Export-Import Bank: Environmental Review Procedures

Order Code RS21588

August 12, 2003

CRS Report for Congress

Received through the CRS Web

Export-Import Bank:

Environmental Review Procedures

James K. Jackson

Specialist in International Trade and Finance

Foreign Affairs, Defense, and Trade Division

Summary

Congress requires the Export-Import Bank, and other U.S. agencies whose

programs have the potential for adversely affecting the environment abroad, to develop

and follow an established set of guidelines to mitigate the environmental impact of its

programs. The Bank’s current procedures and guidelines, as revised on April 2, 1998,

were extended on June 26, 2003 and will remain in effect until March 31, 2004. These

guidelines apply to all long-term transactions and project finance cases valued over $10

million with a repayment period of more than seven years and that have potentially

adverse environmental effects. Short and medium transactions under $10 million with

a repayment period of less than seven years are reviewed on a case-by-case basis. The

Bank estimates that in 2002, its programs supported $800 million in U.S. exports of

environmentally beneficial U.S. goods and services. This report will be updated as

warranted by events.

Background

The Export-Import Bank (Eximbank) is an independent U.S. government agency

that is charged with financing and promoting exports of U.S. goods and services. To

accomplish these goals, Eximbank uses its authority and resources to: assume commercial

and political risks that exporters or private financial institutions are unwilling, or unable,

to undertake alone; overcome maturity and other limitations in private sector export

financing; assist U.S. exporters to meet foreign, officially sponsored, export credit

competition; and provide guidance and advice to U.S. exporters and commercial banks

and foreign borrowers. With a budget of around $600 million, the Bank finances about

1% of U.S. exports a year. Eximbank provides guarantees and insurance to commercial

banks to make trade credits available to U.S. exporters. The Bank operates under a

renewable charter, the Export-Import Bank Act of 1945, as amended, and has been

authorized through September 30, 2006. Congress has amended the Bank’s statutes at

Congressional Research Service ˜ The Library of Congress

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various times to restrict Eximbank’s ability to approve transactions with firms involved

in certain specified activities.1

Eximbank has three main programs it uses to finance U.S. exports: direct loans,

export credit guarantees, and export credit insurance. Eximbank’s direct lending program

is used primarily to aid U.S. exporters in instances where they face a foreign competitor

that is receiving officially subsidized financing by a foreign government. These loans

carry fixed interest rates and generally are made at terms that are the most attractive

allowed under the provisions of international agreements. They are made primarily to

counter attempts by foreign governments to sway purchases in favor of their exporters

solely on the basis of subsidized financing, rather than on market conditions (price,

quality, etc.), and to enforce internationally agreed upon terms and conditions for export

financing. Guarantees and insurance are the main programs the Bank uses to assist

American exporters. Both programs reduce some of the risks involved in exporting by

insuring against commercial or political uncertainty.

Eximbank’s Environmental Mandate

When Congress established the Bank in 1947, it directed the Bank to “aid in

financing and to facilitate exports and imports and the exchange of commodities and

services,” and to assist small businesses. Over the years, Congress has added various

requirements that restrict the Bank’s actions. Congress has restricted the Bank’s ability

to deny applications for credit for nonfinancial or noncommercial factors, except under

a number of special conditions. These conditions are determined by the President of the

United States after consulting with the House Banking and Financial Services Committee

(now Committee on Financial Services) and the Senate Committee on Banking, Housing,

and Urban Affairs, and must be determined to be in the national interest of the United

States in such areas as “international terrorism, nuclear proliferation, environmental

protection and human rights (including child labor).”2

In addition, Congress has adopted various measures that require the Export-Import

Bank, and other government agencies whose operations have an effect beyond U.S.

borders, to consider the impact their programs may have on the environment of

developing countries. For instance, the Bank is subject to Executive Order No. 12144

(44FR 1957) entitled “Environmental Effects Abroad of Major Federal Actions.” This

Executive Order requires federal agencies that take actions that are subject to the Order

to implement procedures that are consistent with the Order. In 1979, through Executive

Order No. 12166 (Oct. 19, 1979, 44 F.R. 60971) and P.L. 95-630 Congress granted the

Bank the authority to deny an application for credit, where, “such action could clearly and

importantly advance United States policy in such areas as international terrorism, nuclear

proliferation, environmental protection and human rights.”3

1

See CRS Report RL32007, Export-Import Bank: Financing Requirements and Restrictions, by

James K. Jackson.

2

Ibid.

