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- 46th and current president of the United States
The United States announced that, consistent with President Biden's January executive order, it will end financing of oil and gas projects. Considering the likelihood of sizable exemptions, we remain skeptical.
In spite of our differences - one of us is a libertarian who opposes all government-granted privilege to corporations, while the other is a progressive who believes government should provide a strong social safety net from cradle to grave and aid in the uptake of clean renewables - we agree that the government should not prop up wealthy, politically connected corporations. Yet that's what the Export-Import Bank (Ex-Im) does, including for its wealthy friends in the oil and gas industry.
On average, the industry receives roughly $20.5 billion annually in direct U.S. subsidies, and $121 billion in tax breaks. When the pandemic started, the industry was fast 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 Republican and Democratic White Houses and Congresses.
The Export-Import Bank is one such agency. Ex-Im describes its mission as "supporting American jobs by facilitating U.S. exports." While this may sound good, its devilishness is revealed in its details. Historically, 65 percent of Ex-Im financing has benefited 10 large domestic corporations, with 25 percent of its activities benefiting the oil and gas industry.
But Ex-Im's worst offense is its lapdog-like devotion to a few clients, such as Pemex, the Mexican state-owned energy giant and its biggest recipient. From 2007 through 2019, Pemex received some $8.5 billion in taxpayer-backed loans. Between 2009 and 2017, fires, explosions and collapsing oil rigs killed more than 190 of its workers and injured more than 570. These accidents also resulted in severe environmental damage, including polluting three rivers, resulting in a half-million Mexicans losing access to clean drinking water. Recently, Pemex's disregard for environmental protection and safety caused an inferno in the Gulf of Mexico resulting from a project Ex-Im supported.
These facts are well known to Ex-Im management. Yet, the agency nevertheless extended another $400 million in loan guarantees to Pemex last September. Now, it's preparing another deal for Pemex, this time in a category with even less oversight.
Ex-Im is not afraid to go the extra mile to make its big oil-and-gas friends happy. In 2019, it 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 willfully ignored warnings of the many associated risks.
Enter bigwigs in the American LNG industry, who were upset over a foreign competitor getting a leg up from Ex-Im financing, even though they have also been a recipient. They threatened to go public with their opposition to the Mozambique project. After some arm twisting, Ex-Im decided to placate the industry with its own deal: a 90 percent guarantee for a $50 million supply-chain-finance deal for the benefit of a Texas-based company, extended through a supply-chain finance provider in January 2021. All Ex-Im had to do to make it happen was to use the cover of the pandemic to lift a pesky requirement that 50 percent of suppliers be small businesses benefiting from the Ex-Im program.
Satisfied, the LNG industry withdrew its opposition to the Mozambique project, as revealed by a letter released under transparency laws and produced by Source Material, a non-profit investigative journalism organization.
Despite cheerful press releases celebrating both deals as milestones for the agency, not all was right in the world of subsidized oil and gas. By May 2021, the aforementioned finance provider collapsed into insolvency and the Mozambique project's operator declared force majeure, which allowed it to cancel contracts, withdraw all its staff and avoid promised compensation to poor project-affected communities because of an insurgent attack.
Ex-Im should have known better. Indeed, the financier in question had already been under 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 finance provider's insurer opted not to extend coverage for its lending, a move that ultimately led to its collapse. Such lack of due diligence is nothing new for an agency that caters to special interests far more than taxpayers or the public welfare.
Partisans may say that shenanigans were to be expected under President Trump. But the Pemex/Ex-Im alliance, as well as the agency's commitment to oil and gas subsidies, existed long before Trump entered politics. It will endure under President Biden's tenure unless Congress forces Ex-Im to end all handouts to the oil and gas industry.
Veronique de Rugy is the George Gibbs Chair in Political Economy and a senior research fellow with the Mercatus Center at George Mason University. Kate DeAngelis is an international finance program manager with Friends of the Earth U.S.