NRDC, Oil Change International and ForestEthics Advocacy released a report today that blows apart the tar sands industry’s claims that building the Keystone XL pipeline would lower gasoline prices in America.  The report lays out how Keystone XL would reduce gasoline supplies in America by diverting Canadian tar sands crude from the Midwest to the Gulf Coast.

The findings show that the industry mantra, “more supply = lower prices” just doesn’t play out when it comes to the way the oil industry is configured today.  The mantra should actually read, more pipelines = more profits.  Building Keystone XL will likely raise gasoline prices in America for the following reasons.

• The pipeline would not add to oil supply coming into America for at least 15 years.  This is because there is currently around 2 million barrels per day of spare pipeline capacity between Canada and the United States.  Keystone XL would therefore divert oil that would have been processed in the Midwest to the Gulf Coast.
• The Gulf Coast produces less gasoline per barrel of oil than the Midwest. Midwest refineries are configured to produce much more gasoline from a barrel of crude and over 90% of the gasoline produced in Midwest refineries stays in the United States. Gulf coast refineries are configured to produce more diesel than gasoline. The majority of gasoline and diesel produced in Gulf Coast refineries is exported.
• Midwest refineries have been enjoying discounted crude oil prices for the past 18 months.  This is due to the glut of Canadian and American oil in the region. The stated purpose of Keystone XL is to relieve that glut and raise the price tar sands producers receive for their oil both in the Midwest and in Canada. Midwest refineries will pay more for their crude and will either pass on the cost to consumers or reduce their production, which eventually will have the same effect.

So put simply, Keystone XL moves existing crude oil supply from refineries that have been producing gasoline predominately  for the US market to refineries that are predominately producing diesel for the export market.  This will lower the amount of gasoline produced in America, raise the price Midwest refineries pay for crude oil and lead to higher gasoline prices.

None of this should be a surprise. The industry has no interest in lowering gas prices, why should it? It has for a long time enjoyed a monopoly on transportation fuel. Today, as demand trends shift slowly towards greater efficiency and alternatives, the prospects of raising American demand for oil are fading.  The response is to export in order to maintain revenues and maintain prices.  The industry is doing its fiduciary duty to its shareholders to maintain and grow profits in a changing global market. It has no such duty to consumers and citizens.

This report should help dispel the myth that somehow the oil industry is striving to lower prices and help consumers and that this is worth the risks and costs of pollution and climate destruction while justifying subsidies.  When it comes to gas prices and energy security, America is being sold a boondoggle in the shape of Keystone XL. It’s high time  its supporters recognized the truth and end their cover for the scam.

Download the report.

Credit: National Transportation Safety Board

Download our briefing on the tar sands exemption to the Oil Spill Liability Trust Fund here.

When Enbridge’s Line 6B burst open near Marshall, Michigan in July 2010 spewing over a million gallons of tar sands sludge into the Kalamazoo river watershed, funds were quickly released from the Oil Spill Liability Trust Fund to mobilize Environmental Protection Agency staff and other federal employees to assist and monitor clean up. But the tar sands companies that produced the oil that is still polluting Talmadge Creek nearly two years later have never paid a penny into the fund. Why? Because when payments into the fund were reinstated by the 2005 Energy Policy Act following a hiatus, someone convinced the IRS that tar sands crude was not crude oil, and therefore did not need to pay.

As a new report released today shows, the transport of tar sands oil through pipelines in the United States is exempt from payments into the Oil Spill Liability Trust Fund. This is a free ride worth over $375 million to tar sands oil producers between 2010 and 2017, including over $160 million for shippers on TransCanada’s Keystone pipeline system. This exemption is an unnecessary subsidy, and one that ignores the elevated risks of transporting tar sands crude oil relative to conventional crude. Logically, tar sands oil transport should be subject to a higher rate than conventional oil, not exempt.

The diluted bitumen that was being transported in Line 6B behaves differently than conventional crude oil when it spills. Natural gas liquids which are used to liquefy the bitumen so it will flow through a pipeline quickly evaporate posing a breathing hazard to anyone downwind. The heavy bitumen sludge left behind sinks to the bottom of the water body making it impossible to properly clean up.

