U.S. Department of the Treasury

FAQ for New Fossil Fuel Energy Guidance for the Multilateral Development Banks

• What did the U.S. Department of the Treasury announce today? As part of President Biden’s first executive order on climate announced earlier this year, Treasury is releasing its Fossil Fuel Energy Guidance for Multilateral Development Banks (MDBs). In its guidance, Treasury is advocating for MDB investments that prioritize clean energy, innovation, and energy efficiency, to achieve a clean and sustainable future that is consistent with their development goals and the goals of the Paris Agreement. The guidance directs MDBs to oppose oil and coal projects, and to support natural gas investments only if certain strict criteria are met. Treasury developed this policy through an extensive interagency process and via consultations with various stakeholders and will continue to advocate for MDB staff to assess options for clean energy, innovation and energy efficiency first, and to only consider fossil fuels if less carbon-intensive options are unfeasible.
• Why was the Fossil Fuel Energy Guidance developed? The MDB Fossil Fuel Guidance is a result of President Biden’s first executive order on climate (Executive Order 14008), which directs Treasury and other agencies to “identify steps through which the United States can promote ending international financing of carbon-intensive fossil fuel-based energy while simultaneously advancing sustainable development and a green recovery.” 
• Is this policy the same as the National Security Council and White House Guidance?  The National Security Council asked agencies to develop their own policies that are either consistent with or more stringent than the White House level Guidance. This is Treasury’s policy for the MDBs.
• How will this Guidance help countries achieve Paris Alignment? We expect that the United States will advocate for clean energy and energy efficiency approaches that will help countries ultimately achieve Paris Alignment.
• What is the view on coal?  We will strongly oppose coal energy projects across the entire coal value chain (e.g., mining, transport, and power generation). 
• What is the view on oil?  We will also oppose oil energy projects across the oil value chain, including the processing of transport fuels, e.g., a diesel refinery. We would only make exceptions to our opposition to oil projects in rare circumstances, such as in humanitarian crises or as backup generation for clean off-grid energy systems. 
• What is the view on natural gas?  We will oppose “upstream" natural gas projects (e.g., gas exploration), but can support midstream and downstream natural gas projects, provided certain specific criteria are all met: 
  • The project supports poor and vulnerable developing countries -- which we define as IDA-eligible countries (including IDA-blend countries), fragile and conflict-affected states, and small-island developing states.
  • The project is accompanied by a credible analysis that demonstrates that there is neither an economically nor technically feasible alternative, including renewable energy, nor means of achieving the objectives of the project through other means (e.g., through energy efficiency). An example would be that there is no economically competitive way to provide baseload power, which remains the case in some circumstances.
  • The project has a significant positive impact on energy security, energy access, or development.
  • The project is aligned with the goals of the Paris Agreement.

 

• Will the Guidance support other technologies to reduce emissions from existing facilities? We are open to supporting abatement technologies, including methane abatement and carbon capture utilization and storage (CCUS) or efficiency improvements for existing oil and gas assets, provided that they a) do not expand the asset’s generation capacity and b) do not extend its life.
• Will the Guidance support coal decommissioning projects? Yes, we are encouraging the MDBs to explore potential projects for coal decommissioning.
• How is the Guidance applied to heat generation projects?  We recognize that coal plays a significant role as a heating source in some regions and the substantial harm caused by dirty cooking fuels. We are open to supporting oil and gas projects as coal alternatives for household cooking and heating. We may also consider oil and gas projects for other heat generation purposes (e.g., industrial uses) where there are no other feasible alternatives.
• How does the Guidance apply to indirect financing through policy-based operations and financial intermediaries? These types of projects represent a large portion of MDB financing and are included in our approach.
  • For policy-based operations, we intend to oppose projects where the policy reforms are targeted towards and likely to expand the fossil fuel sector (excluding gas in IDA-eligible countries).  
  • For financial intermediaries, we will determine our position based on how the bank or other intermediary is likely to use the specific MDB funds relative to our overarching guidance. 
• How are middle income countries supposed to transition away from coal if you do not support MDB financing of natural gas?  Some countries may use natural gas as they transition from dirtier fuels to cleaner fuels. However, middle income countries generally have better market access than poorer economies and could finance natural gas investments independently, consistent with their domestic climate plans. In addition, we want to focus our limited development assistance on helping countries invest in a clean technology future.