow-up there would be to put pressure on other countries to tackle this problem," Yang said.

But Yang said that the move could eventually change the economics that made coal attractive to poor nations, which have seen it as a "quick fix" that contributed to the development of Western nations and China, notwithstanding the environmental impact.

The Treasury Department said that the United States would encourage other nations to adopt its line against coal projects. On a visit to Stockholm last month, Obama agreed with the leaders of Denmark, Finland, Iceland, Norway and Sweden that none of the countries would fund coal projects.

The decision comes as the US Congress debates a multibillion-dollar initiative to make electricity more widely available in Africa. The bill has hit a snag as US industry presses for an end to restrictions on carbon-emitting projects by the Overseas Private Investment Corporation, which provides financial guarantees for the private sector. AFP

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