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A US-China Investment War Is Quietly Emerging, and the Environment Will Be the Ultimate Casualty

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A US-China Investment War Is Quietly Emerging, and the Environment Will Be the Ultimate Casualty
BRENDAN SMIALOWSKI / AFP / Getty Images

By Sarah Brewin

On Oct. 3, the U.S. Senate passed a law to create an agency called the International Development Finance Corporation (IDFC), to replace the Overseas Private Investment Corporation (OPIC) set up in 1969. The IDFC will invest up to $60 billion in developing countries and, unlike OPIC, is empowered to make equity investments. It is designed to counter what some in Washington describe as China's "economic warfare" of indebting developing countries and garnering diplomatic influence and support, largely through infrastructure projects such as the Belt & Road Initiative.


The IDFC is set up by the Better Utilization of Investments Leading to Development Act (the Build Act), which passed the House of Representatives in August with bipartisan support, and has been lauded in international development circles for its pro-development agenda. But there are at least four very concerning aspects of the Build Act, making it likely that the environment will be the ultimate casualty in this new front in the U.S.-China war of influence.

1. Key Environmental Threshold Removed

A key environmental safeguard imposed on OPIC has slipped out of the Build Act. OPIC's authorizing statute required it to refuse support for any project which "will pose an unreasonable or major environmental, health, or safety hazard, or will result in the significant degradation of national parks or similar protected areas."

This underpinned the very first step in OPIC's project screening procedures, designed to ensure that environmentally damaging projects don't get supported. A 2003 report to Congress shows that this provision formed the basis for OPIC to decide whether a project was 'categorically prohibited' from receiving support. According to OPIC's environmental handbook, this captured "large dams that disrupt natural ecosystems, infrastructure and raw material extraction in primary tropical forests and other protected or ecologically fragile areas."

History also shows us how important this provision could be for pulling support for projects already underway. In 1995 OPIC canceled $100 million of political risk insurance for a U.S. company operating the world's largest gold mine in Indonesia. The cancellation was prompted by environmental contamination from the mine that poisoned fish and local water supplies, and reports of killings and torture by the company's private security services. While the legal basis for the decision has never been made clear, it could well have been the above provision.

2. Host Country Notification Requirements Removed

Another of OPIC's environmental mandates has been stripped from its successor organization under the Build Act. OPIC's authorizing statute required it, before supporting a project, to contact the host country government, inform them of the likely environmental impacts and the international environmental standards applicable to the project, and any U.S. regulations that would apply if the project was carried out there. OPIC had to share any environmental impact assessments carried out, and to take into account any comments received in response. This provision was used by OPIC to notify governments from Liberia to Ghana to Pakistan of OPIC's potential support to projects in those countries with the potential to have "significant adverse environmental impacts." IDFC, on the other hand, will not be required by its authorizing statute to engage and assist host country governments in this way.

3. Climate Ignored

Climate considerations are entirely absent from the Build Act. OPIC was sued in 2003 by Greenpeace, Friends of the Earth and four cities in Colorado and California. OPIC accepted liability for financially supporting fossil fuel projects from 1990 to 2003 that accounted for nearly 8% of global carbon emissions—almost one-third of total U.S. emissions. In a settlement agreement, OPIC committed to establishing a goal of reducing greenhouse gas emissions associated with its projects by 20 percent over ten years and increasing financing for renewable energy. The creation of IDFC would have been an opportune moment to carry such commitments over to the new body taking over OPIC's mandates by enshrining them in the Build Act. As it stands, climate does not appear anywhere in the law.

4. Foreign Policy Interests Prioritized

The Build Act explicitly mixes sustainable development with geopolitical strategic objectives, stating that one of the objectives of the IDFC is "to provide countries a robust alternative to state-directed investments by authoritarian governments and U.S. strategic competitors using high standards of transparency and environmental and social safeguards, and which take into account the debt sustainability of partner countries."

This explicit inclusion of foreign policy objectives is a major departure from OPIC's authorizing statute, which did not even contain the words "foreign policy." The reference to environmental and social safeguards rings hollow in light of the key environmental safeguards imposed on OPIC that have been stripped from IDFC's authorizing statute.

The Build Act requires the IDFC to develop guidelines and criteria to ensure that each project it supports has "a clearly defined development and foreign policy purpose." The requirement that all projects serve a foreign policy purpose, combined with weakened environmental protections, could see the IDFC supporting environmentally damaging projects if they are seen to be in U.S. foreign policy interests—for instance, if it was thought that if not financed by IDFC, the project would instead be financed by a "strategic competitor," with debt, influence and diplomatic relations accruing to that competitor rather than the U.S.

OPIC's track record has included support to projects that reportedly mismanaged hazardous waste in Chile, contaminated water and degraded forests in Liberia, and failed to recognize the existence of an indigenous community in Bolivia because it did not carry out a social and environmental assessment. It is hard then to see how its successor agency, with a weaker environmental mandate, a broader potential investment portfolio, and an explicit dictate to out-compete Chinese money, is well placed to do better.

Sarah Brewin is an agriculture and investment advisor to the International Institute for Sustainable Development.

This article was produced by Earth | Food | Life, a project of the Independent Media Institute.

A plume of smoke from wildfires burning in the Angeles National Forest is seen from downtown Los Angeles on Aug. 29, 2009 in Los Angeles, California. Kevork Djansezian / Getty Images

California is bracing for rare January wildfires this week amid damaging Santa Ana winds coupled with unusually hot and dry winter weather.

High winds, gusting up to 80- to 90 miles per hour in some parts of the state, are expected to last through Wednesday evening. Nearly the entire state has been in a drought for months, according to the U.S. Drought Monitor, which, alongside summerlike temperatures, has left vegetation dry and flammable.

Utilities Southern California Edison and PG&E, which serves the central and northern portions of the state, warned it may preemptively shut off power to hundreds of thousands of customers to reduce the risk of electrical fires sparked by trees and branches falling on live power lines. The rare January fire conditions come on the heels of the worst wildfire season ever recorded in California, as climate change exacerbates the factors causing fires to be more frequent and severe.

California is also experiencing the most severe surge of COVID-19 cases since the beginning of the pandemic, with hospitals and ICUs over capacity and a stay-at-home order in place. Wildfire smoke can increase the risk of adverse health effects due to COVID, and evacuations forcing people to crowd into shelters could further spread the virus.

As reported by AccuWeather:

In the atmosphere, air flows from high to low pressure. The setup into Wednesday is like having two giant atmospheric fans working as a team with one pulling and the other pushing the air in the same direction.
Normally, mountains to the north and east of Los Angeles would protect the downtown which sits in a basin. However, with the assistance of the offshore storm, there will be areas of gusty winds even in the L.A. Basin. The winds may get strong enough in parts of the basin to break tree limbs and lead to sporadic power outages and sparks that could ignite fires.
"Typically, Santa Ana winds stay out of downtown Los Angeles and the L.A. Basin, but this time, conditions may set up just right to bring 30- to 40-mph wind gusts even in those typically calm condition areas," said AccuWeather Senior Meteorologist Mike Doll.

For a deeper dive:

AP, LA Times, San Francisco Chronicle, Washington Post, Weather Channel, AccuWeather, New York Times, Slideshow: New York Times; Climate Signals Background: Wildfires, 2020 Western wildfire season

For more climate change and clean energy news, you can follow Climate Nexus on Twitter and Facebook, sign up for daily Hot News, and visit their news site, Nexus Media News.

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