This makes remedying a tar sands pipeline spill more difficult, less effective and much more expensive. So wouldn’t it seem like a good idea to charge a higher rate to tar sands producers as insurance that a spill can be properly addressed and monitored? You would have thought so, but in a political system that is bought by the highest bidder rational policymaking falls victim to special interests. The result is an irrational exemption worth over $30 million a year to an industry making billions while the taxpayer is increasingly liable when things go wrong.

And guess what? The industry plans to more than double the amount of tar sands oil passing through American pipelines over the next decades, making it less and less likely that the oil spill trust fund will have adequate funds to address a spill.

The fund is paid for by an 8-cents-per-barrel tax on oil produced in or imported into the United States. It is mandated to hold up to $2 billion with half of that available to address a single spill. In February 2012, it held a mere $130 million following large claims for the BP Gulf of Mexico spill and Enbridge’s Kalamazoo spill. Under the current exemption, as tar sands supplies increase, less and less money will flow into the fund. We have calculated that between 2010 and 2017, when the current provisions for the fund expire, tar sands producers are likely to save over $375 million due to the exemption. Yet tar sands spills are both more likely to happen and more damaging when they do.

Credit: Sue Connolly, Marshall, Michigan

But irrational and destructive subsidies for the oil and gas industry are not confined to the spill fund exemption. Senator Bernie Sanders (I-VT) and Rep. Keith Ellison (D-Minn.) introduced bills in Congress last week that target over $10 billion in subsidies, tax breaks and exemptions enjoyed by the oil and gas industry every year. The oil spill fund tar sands exemption is just one of many. These bills are unlikely to be fully debated because Congress receives tens of millions of dollars every year from the very beneficiaries of these subsidies. By our last count the industry got a 5,800% return on its investment in Congress.

The Kalamazoo tar sands spill caused real damage to people in Marshall, Michigan. Damage they are still suffering two years on and may be dealing with for many years to come. It makes no sense whatsoever to exempt tar sands oil from paying into the Oil Spill Liability Trust Fund, just as it makes no sense for America to continue to waiver royalties on Gulf of Mexico oil production or any of the other subsidies to an industry that pollutes with impunity while laughing all the way to the bank.

It’s another stark reminder of how American governance has been sold to the highest bidder.

—

Download our briefing on the tar sands exemption here

Tell your Congress members to support ending all fossil fuel subsidies and reject money from fossil fuel polluters here.

The information comes to light as part of the latest update of DirtyEnergyMoney.com, a project of Oil Change International which uniquely refines and reveals campaign finance data from the Center for Responsive Politics. The work reveals a decade-long trend of the fossil fuel industry buying more and more influence on Capitol Hill. The full analysis is available here in pdf format.

Some disturbing details:

-       The top ten dirtiest members of the 112^th Congress have taken just over $3 million. All but one are Republicans. John Boehner leads the way with almost $575,000.

-       The top ten House recipients have taken just over $2.5 million, and the top ten Senators are close behind, having taken just over $2 million.

-       Twelve members of Congress have taken more than $1 million from coal, oil and gas companies since 1999.

-       The companies doing the giving are led by the National Rural Electric Cooperative Association, which has provided just over $810,000. They are followed close behind by Exxon Mobil and Koch Industries, who have given $670,450 and $618,000 respectively.

Does it matter?

Yes, it would appear so. The evidence suggests that donations can indeed buy Congressional support for preserving subsidies, or weakening environmental regulations.

For example, earlier this year the Senate voted on the Repeal Big Oil Tax Subsidies Act, which would remove $2.4 billion in subsidies annually to the top 5 Big Oil companies. It failed to pass, with those voting against the measure taking an average of almost $48,000 from the industry, with those voting for it taking just over $23,000 on average.

Sure, that might be a coincidence. But when it happens time and time again, we need to stand up and take notice. Oil Change International has tracked 23 votes from the 112^th Congress that affect dirty energy interests. The majority of these votes have been attempts by House Republicans to remove barriers to expand drilling or to diminish the power of regulators to oversee operations. In all of these cases, representatives and senators voting with the interests of dirty energy companies received substantially more from those interests than those who voted against. Coincidence? That is not our view.

 Ok, so what can we do about it?

Let’s not get too bogged down in how depressing this may seem. Let’s organize instead. We have the power to reverse this disturbing trend.  Here are some ways to get started:

-       Know your dirty number: Find out how much your decision-maker takes from the oil & gas and coal industries on the newly updated www.dirtyenergymoney.com. Use the tools on the site to send them an email and ask “What the f&*k?” (perhaps somewhat more tactfully) and demand they side with the many, not the money.

