Between 1999 and 2001, the OECD member nations negotiated environmental policy framework for their ECAs. (See fig. 1.) With the exception of the United States, OECD members agreed in November 2001 to voluntarily implement a version of this framework, known as the Common Approaches. This process of negotiation followed a 1997 communiqué from the Group of Eight (G-8) that indicated a strong interest in negotiating common environmental guidelines for ECAs. At the 1999 G-8 summit, the heads of state issued a second communiqué stating that they hoped for agreement within the OECD by their 2001 summit, a deadline the G-8 reiterated the following year. The United States led the effort to regularly place common ECA environmental procedures on the G-8 agenda. The United States sought to promote uniform standards because it was concerned about unequal export market conditions and growing concern from nongovernmental organizations (NGO) that ECA-funded projects had the potential to cause significant environmental harm. However, the most current version of the Common Approaches required neither public disclosure of project information nor establishment of a single set of technical standards. Because the United States believed that these provisions were essential, it objected and said it would block the agreement if it were sent before the OECD Council for approval. Twenty-eight of 29 OECD members of the Working Party on Export Credits and Credit Guarantees (ECG) subsequently opted to voluntarily adhere to the Common Approaches, thus implementing the framework without a formal decision. Application of the Common Approaches began on January 1, 2002. (See app. II for a list of OECD participants and ECG members that are implementing the Common Approaches.) Some ECAs have used environmental guidelines from the World Bank Group as a model for the development of environmental procedures and standards to use in evaluating projects. The environmental guidelines of Ex-Im Bank, for example, were developed using World Bank standards as a reference point. While the environmental review policies of different organizations within the World Bank Group vary somewhat, they generally follow a similar screening and categorization process (see fig. 2). The World Bank’s environmental policies include evaluation and technical standards, such as those for emissions, which are laid out in the Pollution Prevention and Abatement Handbook. It also has a set of qualitative environmental and social standards, known as safeguard policies. These outline broad project and evaluation expectations, including guidelines on involuntary movement of peoples, impacts on cultural property, and conservation of natural habitats. Representatives of both the business community and the environmental NGO community have expressed considerable interest in the issue of environmental review procedures for ECAs, but for different reasons. Some businesses in the United States are concerned that if Ex-Im Bank maintains environmental standards more stringent than the standards of some competitor ECAs, the additional project review and mitigation costs may hurt U.S. exports. Businesses in other OECD countries are also concerned that disclosure requirements, which the United States proposed in OECD negotiations, will make sensitive business information public. In contrast, environmental NGOs in numerous countries have become interested in ECA environmental review standards as a result of actual or proposed ECA funding of large potentially environmentally harmful projects as the Three Gorges Dam in China, the Chad-Cameroon oil pipeline, and the Camisea gas field development project in Peru. (See app. III for descriptions of selected ECA projects.) NGO representatives stated that ECAs, as public entities, should provide members of the public with the opportunity to provide input on projects that their governments are supporting. A number of these NGOs have joined in a campaign to change ECA practices to include strong review standards and open disclosure policies. While most OECD members have adopted a common environmental policy framework through the Common Approaches, some notable differences remain in their ECA environmental review procedures and policies. Because the Common Approaches is only a framework, it allows important differences in members’ national polices in certain key areas, such as the application of technical standards and the disclosure of project-specific information. Ex-Im Bank guidelines provide much more specific detail than the Common Approaches framework (see table 1). Ex-Im Bank guidelines clearly describe which types of applications must undergo environmental review. For those transactions requiring review, Ex-Im Bank guidelines contain nine detailed sector tables delineating specific environmental requirements. Ex-Im Bank guidelines also provide for a public disclosure period prior to a final decision by its Board of Directors. During this period, it lists the name and location of projects which will be subject to an environmental review and makes certain environmental information available upon request. In contrast, the Common Approaches is a framework that allows for variations in project review specifics. The Common Approaches framework differs from Ex-Im Bank guidelines in that it does not specify the use of a single set of technical standards, does not establish a set review procedure, and does not require public disclosure of project information prior to final funding decisions. Adherents to the Common Approaches are, however, expected to assess projects using specific standards selected by the ECA involved, categorize projects according to environmental risk level, and annually report to the OECD information on environmentally sensitive projects. When the OECD members developed the Common Approaches, they effectively established a framework to create or update their own ECA environmental review policies. Most OECD members have taken action to implement the Common Approaches’ provisions. Some members, including Belgium, Greece, Hungary, and Portugal, did not previously have any environmental review practices but since adopting the Common Approaches have taken steps to create them. These