3

12 USC Sec 635(b)(1)(B)

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In 1992, through P.L. 102-429 (12 USC Sec 635i-5) Congress required the Bank to

establish procedures to, “take into account the potential beneficial and adverse

environmental effects of goods and services for which support is requested under its direct

lending and guarantee programs.”4 These procedures apply to any transaction considered

by the Bank for a long-term support of $10 million or more, or for which the Bank’s

support is critical, and which may have “significant environmental effects upon the global

commons or any country not participating in the project.”5 In addition, Congress directed

that the Bank’s environmental standards could be used as a basis for withholding

“financing from a project for environmental reasons or to approve financing after

considering the potential environmental effects of a project.”6

Eximbank’s Environmental Procedures

In order to fulfill its Congressional mandate to establish environmental procedures,

the Bank adopted a set of guidelines for evaluating the environmental impact of proposed

projects and has encouraged other national export credit agencies to adopt a similar set

of policies. Eximbank's environmental procedures and guidelines were issued on

February 1, 1995 following the implementation of interim procedures in October, 1993.

The Bank’s procedures and guidelines were revised on April 2, 1996 and on April 2, 1998

following a review of their effectiveness in mitigating adverse environmental effects of

Eximbank supported projects and their effect on the competitiveness of U.S. exporters.

The procedures and guidelines, as revised on April 2, 1998, were extended on June 26,

2003 and will remain in effect until March 31, 2004.

Eximbank’s environmental procedures apply to all long-term transactions and project

finance cases valued over $10 million with a repayment period of more than seven years

and that have potentially adverse environmental effects. Short and medium transactions

under $10 million with a repayment period of less than seven years are not reviewed

unless the Bank’s Engineering and Environment Division believes that such a transaction

has the potential for causing a “significant adverse environmental effect.” When the Bank

is conducting an environmental review on long-term transactions or on project finance

cases, it solicits information from other government agencies and also from nongovernment sources by posting the proposed transaction on the Bank’s web site.7 Each

long-term transaction or project finance case is required to complete an “Environmental

Screening Document” that is reviewed by the Bank’s Engineering and Environment

Division.

After reviewing the Environmental Screening Document, the Division places each

project into one of four categories, N, A, B, or C.

4

12 USC Sec 635i-5(a)(1)

5

12 USC Sec 635i-5(a)(1)(A)-(C)

6

12 USC Sec 635i-5(a)(2)

7

The Bank’s web address is: http://www.exim.gov/products/policies/noticeindex.html

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!

Category N projects involve all transactions associated with nuclear

power projects, nuclear research and related facilities and the production

of nuclear fuel.8

!

Category A projects are excluded from any further environmental

screening because they are determined to have no significant

environmental issues.

!

Category B projects are those that are determined to be constructed in,

or sufficiently near, areas that they believe will have a perceptible

environmental effect.9

!

Category C projects are those that are not included in any of the other

three categories. Such projects are considered on a case-by-case basis.

In evaluating projects, Eximbank uses both quantitative10, or numerical, guidelines

and qualitative guidelines11 according to seven objectives:

!

Air quality. Protecting air quality to a degree that safeguards both

human health and the environment.

!

Water use and quality. Protecting surface and groundwater resources

from excess demand and from project related contamination.

8

The Bank has developed a separate set of procedures for projects that fall within this category,

titled “Nuclear Procedures and Guidelines,” to “ensure that the nuclear projects Ex-Im Bank

supports are environmentally responsible and that the projects include reasonable measures and

provisions to address the public health and safety.” Projects are classified according to: the type

of export; specifications of the recipient nuclear facility; and the function of the export in the

operations of the facility. The type and scope of information the Bank requires from an applicant

is related to how a project is classified. After a review by the Bank, each project is given a

second classification (after receiving a “N” classification) from A to E.

9

Such areas include: primary forests, tropical forests, nationally designated wetlands, protected

wild lands, national parks, nationally-designated refuges, coral reefs or mangrove swamps,

nationally-designated seashore areas, habitat of endangered species, properties on the World

Heritage List, areas reserved for ethnic minorities or indigenous peoples, or areas in which the

project will require large-scale resettlement. Transactions generally included in this category are:

hydroelectric projects, water resources management projects, and project finance transactions.

10

Quantitative guidelines are numerical guidelines that are used to assess air emissions, water

quality, and noise impacts. These guidelines are used to identify the acceptable concentrations

of pollutants in air, water, and soil, and to define noise levels.

11

Qualitative guidelines are used to assess a project in three areas: 1) the management of solid,

hazardous, and toxic materials and wastes; 2) the ability of a project to withstand the potential

impact of natural hazards, based on elements such seismic coefficients, and other design features;

and 3) the potential impact on the project’s ecological context, the socioeconomic impact, and

the impact on the sociocultural environment based on informed analysis of the results of social,

economic, and scientific surveys, investigations and projections.

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!

Waste management. Managing, recycling, and disposing of solid,

hazardous, and toxic materials and wastes in a manner that safeguards

human health and the environment.

!

Natural hazards. Siting and design of a project to acceptable levels of

natural, ecological, and economic risk.

!

Ecology. Protecting ecological resources, encouraging conservation, and

promoting practices that result in the reduction of greenhouse gases.

!

Socioeconomic and sociocultural framework. Developing the project

in order to avoid or to mitigate significant adverse impacts.

