The US export credit agency has approved a loan worth nearly $100 million for the expansion of an oil refining facility in Indonesia, despite a promise to end public finance for overseas fossil fuel projects.
Financial support from the Export-Import Bank (Ex-Im) will help a state-controlled plant on the island of Borneo turn 40% more oil into products like jet fuel and diesel.
In a closed door meeting last Thursday, Ex-Im’s board approved $99.7 million in support for the Balikpapan oil refinery run by Indonesia’s national oil company Pertamina. Ex-Im said the loan would enable an expansion of the facility, alongside fuel efficiency and safety upgrades.
‘Untenable’ decision
But the plan has been criticised for seeming to contradict a climate finance commitment.
At Cop26, the US and 19 other countries signed the Glasgow Statement pledging to end new direct public finance for overseas fossil fuel projects by the end of 2022.
Since then the US has been accused of backsliding on its promise. Unlike other signatories, the White House has not released publicly any policy explaining how the pledge would be implemented.
Shruti Shukla from advocacy group the Natural Resources Defense Council (NRDC) said the lack of transparency is allowing for “untenable” decisions to slip through.
“To spend the limited public finance available on the upgrade of an oil refinery is not the best use of those resources which should go towards clean energy alternatives,” she said.
Cop28 moots oil and gas initiative despite greenwash accusations
Adam McGibbon, a campaigner at Oil Change International, said president Joe Biden risks not being trusted to keep climate promises by “breaking” the Glasgow pledge.
A senior Ex-Im official told Climate Home News that the agency is trying to align with the Biden administration’s climate agenda while still respecting its statutory limitations, including the prohibition against discrimination based solely on industry, sector or business.
Biden’s appointees
Ex-Im is the official export credit agency of the US. It operates as an independent authority but its board members are appointed by the US president and confirmed by the Senate.
The sitting president, Reta Jo-Lewis, was picked by Biden in February 2022. The current government selected three of the board’s members, while the other two were appointed by Donald Trump.
Local business group tries to keep South Africa’s coal plants alive
Like other countries’ export credit agencies, Ex-Im is influential in directing investment towards specific sectors by offering exporters government-backed loans, guarantees or insurance. This limits the risk taken by companies selling services and goods in countries or industries considered high risk.
Production boost
The new loan will allow the Balikpapan refinery to increase its capacity by nearly 40%, with the production of up to 360 million barrels of oil per day.
According to Ex-Im, the project will unleash 2.9 million tonnes of carbon dioxide emissions every year. That is as much as the annual carbon footprint of Iceland or Guyana.
A petrol station operated by oil and gas company Pertamina in Indonesia. Photo: tian yake/Flickr
Pertamina claims the project “not only aims to increase the refinery capacity but also realises a green refinery”. This is because the facility plans to switch to the production of a more energy-efficient type of gasoline.
Indonesia relies mostly on oil and coal for its energy supply. In November 2022, the US and Japan led a group of rich nations and banks in pledging $20 billion to speed up the country’s transition from coal to clean energy. But the plan has no provisions for phasing out other fossil fuels.
Support for US jobs
Ex-Im justified its backing of the project by claiming it would allow Indonesia to reduce its reliance on imported fossil fuels and said it would support hundreds of jobs for US manufacturers.
The project previously received much greater support from the South Korean export credit agency, which committed $1.19 billion to finance the oil refinery expansion in December 2022. Korea Eximbank said its support helped Korean engineering giant Hyundai win a construction contract on the project.
Unlike the US, however, South Korea did not sign the public finance pledge at Cop26 in Glasgow.
Analysts and campaigners told Climate Home News that the Indonesian oil refinery expansion falls within the scope of the Glasgow agreement to end public subsidies for fossil fuels projects overseas.
The UK stopped direct government support for the fossil fuel energy sector overseas in March 2021. Its guidance explicitly includes oil refining within its scope. France also put an end to providing public finance to international fossil fuel projects, including oil refining, last November.
Pledge backsliding
The US – together with Germany – has not yet published its public finance policies to meet the Glasgow agreement, according to a recent report by Oil Change International.
Ex-Im’s support for the oil refinery appears to contradict a claim made last month by G7 climate ministers that public support for unabated fossil fuel energy overseas had ended in 2022.
The NRDC’s Shukla said any more financing of fossil fuel projects would send the wrong message ahead of Cop28. “We hope there are no more similar projects that slip through.”
Oil and gas projects accounted for around 27% of Ex-Im’s portfolio in the fiscal year ending in September 2022, rising by one percentage point compared to the previous period. The agency is currently considering financing other fossil fuel projects, including an oil and gas field in Bahrain.