The United States has announced that, in accordance with President Biden’s January executive order, it will end funding for oil and gas projects. Given the likelihood of significant exemptions, we remain skeptical.
Despite our differences – one of us is a libertarian who opposes all government privileges accorded to business, while the other is a progressive who believes government should provide a strong social safety net from the cradle to the grave and help the adoption of clean renewables – we agree that the government should not be supporting rich, politically connected businesses. Yet this is what the Ex-Im Bank (Ex-Im) does, including for its wealthy friends in the oil and gas industry.
On average, the industry receives about $ 20.5 billion per year in direct US subsidies and $ 121 billion in tax breaks. When the pandemic began, the industry was quick to claim between $ 3 billion and $ 7 billion in free money from the Small Business Administration’s paycheck protection program. In addition, several federal agencies go to great lengths to serve their friends in the oil and gas industry, with the full support of the White Houses and the Republican and Democratic Congresses.
The Export-Import Bank is one of these agencies. Ex-Im describes his mission as “supporting American jobs by facilitating American exports”. While it might sound good, her devilishness is revealed in her details. Historically, 65% of Ex-Im funding has benefited 10 large national companies, with 25% of its activities benefiting the oil and gas industry.
But Ex-Im’s worst offense is its pocket dog-like dedication to a few clients, such as Pemex, the Mexican state-owned energy giant and its biggest beneficiary. From 2007 to 2019, Pemex received some $ 8.5 billion in taxpayer-guaranteed loans. Between 2009 and 2017, fires, explosions and the collapse of oil rigs killed more than 190 of its employees and injured more than 570. These accidents also caused serious environmental damage, including pollution of three rivers, resulting in the loss of half a million Mexicans drinking water. Recently, Pemex’s disregard for environmental protection and safety caused hell in the Gulf of Mexico resulting from a project backed by Ex-Im.
These facts are well known to the management of Ex-Im. Yet the agency nonetheless granted an additional $ 400 million in loan guarantees to Pemex last September. Now he’s preparing another deal for Pemex, this time in a category with even less oversight.
Ex-Im isn’t afraid to go the extra mile to please his big oil and gas friends. In 2019, he announced a $ 5 billion deal (later revised to $ 4.7 billion) to support the development and construction of a liquefied natural gas (LNG) project in Mozambique. Documents provided by the agency in response to a Freedom of Information Act request revealed how it deliberately ignored warnings about the many associated risks.
Enter the bigwigs of the US LNG industry, who were unhappy that a foreign competitor got a head start on Ex-Im funding, even though they were also beneficiaries. They threatened to publicize their opposition to the Mozambique project. After a few twists and turns, Ex-Im decided to appease the industry with his own accord: a 90% guarantee for a $ 50 million supply chain finance deal to benefit a based company. in Texas, extended through a supply chain finance provider. in January 2021. All Ex-Im had to do to make it happen was use pandemic coverage to lift a pesky requirement that 50 percent of suppliers be small businesses benefiting from the Ex-Im program.
Satisfied, the LNG industry has withdrawn its opposition to Mozambique’s project, as revealed in a letter published under transparency laws and produced by Source Material, a non-profit investigative journalism organization.
Despite cheerful press releases celebrating the two deals as milestones for the agency, all was not well in the world of subsidized oil and gas. In May 2021, the aforementioned finance provider collapsed into insolvency and the project operator in Mozambique declared force majeure, which allowed it to cancel contracts, withdraw all its staff and avoid the compensation promised to poor communities affected by the project due to an insurgent attack.
Ex-Im should have known better. Indeed, the financier in question had already been the subject of an investigation by a German regulator for some time, which led to a criminal complaint in March 2021. More damning was that in September 2020, when Ex -Im was working on the deal, the insurer chose not to extend coverage on its loans, a move that ultimately led to its collapse. Such a lack of due diligence is nothing new for an agency that deals with special interests far more than taxpayers or public welfare.
Supporters can say shenanigans were to be expected under President Trump. But the Pemex / Ex-Im alliance, along with the agency’s commitment to oil and gas subsidies, existed long before Trump entered politics. It will last under President Biden’s tenure unless Congress forces Ex-Im to end all donations to the oil and gas industry.
Véronique de Rugy is the George Gibbs Chair in Political Economy and Principal Investigator at the Mercatus Center at George Mason University. Kate DeAngelis is an international fundraising program manager with Friends of the Earth US