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U.S. Lays Out Strict Limits on Coal-Plants Funding Abroad

The United States said Tuesday it plans to use its leverage within global development banks to limit financing for coal-fired power plants abroad, part of Washington's international strategy to combat climate change.

WASHINGTON (Reuters) - The United States said Tuesday it plans to use its leverage within global development banks to limit financing for coal-fired power plants abroad, part of Washington's international strategy to combat climate change.

The U.S. Treasury said it would only support funding for coal plants in the world's poorest countries if they have no other efficient or economical alternative for their energy needs.

For richer countries, it would only support coal plants that deploy carbon capture and sequestration, an advanced technology for reducing emissions that is not yet commercially viable. That essentially means the United States would limit coal funding to only the world's poorest for now.

The rules affect U.S. support for new coal-fired power plants funded by multilateral development banks like the World Bank. The United States is the world's second-biggest greenhouse-gas emitting nation after China and has sought to cut emissions of gas blamed for warming the planet.

"As developing economies embark on a journey towards a clean energy future, today's announcement marks an important step in helping them reach this goal," U.S. Treasury Undersecretary for international affairs Lael Brainard said in a statement.

President Barack Obama in June said the United States would stop investing in most coal projects overseas, part of a broad package of climate measures, and called on multilateral banks to do the same.

Shortly after, the World Bank also agreed to a new energy strategy that will limit financing of coal-fired power plants to "rare circumstances," for countries that have no feasible alternatives to coal. It did not go as far as the U.S. guidelines in specifying that the funding would only go to the world's poorest countries.

The wider impact of a new U.S. energy strategy would likely not be seen immediately, since bilateral donors and the private sector will still continue to finance coal. But some analysts hope strict limits on public funding could send a signal that coal is a risky investment and prompt countries to turn to alternative energy sources.

The real test of the strategy may come next year, when the World Bank should decide whether to provide loan guarantees for a Kosovo power plant fired by coal.

It was not immediately clear if Kosovo would be considered one of the world's poorest countries according to the new U.S. guidelines. The U.S. Treasury declined to discuss the project specifically, as it had not yet been presented to the World Bank's board.

The United States is the World Bank's largest and most powerful member but likely would still have to build coalitions with other countries if it wanted to block funding for a specific coal project.

The World Bank last approved funding for a coal-fired power plant in 2010 in South Africa, despite lack of support from the United States, Netherlands and Britain due to environmental concerns.

Multilateral institutions like the World Bank have come under criticism for urging global action to cut emissions of carbon dioxide while simultaneously funding coal-fired power plants. But others also fret that a lack of public funding for coal could impair energy access in poor countries that are struggling to grow.

(Reporting by Anna Yukhananov; Editing by Cynthia Osterman)

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