-       Use your voice around key battles related to fossil fuels, including subsidies, Keystone and fracking. We’ll keep you up to date on opportunities to speak out coming down the pike, and will appreciate your sharing your inspirations on our Facebook page.

This is a big week for conversations around subsidies in particular. Watch for another post soon about an opportunity to stop Congress from leaking over $11 billion in favors annually to the oil & gas and coal industries.

-This post was compiled by Karen Showalter with assistance from Steve Kretzmann.

In September 2011, we first reported that the refineries that will receive crude from the proposed Keystone XL pipeline are increasingly focused on exports.

We can now reveal that in the last quarter of 2011, 73% of gasoline produced in Port Arthur and Houston area refineries was exported as was 40% of diesel production. Put together, the majority of these two prime transport fuels produced in these refineries went to export markets; 51%.

Port Arthur and Houston refineries are the main destination for oil that would be delivered on Keystone XL.

Source: EIA data. For Texas Gulf Coast refinery production see here: http://www.eia.gov/dnav/pet/pet_pnp_refp2_dc_r3b_mbblpd_m.htm
Export data by port obtained directly from the EIA.

We have heard all sorts of bluster from the likes of the American Petroleum Institute about the burgeoning export trend at U.S. Gulf Coast refineries. In response to Congressman Markey’s (D-MA) legislative proposal to allow the pipeline only if the products refined from the oil it delivers are restricted to the U.S. market and not exported, the API said this:

Currently, nearly 90 percent of motor fuels refined in the U.S. is for use in the U.S. In 2010, less than 10 percent of U.S. refined motor fuels were exported and over half of the finished petroleum products exported were not in high demand in the U.S. such as non-road diesel, and residual fuel oil.

You can always tell someone’s struggling to defend themselves when their response to an argument is to present evidence that is a number of degrees removed from the subject initially being discussed.

The issue is not total U.S. exports but the exports from the specific refineries that will receive oil from Keystone XL. Further, 2010 is not indicative of future trends as the export trade has boomed in 2011 and is forecast to continue to grow.

 
Source: EIA

When we do look at the most recent data for the actual refineries involved, we find a very different situation to that which the API describes. Rather than this being about products that are not in high demand in the U.S. market, these refineries are exporting most of their gasoline and a significant proportion of their diesel. What’s more they have been reconfiguring refineries to produce less gasoline and more diesel fuel as diesel is in high demand on international markets and generally fetches a higher price than gasoline. Since 2005, gasoline production at Texas Gulf Coast refineries  declined 66% while diesel production increased 18%.

Industry will no doubt argue that this is nonetheless good for jobs and the profitability of refineries. But surely we need to have a serious debate about the role of projects like Keystone XL and U.S. energy security. This is not about lowering gas prices or enhancing the supply of oil products to the American consumer. Keystone XL is about expanding the market for Canadian oil beyond the United States and boosting oil industry profits.

Politicians and the public need to be clear about one thing before we can have a serious debate about these issues. The oil industry has only its own interests at heart at all times and Keystone XL is no different. It is their fiduciary duty to maximize returns for shareholders regardless of U.S. national security objectives. What’s good for oil industry profits is rarely good for consumers. And here we’re not even discussing the climate or our air and water quality. The security of this nation and its economic success does not rest on export pipeline projects but on accelerating a transition away from dirty polluting fuels and towards a prosperous clean energy future.

Much is being written and said about rising gas prices, Obama’s energy policies in general and the Keystone XL pipeline in particular. While the President’s opponents repeat ad infinitum the “Drill Baby Drill” mantra, it has been interesting to note that much of the mainstream press has been skeptical. And so they should be.

Unsurprisingly, the President’s critics have honed in on the Keystone XL pipeline and the President’s denial of that project’s permit in a frenzy of finger pointing over the gas price rise. This not only ignores the true cause of rising gas prices but also ignores two key facts.

First, the Keystone XL pipeline will do nothing to lower gas prices in America.

Second, the President’s action on vehicle efficiency will save more oil than Keystone will ever pump.

These points go right to the heart of the gas price debate. Only efficiency and diversification away from oil can ease the pain at the pump by reducing the American consumer’s exposure to the inevitable rising price of oil. Further, we can make a difference through demand reduction, not just in 5, 10 or 15 years from now, but this year.

