A revised technical guidance released by the U.S. Treasury Department on Tuesday to bolster a key facet of President Obama’s Climate Action Plan (CAP) declares an end to U.S. support for multilateral development bank (MDB) funding for new overseas coal projects except in “narrowly defined circumstances.”
The updated guidance document is designed to be incorporated into the operational policies and sector strategies by individual MDBs, which are institutions created by a group of countries to provide financing for development purposes. Examples of MDBs include the World Bank, the European Investment Bank (EIB), and the Asian Development Bank (ADB). As POWER has previously reported, the World Bank and the EIB have instituted their own policies to cut funding for oversees coal-fired power plants. The ADB, whose energy policy seeks to aid development in countries slated to see the world’s most future coal generation growth—such as China, India, and Vietnam—has pledged to prioritize energy efficiency improvements and renewable energy projects to ease growth of fossil fuel demand, improve energy security, and reduce emissions of greenhouse gases (GHGs).
The Treasury Department on Tuesday said the revised document will replace a 2009 version to reflect the president’s call in his June 2013 Climate Action Plan to end U.S. government support of public financing of new coal plants overseas except in “very limited” circumstances.
It advises MDBs to “remove barriers to and build demand for” zero- or low-carbon resources that meet power needs and calls for institutions to provide policy loans “to level the playing field” where existing electricity or fuel subsidies bias investment decisions against those resources.
Those calls presumably apply only to renewable generation, because both the World Bank and the ADB clearly state in their energy policies that they will not be involved in financing of nuclear power generation. “Nuclear plants are thus uneconomic,” says the World Bank in its Environmental Assessment Source Book,” because at present and projected costs they are unlikely to be the least-cost alternative. There is also evidence that the cost figures usually cited by suppliers are substantially underestimated and often fail to take adequately into account waste disposal, decommissioning, and other environmental costs.” The EIB says it would consider financing of a nuclear project, but only if it is economically, financially, and technically viable.
The Treasury Department’s document also advise MDBs to fully consider zero- or low-carbon options before appraising a proposed greenfield or retrofit coal-fired power project, calling on MDBs to help borrowers identify public or private sources of external financing to cover costs if alternative portfolios prove more expensive that proposed coal projects.
Finally, it sets an appraisal criteria for coal projects. For example, even if the project’s capacity has been scaled back from its original proposal, it must use the “best internationally available technology” to reduce GHG emissions, as judged by the size and duty cycle of generating capacity that is “needed to meet projected demand characteristics.” This requires the project to deploy carbon capture and sequestration (CCS) technology—though no large-scale power generation integrated projects yet exist.
Only two such projects are under construction worldwide—Southern Co.’s Kemper integrated gasification combined cycle (IGCC) power station in Mississippi and the Boundary Dam project in Canada—though neither project’s capture portion of the plant will be fully operational until 2014. Industry experts currently estimate that using a first-of-a-kind CCS system increases the cost of power production at a coal plant from between 37% and 76%, and at a natural gas plant by 40%.
The guidance document advises, however, that only if a coal project shows it “overcomes binding constraints on national economic development,” should it be allowed to instead use “best available technology” for reducing GHG emissions that is “practically feasible.”
That means, according to the Treasury Department, the U.S. government will not back public financing of new coal plants unless they use CCS, or the “most efficient coal technology available in the world’s poorest countries in cases where no other economically feasible alternative exists.”
—Sonal Patel, associate editor (@POWERmagazine, @sonalcpatel)