On Tuesday afternoon, thousands of mine workers from Kentucky and West Virginia rallied outside the Capitol, with signs protesting what critics call President Obama’s war on coal. Just down Pennsylvania Avenue, in a large, richly appointed office on the second floor of the Treasury Department, Lael Brainard, Treasury’s undersecretary for international affairs, briefed reporters on plans for ending U.S. support for public financing of coal-fired power plants around the globe—essentially taking Obama’s fight against coal pollution from Washington to the world.
The move is the latest in a series of aggressive executive-branch actions the president is pushing as he seeks to fight climate change without help from Congress. While the administration chafes at the charge that it’s waging a war on coal, the fact is that coal-fired power plants are the biggest contributor to global warming, and any effective climate policy will necessarily target that energy source. In September, the Environmental Protection Agency issued a draft regulation that would require new U.S. coal plants to emit just half the carbon pollution of existing plants. The rule is expected to freeze construction of domestic coal-burning facilities.
When it comes to such plants abroad, the U.S. alone can’t freeze public financing. But it can wield significant leverage as a senior voting board member on projects financed by the World Bank, the Asian Development Bank, the Inter-American Development Bank, and the African Development Bank. And Treasury officials have already started reaching out to ensure that other countries, particularly in Europe, will join the U.S. in those votes, blocking the public funds. “What we’re trying to do is to use the leverage associated with public finance to help developing countries move in the direction of cleaner energy,” Brainard said.
The idea is that if these multilateral institutions consistently veto funds for coal plants around the world, it will create a ripple effect, ultimately dissuading private investors from coal as well. “If you have U.S. money going into a project, it gives a stamp of approval. And it sends a strong signal that if the U.S. checks out of a particular project, it’s not a good idea,” said Athena Ballesteros, director of sustainable finance programs for the World Resources Institute, a think tank that works closely with the Obama administration on climate-change policy.
About 1,200 coal-fired plants are now being proposed globally, according to the institute’s estimates. Those projects are spread across 59 countries, with the vast majority—76 percent—in China and India. Coal-burning plants have been proposed in 10 developing countries, including Cambodia, Guatemala, Oman, Senegal, and Uzbekistan.
Experts estimate that only 10 percent of those plants are being built with public financing. So even if the United States succeeds in getting the global financial institutions to block the coal funding, the immediate effect won’t be enough to transform the world’s energy mix.
Then there’s question of whom the Treasury policy hurts. The U.S. coal industry raged against it, naturally. The sector is already suffering, thanks to the new EPA rules and a shift in market forces. A glut of cheap natural gas, a fuel source with just half as much carbon pollution, has left coal companies hoping that exports would be their lifeline. “It will restrict the market for U.S. coal and for mining machinery,” complained Luke Popovich, a spokesman for the National Mining Association, adding that the rules could hurt American companies such as Caterpillar, which exports coal-mining equipment. The move will probably also provoke unhappy pushback from the world’s other top coal exporters—Australia, Indonesia, Russia, and South Africa.
But while the policy could hurt the world’s richest coal companies, it may also affect the world’s poorest populations. About 1.2 billion people live without access to electricity, and in many of the developing nations where they live, the likeliest prospect for access to power is cheap coal, which has traditionally been funded with a helping hand from financial institutions such as the World Bank.
Governments of developing nations that desperately need cheap electricity are likely to respond angrily to the moves. In 2011, after the U.S. issued earlier, and milder, guidelines aimed at cutting global financial support for new coal plants, a group of developing nations, including Brazil and China, wrote to the World Bank lambasting the proposal.
This time around, Treasury officials have launched what one person close to the process described as a “mega-outreach” effort aimed at assuring poor, energy-starved nations that the intent is not to block their access to energy, but rather to ensure that the money tˆhat would have gone for coal power will instead be redirected to renewable energy, such as wind and solar.
One international energy expert is dubious that this argument will fly. “It’s understandable that we don’t want to use government money for high-carbon sources, in the hopes that it will steer governments to low-carbon sources. But for the South Africas and Indias that have cheap coal, but don’t have access to cheap natural gas ... it’s not a very effective strategy as regards energy poverty,” said David Goldwyn, an energy consultant and a former senior energy official in Obama’s State Department.
Goldwyn speculates that although the new policy doesn’t specifically mention natural gas, many poor countries will do the same as U.S. companies are doing, and turn to that fuel, rather than renewables, to generate their electricity. As it happens, the State Department has recently launched a push to boost natural-gas exports and promote U.S. natural-gas-producing companies abroad. Which means that American energy companies could stand to benefit from the new policy—even if that was never the intent. P
This article appears in the November 2, 2013 edition of National Journal Magazine as Long Reach.