include hiring staff to review projects for environmental concerns or training current staff to do so and implementing procedures for reviewing potential projects. Many of the members that had environmental policies in place before adopting the Common Approaches have revised those policies since January 2002 to adhere to the Common Approaches. For example, as shown in appendix IV, ECAs in the six countries we visited have made revisions based on the provisions of the Common Approaches. Other OECD members have made similar revisions. For example, Norway introduced an environmental review policy in 1998 but reviewed it in 2003 to be sure it conformed to the Common Approaches. Most OECD members are now following similar basic procedures for reviewing sensitive projects. For example, most of the countries we visited require applicants for financing to complete a questionnaire regarding the potential environmental impacts of their proposed project, which the ECA uses to categorize the project. Projects likely to have significant adverse environmental impacts are placed in category A, while projects with questionable environmental impacts are classified as category B. Most ECAs place projects with little or no potential environmental impact in category C. Most ECAs require applicants to complete an environmental impact assessment if their projects are placed in category A (high risk of environmental impact). ECA projects may be approved despite adverse environmental impacts. Each ECA we visited relies on the judgment of its experts to evaluate the overall environmental impact of projects. Moreover, several ECAs, including Ex-Im Bank, allow their Boards to approve projects, notwithstanding the results of the environmental review. For example, Canada's ECA cites grounds where it could approve projects with adverse impacts under certain circumstances, including if it believes that the project represents an opportunity to improve environmental conditions in the host country or transfer environmentally sound technology and services. Despite the commonalities among OECD members’ environmental impact review systems, differences exist in how ECAs review potential projects and report on projects they undertake. These differences involve the application of technical standards and the disclosure of certain information. OECD members vary in terms of the technical standards they use to assess environmental impacts. We found that it is common for members to use World Bank technical standards for their reviews. For example, most countries review projects for compliance with World Bank technical standards regarding air quality, greenhouse gas emissions, water consumption, and waste management (see table 2 for selected examples of air emissions and water quality not-to-exceed standards). While most members use World Bank technical standards, many also look to standards that other organizations have established. The World Bank has not updated its technical standards since 1998, and some officials stated that they prefer standards that are more up to date. For example, several ECA officials said they use World Bank standards in the majority of cases; but in some situations, standards set by the World Health Organization or the European Union are more appropriate or current. Canadian ECA officials reported that they use standards of the World Bank, World Health Organization, Canada, and regional development banks as benchmarks in their reviews. The French ECA established its own set of technical standards for three sectors. These sectors involve the most environmentally sensitive projects and represent a large portion of France’s ECA-financed exports: conventional thermal power plants, large dams, and oil and gas projects. The standards contain a minimum set of criteria, which is largely linked to World Bank standards. In addition, French ECA officials said they encourage but do not require applicants to meet best practice standards, based on the best available technology or practices within the project’s sector. The German ECA, in contrast, does not rely on a defined set of environmental standards. It requires that all projects meet the environmental standards of the country in which the project is being constructed. German ECA officials stated that if the host country’s standards are not comparable with internationally recognized standards or German national environmental standards, additional information is required before approval. ECAs do not commonly follow the World Bank safeguard policies on social impacts. During the OECD negotiations there was no consensus on how to account for these impacts, so they are not a part of the Common Approaches. However, some ECAs have taken steps to include considerations for social impacts in their environmental standards. For example, the British ECA requires applicants to answer questions about social and human rights impacts during the screening process. Projects that will have social impacts must submit a social impact assessment or some mitigation plan to address those potential impacts. The Japanese ECA has also included provisions on social impacts, including impacts on indigenous peoples, in its environmental policy. Ex-Im Bank also considers social impacts in its reviews and has specific guidelines in two of its nine sector tables (forestry operations and hydropower and water resources management). ECA policies regarding public disclosure of project information vary. Some OECD members do not routinely disclose environmental or other project information, some disclose information after project approval, and others disclose before they make approval decisions. Many experts stated that, although ECAs are publicly financed, they are commonly less open about their activities than other government agencies because of their private sector orientation. Some countries such as Belgium, Germany, Portugal, and Spain cite national laws and regulations prohibiting disclosure of some information regarding export credit transactions as a barrier to disclosure of project information. Several ECAs provide information to the public, but only after an export credit transaction has been signed. For example, Canada and France are willing to make