Keystone XL and gas prices: where is the evidence?

Keystone XL’s proponents claim the pipeline will reduce gas prices in America, some going so far as to say 20-30 cents could be knocked off the price of a gallon of gas as a direct result of building the pipeline.

When we look at the evidence, there simply isn’t any that would indicate that gas prices would decrease as a result of building Keystone XL. The problem with arguing that another pipeline from Canada to the United States will reduce gas prices is that we have six pipelines from Canada already and so far the impact on U.S. gas prices is negligible.

Canada has been America’s top source of petroleum imports since 2005. According to the latest figures, in November the U.S. imported over 2.3 million barrels per day of crude and products from Canada. This was nearly 30% of all petroleum imports and nearly 13% of total oil and oil products supplied. Yet because of global events, including the heightened tensions with Iran, ongoing production problems in Libya, the shut-in of production in South Sudan and rising tensions in Nigeria, gas prices in the United States have been rising steadily and it is widely believed that prices will reach new highs this summer.

The six pipelines bringing Canadian oil into the United States, two of which were only built in the last 3 years, have a capacity of nearly 4 million barrels per day. (See Table 1 below) They are currently utilized at slightly over 50% so we actually have nearly 2 million barrels of spare capacity.

The increase in both the actual and the capacity for Canadian petroleum imports has not made the slightest difference to the general trend of rising oil and gasoline prices. (See Figure 1 below) This is not a surprise. Oil is a global commodity and there are simply bigger things going on in the oil world than the steady increase in Canadian oil production. The problems mentioned above have a greater influence on global prices, as does the steady increase in demand in emerging economies. That a seventh pipeline (Keystone XL) from Canada to America can make a significant impact just does not bear serious scrutiny.

Figure 1 shows that throughout the last 11 years, petroleum imports from Canada have steadily risen from below 60 million barrels per month at the beginning of the last decade to over 87 million barrels per month at its peak in early 2011, a 50% increase. Yet, gas prices have trebled with spikes and troughs along the way that clearly have little to do with the steady rise in imports from north of the border.

Exports: where the oil goes matters

Another factor that undermines the assertion that building a seventh pipeline from Canada will somehow change this dynamic is the nature of the market in the Gulf Coast where the pipeline would terminate.

As we have discussed several times before on this blog, the Gulf Coast is becoming a refining center as much focused on exports as it is on supplying the domestic market. It is therefore unclear how much of the pipeline’s deliveries will actually make it onto the domestic market. This makes it even less likely that this pipeline will be any better than the six others at affecting U.S. gas prices.

The latest figures for exports from the refining area known as PADD 3, which encompasses all of Texas, Louisiana, Arkansas and New Mexico, show that 32% of the region’s production of finished petroleum products was exported in November.

So while the industry and its supporters ply their misinformation regarding the gas price reducing attributes of their pet project, it is worth noting that the real action that has been taken to ease the pain of inevitable oil price rises over the coming years is mostly being ignored.

Efficiency: where the real action is at

The fuel efficiency standards passed by the administration will save more oil than Keystone XL will ever pump. They could cut oil use by 2.2 million barrels per day in 2025 while Keystone would at full capacity deliver 830,000. These efficiency programs will save Americans billions of dollars at the pump and genuinely ease the pressure of spiking global oil prices. There is a lot more that can be done to reduce America’s dependence on oil, but these standards are a great start.

But while more efficient vehicles mandated under the new standards are entering the market this year, obviously only a small percentage of the population will be able to make use of them this summer when prices are expected to spike.

What appears to be missing from the discussion on both sides is a plan for action to help consumers deal with this year’s price spike. We know it’s coming but where’s the plan to deal with it?

President Obama has pointed to the pay roll tax extension as a help, but that is merely a continuation of tax policy that consumers have been enjoying for some time, welcome though it may be. Others have called for releases from the Strategic Petroleum Reserve, a band aid at best.

What we should be seeing is a concerted effort to help people reduce their oil use through every means available. Online tools for carpooling, incentives from employers, private and public, to use them. Increasing public transit provision where possible and providing information and incentives for those that can make use of transit; these are just a few examples that could make a big difference this year. We need to see recognition and action from local authorities and major employers that gas prices will be a problem for the public this year and that there are actions that can be taken.

