Counting the Carbon in Overseas Investments

In a landmark settlement, two U.S. government agencies are now required to consider the climate change impacts of overseas financing.

The environmental NGOs Friends of the Earth and Greenpeace, along with the city of Boulder, Colorado, originally brought the suit to court in 2002. They alleged that the Export-Import Bank and the Overseas Private Investment Corporation (OPIC) provided more than $32 billion in public financing for overseas projects that---between 1990 and 2003---cumulatively produced CO2 emissions, equivalent to over 7% of the world’s annual emissions in 2003. Three California cities---Arcata, Santa Monica, and Oakland---later joined the suit, arguing that the climate change caused by these overseas projects would harm them.

The federal judge ordered the parties to negotiate an agreement. As part of the final settlement announced on February 6, 2009, the U.S. Export-Import Bank agreed to take CO2 emissions into account when evaluating fossil fuel projects, and agreed to develop an organization-wide carbon policy in consultation with a group of environmental NGOs (that includes WRI). The Bank must also provide its Board of Directors with information about CO2 emissions before the Board considers whether to approve transactions related to fossil fuel projects.

OPIC agreed to establish a goal of reducing its emissions by 20% over the next 10 years. A full environmental impact assessment is required for projects that emit significant amounts of CO2, and OPIC must publicly report its emissions from these projects annually.

The recent settlement will require drastic changes in both agencies' operations. In FY 2006, for example, Ex-Im Bank financed $1.8 billion in traditional fossil fuel projects, but only $9.8 million in renewable energy projects. Under the agreement, Ex-Im Bank must now set aside $250 million in financing for renewable energy.

"The settlement," said Ron Shems, the lead council for the plaintiffs, "will help ensure that the federal government takes a close look at its contributions to climate change and that the courts are available if the government fails in this critical obligation."

This landmark case sends a signal to the investment community that an effective climate policy is a necessary part of risk management in fossil fuel projects. A credible climate policy requires that government agencies, banks, and companies adopt greenhouse gas accounting standards, internal policies, and staff incentives in order to measure and reduce their emissions.

WRI's Role in Moving OPIC and the Ex-Im Bank

For several years, the World Resources Institute has actively engaged both the Export-Import Bank and OPIC on methodologies for integrating environmental and social considerations into their public financing activities.

In 2007, WRI contributed to OPIC's announcement of a Greenhouse Gas / Clean Energy Initiative. This initiative established several voluntary goals, which the settlement effectively converts into mandatory commitments:

• A 20% reduction in emissions over 10 years in OPIC’s overall lending portfolio.
• Increased investment in renewable energy and energy efficiency projects.
• "Enhanced" accounting and reporting on emissions.

Finally, WRI served as a key resource as legislators in the U.S. Congress drafted two important pieces of legislation: the Export-Import Bank Reauthorization Act of 2006, which required the Export-Import Bank to promote renewable energy projects, and the Consolidated Appropriations Act of 2008. The latter bill requires at least 10% of the Bank's portfolio to be used for renewable energy and environmentally beneficial products and services.