!

Noise. Protecting sensitive receptors from unhealthy project related

noise.

Eximbank excludes from consideration for export credits exports of 48 different

pesticides that are banned and six pesticides that are severely restricted by the

Environmental Protection Agency (EPA). In addition, Eximbank excludes from

consideration 30 industrial and consumer chemicals that are banned or severely restricted

by the EPA. The Bank also provides environmental guidelines for nine different

categories, which include: general industrial projects; pulp and paper mills; iron and steel

mills; mining and milling; oil and gas development; thermal, gas, turbine and engine

power plants; forest operations; petroleum refineries and petrochemical facilities; and

hydro power and water resources management. In each of the nine categories, the Bank

provides specific numerical guidelines in the areas of air quality, water quality, solid and

liquid non-hazardous wastes, hazardous and toxic materials and wastes, and noise.

Iron and steel mills.

Eximbank requires that projects such as iron and steel mills and mining and milling

take additional environmental precautions before they are approved. The Bank requires

steel mills to take extra environmental precautions because such projects entail extensive

air emissions and wastewater discharge issues. Similarly, mining and milling operations

face extensive environmental screening because they involve the disposal of large

amounts of non-ore bearing materials and the disposal of tailings and wastewater. In such

projects, the Bank requires the firms involved to provide an erosion and sediment control

plan and a mine reclamation plan to return the land to conditions capable of supporting

the prior land uses and to eliminate significant adverse effects on adjacent water

resources.

Oil and gas development.

Exports of energy-related goods and services are a major component of the Bank’s

activities and accounted for over $3.0 billion in U.S. exports in 2002, or about one-fourth

of the Bank’s total activities. In the area of oil and gas development, the Bank places

quantitative requirements on a wide range of activities. The Bank places restrictions on

air emissions and liquid emissions for both on- and offshore oil and gas development, and

it requires that firms take extra precautions to reduce the risks of oil spills and to prepare

contingency plans for such potential occurrences. For power plants, which have often

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been an important part of the Bank’s business, Eximbank encourages projects that use

renewable energy as the prime electricity producer and provides financial support through

its Environmental Exports Program.12 The Bank also provides enhanced financial support

for energy projects that produce electricity while emitting low levels of CO2. This support

also extends to coal-fired and oil- and gas-fired plants in order to encourage the reduction

of greenhouse gases and water emissions.

Forestry operations.

Forestry operations is another area in which the Bank has developed a broad set of

guidelines. These guidelines are meant to minimize the destruction of forests and other

vegetative cover, soil stability siltation of waterways, pressure on human and livestock

population, wildlife, bird sanctuaries, game refuges, and on regional microclimate. The

Bank does not extend its programs to cover commercial logging in primary tropical

forests and evaluates projects on their impact on ecologically critical boreal and temperate

primary forest ecosystems. In addition, forestry operations must be able to demonstrate

that the project displays a commitment to sustainable development and to the

conservation of natural resources. Projects also must demonstrate that they are not

harming or diminishing habitats of threatened or endangered species and that they address

the interest and livelihoods of indigenous and other affected local populations. Projects

are also required to develop a forest management plan, to demonstrate safeguards for

water resources, and to minimize the development of new roads.

Petroleum refineries, petrochemical facilities, and power plants.

The Bank also places stringent requirements on projects that involve petroleum

refineries and petrochemical facilities. Such facilities may have substantial environmental

impact on air and water quality due to emissions and may also involve toxic materials.

Projects are required to install monitors for gas emissions and to develop and implement

contingency plans for petroleum spills. Projects must also submit to guidelines for

pipelines and solid and hazardous wastes and for hazardous and toxic materials and

wastes. Hydro power and water resource projects also are subject to guidelines: to ensure

water quality; to preserve the ecology; to mitigate the risks from natural hazards; and to

mitigate the impact on the regional socioeconomic and sociocultural environment. The

Bank requires an environmental assessment for hydroelectric power projects that generate

more than 10 megawatts of power and power projects that incorporate a dam of 15 meters

or more in height. Projects that entail the construction of a dam also must provide a

feasibility study to assess natural hazards and risks and provide assurances that design

features have been incorporated into the project to mitigate these risks.

12

The Bank’s Environmental Exports Program provides enhanced levels of support for a broad

range of energy-related exports in order to promote U.S. exports of renewable energy and

environmentally beneficial goods and services as well as to assist U.S. exporters participating in

foreign environmental projects. This program provides: short-term environmental export

insurance for multi-buyer and single-buyer insurance coverage for small business environmental

exporters; and medium-term export credit insurance and guarantees and loans for exports of

capital goods and environmental services at the maximum allowable terms permissible under the

guidelines adopted by the Organization for Economic Cooperation and Development and may

also include the use of the Bank’s tied aid resources to offset any offers of foreign concessionary

financing for environmental projects.