When gas prices spiked in 2007-2008, Americans took to transit and carpooling in large enough numbers to precipitate the first dip in vehicle miles travelled in nearly thirty years and the biggest spike in transit use since the 1950s. This is bound to happen again this year but there is surely more we can do to facilitate it and after all, it is not just a short term salve but a major part of the long term solution.

The refineries that are linked to the Keystone XL tar sands pipeline as committed shippers will receive between $1 billion and $1.8 billion in tax breaks. They are paid specifically for investing in equipment to process the heavy sour oil the pipeline promises to deliver.

The largest of these refineries, Motiva, is half owned by Saudi Refining Inc., and will receive between $680 million and $1.1 billion in U.S. taxpayer support.

Keystone XL, like all oil industry projects, is enabled by substantial taxpayer subsidies. Three of the refineries that are planning to process the pipeline’s oil have invested in special equipment to handle the extra heavy tar sands oil. According to our conservative estimates, the U.S. taxpayer is subsidizing these investments to the tune of $1.0-1.8 billion. Here’s how it works.

Tar sands oil is not like most other crude oil. It is a semi-solid bituminous sludge that has to be diluted with much lighter oil in order to be transported by pipeline. Once it arrives at a refinery, the diluent is removed and the bitumen is refined into petroleum products using special equipment. The equipment required includes cokers and hydrocrackers.

In anticipation of the Keystone XL pipeline, three refineries in Port Arthur, Texas have added this equipment in order to be able to profitably process the bitumen. Their goal is to maximize their production of high value fuels such as gasoline and diesel rather than be left with less valuable fuels such as residual oil (for shipping and industrial burners) and Petroleum Coke, a coal like substance that is burned in aluminum smelters and the like. Heavy oil yields high proportions of these less valuable fuels if you do not have the specific equipment to increase the higher value yield.

Special tax rules apply to these investments that are unique to the refining industry. Title 179C of the tax code allows the refining companies to deduct the value of these investments from their tax returns at a highly accelerated rate. Rather than spread the expense over the life time of the equipment, say 20-30 years, the refiners are allowed to expense (i.e., deduct from their taxable income) 50% in the first year and expense the rest through the next 9 years. This is tantamount to a massive interest free loan from the taxpayer to big oil refiners, making it cheaper for them to process a particularly dirty form of foreign oil. In the case of the three Port Arthur refineries preparing to process Keystone XL crude, we calculate this to cost the taxpayer between $1.0 billion and $1.8 billion.

In the case of the Valero Port Arthur refinery’s hydrocracker project, the company has described the project to investors as one that will enable the refinery to process Canadian heavy oil into diesel and jet fuel for the export market. See below.

Does that look like the ‘national interest’ to you?

Of the three refineries involved, two of them, Valero Port Arthur and Total Port Arthur made these investments explicitly to process Canadian heavy oil that would be delivered by Keystone XL. Both companies are committed shippers on the pipeline meaning they have signed contracts committing them to a specific proportion of the pipeline’s capacity.

The other refinery, Motiva Port Arthur, jointly owned by Shell and Saudi Aramco, is expected to take some Keystone XL oil but it is also expected to use the new equipment to process large quantities of heavy sour oil imported from Saudi Arabia.

When the work finishes later this year, this refinery will become the largest in the United States.  It will have the capacity to process up to 325,000 barrels per day of heavy sour oil. The United States is not a significant producer of heavy sour oil. Countries that are expected to increase their production of this difficult-to-process crude include Canada (tar sands), Venezuela, Colombia, Saudi Arabia and Kuwait among others. So the subsidy received by this refinery is directly to enable the processing of a particularly dirty form of oil that is not produced in America.

Hmm, what was it pipeline proponents, including the owners of these refineries, were saying about reducing dependence on oil from hostile and unstable countries?

The special tax treatment of refinery investments that allows the 50% accelerated depreciation was introduced in the 2005 Energy Policy Act and was targeted at refinery investments that expand the capacity of the refinery. However, in August 2011, the act was amended specifically to extend the tax break to refinery investments that enable the refinery to process tar sands oil or enable an increase in capacity to refine tar sands oil if the new equipment is commissioned between 2008 and 2014. All of these projects qualify.

We have calculated the value to these three companies of this accelerated depreciation for the investments listed in the table below. These investments were made specifically to process heavy sour oil in refineries closest to the terminus of the proposed Keystone XL pipeline and owned by companies who are known committed shippers on the pipeline.

Finally, all the refineries that will receive Keystone XL tar sands crude operate are in a Foreign Trade Zone (FTZ), which gives tax benefits to companies that use imported components to manufacture items within the United States (FTZ Act – 19 USC 81a-81u). Usually, refineries importing oil tax-free will still pay taxes when selling the refined products into the U.S. market. By both importing into and exporting from foreign trade zones the companies will avoid paying tax on the product sales.  In other words, it’s a great deal for the oil industry, and a raw deal for the taxpayer.

Nobody in the oil industry can claim that Keystone XL, or any other oil and gas project, is free of taxpayer support. The subsidies we have revealed here are just a few examples among many forms of fiscal support to Keystone XL and the tar sands industry. Further, the full costs of our oil addiction in terms of health, environment and security are never included in an official analysis of these projects.

The public has the right to both know how our money supports Big Oil and see a thorough evaluation of any proposal the oil industry has for expanding its infrastructure. Such an examination would throw light on the true costs of expanding fossil fuel infrastructure at a time when we need to reduce our dependence on oil, rather than simply trumpeting the short term benefits to companies involved. Now that the project has been stopped, the true cost of Keystone XL is only just coming to light.

For full details of our analysis see here.

Table: Three refinery refit projects intended for processing Keystone XL oil

Our latest report, Getting to Market: Emerging Investor Risks in the Tar Sands highlights the latest challenge facing the tar sands industry and warns investors to look more critically at industry’s ambitious claims.

Download the full report

Tar sands extraction projects are moving forward with increasing pace. The industry ambition is to grow production from today’s level an extraordinary 140 percent by 2025.

Environmental impacts are a concern, particularly greenhouse gas emissions and water. Spills from existing pipelines have put pipeline route communities on high alert. The over 1 million gallons spilt into the Kalamazoo River in Michigan in July 2010 is still proving impossible to clean up.

Public dissent over these impacts is starting to make itself felt in the tar sands belt through increasingly vehement opposition to the pipeline projects that the landlocked industry relies upon for its future growth.

Keystone XL was already two years behind schedule when the State Department announced a further 12-18 month delay in early November 2011. Enbridge’s Northern Gateway faces unprecedented opposition from British Columbia First Nation communities along its route and among the coastal communities that would be threatened by the resulting oil tanker traffic. It has been delayed at least one year.

Significant opposition also exists against less discussed projects such as Kinder Morgan’s TransMountain pipeline expansion and Enbridge’s Trailbreaker project. see map

While it seems unlikely that all of these options will fail, the challenges they face may delay and disrupt the tar sands industry’s ambitious schedule for growth.

Many international oil companies have become hugely dependent on Canadian tar sands for their future growth. The resource constitutes the biggest single liquids component in the long term reserves for some of them. To achieve the production growth that would monetize these reserves will require all the currently proposed pipelines and more.

Such is the size of the resource and the limitations of the regional market, tar sands must access the open ocean to grow. Building enough pipeline capacity to deep water ports may turn out to be the greatest challenge facing tar sands production growth.

The report shows that:

• Tar sands oil is among the biggest component of many major oil company reserves;
• Four major tar sands pipeline proposals face significant public opposition in the United States and Canada;
• Without these pipelines, the industry’s ambitious growth plans cannot be realized.
• The incentive for Gulf Coast refiners to make long term commitments to deliveries from tar sands pipelines is diminishing due to uncertainty over permitting and growing supplies from elsewhere.

This report is part of an ongoing dialogue with the investment community that examines a wide range of investment risk issues surrounding tar sands production.  As some of the world’s most expensive to produce oil, the tar sands is not the great boon that the industry would have investors believe. The kind of exponential growth the industry would like to achieve depends on benign circumstances on a number of levels including low regulation and cheap natural gas. It also requires a social license to operate, not only within Alberta, but among the communities through which pipelines will pass and in communities hosting refineries that process this heavy sour oil. What we are increasingly seeing is that this social license is not always forthcoming.

Download the full report

Nov. 30, 2011, Durban, South Africa – Major multilateral development banks have provided financing of over $40 billion to fossil-fuel energy development since 2008, according to the new Shift the Subsidies database (http://shiftthesubsidies.org), launched today by Oil Change International.   Over the same time period, clean energy projects have received only $25.5 billion from those banks.

The Subsidy Shift database covers all known loans, grants, and financial guarantees to the energy sector by the multilateral development banks.  All of these banks are supported by taxpayer money from the developed countries.

On Monday, in Durban at the United Nations climate talks, Jonathan Pershing, deputy special envoy on climate change for the United States., said that U.S. contributions to the fast-start climate finance facility agreed at the Copenhagen COP in 2009 included financing from multilateral banks.

“If the United States is going to claim credit for fast start finance commitments for clean energy projects, it’s only fair that they be docked for their fossil fuel finance from the same institutions,” said Steve Kretzmann, Executive Director of Oil Change International.  “Unfortunately, as this new database shows, the U.S. and all developed nations continue to support fossil fuels significantly more than clean energy.”

The database also rates projects on whether or not they are intended to provide energy access for the poor.  For lending in Latin America, Asia, and Africa, only 10 percent of multilateral development bank financing addresses the grave need to provide energy access to the billions of people who live without modern energy.

“Bank officials justify their lending for fossil fuels by pointing to the need for energy access for the poor,” said Traci Romine, International Finance Campaign Director for Oil Change International. “We completely agree that energy access is an urgent priority, but the hidden truth is that only 10% of development bank lending supports this important goal.”

The database was developed with research from Oil Change International (OCI), CEE Bankwatch Network, and the Bank Information Center (BIC).  World Bank Group data is presented for FY2008 to FY2011.  Regional development bank data – including the African Development Bank (AfDB), the Asian Development Bank (ADB), European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), and the Inter-American Development Bank (IADB) – covers the period from FY2008 to FY2010.

BASIC South Initiative – Campagna per la riforma della Banca Mondiale (Italy) – Friends of the Earth U.S. – groundWork (South Africa) – International Rivers – Oil Change International – Sierra Club (U.S.) – Urgewald (Germany) – Vasudha Foundation (India)

Nov. 29 2011, Durban, South Africa— Civil society organizations from around the world released a report today at the Durban climate talks that highlights the contradictions inherent in the World Bank Group’s presence here. While the Bank seeks a leading role in climate finance, it has been unable to finalize an energy strategy and continues to finance dirty energy projects.

Just a year after the World Bank Group’s (WBG) heavily criticized US$3 billion loan for one of the world’s largest coal plants in South Africa, the institution is considering supporting a new coal plant in Kosovo.

The report titled, Unclear on the Concept: How Can the World Bank Group Lead on Climate Finance without an Energy Strategy? finds that “in spite of its climate-friendly rhetoric, the WBG continues to disproportionately fund dirty energy projects. In fact, nearly half of energy lending – more than US$15 billion – went to fossil fuels over the past four years.”

The report includes data from the Shift the Subsidies database, which tracks multilateral development bank energy lending. It demonstrates how the WBG is experiencing clear difficulties in synching its core lending with climate goals. Given the difficulties and contradictions, the institution should focus on cleaning up its own act before making further forays into climate finance initiatives.

Civil society advocates claim this lending directly undermines the institutions credibility as a leading institution in climate finance. “The Bank should put its money where its mouth is and stop financing dirty energy,” said Karen Orenstein of Friends of the Earth.

Worse, the Bank is unable to finalize its own energy strategy – a document that will guide lending at the institution for the next decade. “How can the Bank guide the world into a clean energy future when it can’t guide itself over the next decade?” asks Justin Guay from the Sierra Club.

Without an energy strategy the Bank is risking its institutional credibility with its current consideration of a new coal project in Kosovo. The project will provide public financing for the most heavily polluting form of coal (lignite) and comes on the heels of the WBG decision last year to lend more than US$3 billion to help build the Medupi coal plant in South Africa. “The lignite project will be a huge burden for the people of Kosovo,” says Nezir Sinani, a member of Kosovan civil society. “It will severely impact our health and we will pay higher energy prices.”

The institution’s actions– its core energy lending, its inability to pass a forward-looking energy strategy, and its mixed involvement in climate-related initiatives – demonstrate that the WBG does not take climate change impacts nearly seriously enough.

In order to change course and support developing countries in a transition to truly clean energy, the report calls upon the World Bank Group to:

• Stop funding dirty energy projects, either directly or indirectly, and
• Pass an energy strategy that promotes truly clean energy and energy access.

For a copy of the report: http://priceofoil.org/educate/resources/unclear-on-the-concept