environmental information about their projects available to the public after the transactions have been approved. Some ECAs are taking steps to provide environmental information on projects to the public before making a decision on whether to approve the project for financing. This is known as “ex ante” disclosure, the policy practiced by the United States, and often involves a public comment period in which outside parties are invited to submit comments on projects that will then be incorporated into the ECA’s environmental review. For example, although it has a law restricting disclosure of project-specific information without consent from the financing applicant, the British ECA announced in April 2003 that it would publish information on its Web site about the environmental impacts of its most sensitive projects before making a financing decision. Officials from the British ECA said they made this policy change because they understand that environmental information often becomes public through third parties anyway. In addition, they believe that full disclosure of environmental information is an appropriate policy. They also cited pressure from nongovernmental organizations as a factor in their policy change. Japan and Australia have made a similar commitment to disclosing environmental information about their most sensitive projects before finalizing an export credit agreement, with consent from their exporters. For example, following the environmental screening process, Japan’s ECA discloses the project name, location, and sector, and reason for its category placement. In addition, for projects that are more sensitive, the ECA publishes on its Web site the status of major environmental and social documents prepared by or on behalf of the exporter, such as environmental impact statements, and makes these documents available to the public. The Japanese ECA also says that it encourages input from concerned organizations or stakeholders regarding the environmental impacts of projects under review. Australia’s ECA has also adopted an ex ante disclosure policy. It provides for a 45-day public consultation period for accepting and reviewing comments from outside parties prior to final project approval. In addition to the differences in their use of technical standards and disclosure policies, ECAs differ in implementing their environmental policies, specifically their criteria for categorizing and defining projects. In instances where several ECAs provide financing for a single project, they might place the project in different categories. A mining project, for example, might be categorized as high risk (category A) in one country, and medium risk (category B) in another. The Common Approaches has no prescriptions requiring countries to place specific types of projects in particular categories, thus allowing categorization to be a subjective activity that depends on the opinion of the official reviewing the project. In addition, the very nature of how to define a project can be in dispute. For example, officials from one ECA described a situation where another ECA treated a project with multiple components as a single project for categorization purposes, while they categorized each component separately. OECD members are currently reviewing their efforts to voluntarily abide by the terms of the Common Approaches and may propose an alternative version by the end of 2003. However, a number of factors, including the resistance of some of the participants to certain proposed policies, present challenges to revising the Common Approaches. Nevertheless, several developments outside the formal OECD negotiations, including a series of meetings between ECA environmental experts, may lend some momentum to advancing the Common Approaches. OECD members are in the process of reviewing the Common Approaches. The most recent version of the Common Approaches contains a provision stating that the ECG will review all aspects of the draft to enhance it. Participants stated this is typical of OECD multilateral negotiations, which often begin with general principles and gradually advance to a more detailed, comprehensive agreement. In this regard, officials from most of the countries we visited agreed to voluntarily comply with the terms of the Common Approaches. They stated that the most recent version is a good first step toward achieving a common approach to environmental standards for ECAs. For example, one official stated that, given the inexperience of many ECAs applying environmental standards, it would take several years for OECD members to accept guidelines similar to the Ex-Im Bank’s. A key aspect of the review process for the Common Approaches is the annual reporting among members of information about sensitive projects. During the negotiations, most members would not support prior disclosure of projects, which would have allowed the public to evaluate the application of environmental standards before projects are approved. As a compromise, members agreed to report annually on sensitive projects to evaluate how countries are abiding by their voluntary obligations. The Common Approaches states that members shall provide certain details about projects that members classified as either category A or B projects exceeding 10 million special drawing rights. The required details include a brief description of the project, its sector, the type of environmental review conducted, and the standards or benchmarks used in the review. Some ECA officials stated that the quality of reporting was not uniform across ECAs. They added that some of the countries have been very forthcoming with information but others have not. For example, in several instances the project’s host country was not identified, making it difficult to assess the technical standards used to review the project. Several key meetings in 2003 will give ECG members an opportunity to review and potentially revise the initial version of the Common Approaches. In April, ECG members discussed the results of the first annual report and agreed to provide recommendations for modifications to the Common Approaches to the ECG Chair by July 2003. The Chair plans to summarize these recommendations, which ECG members will then discuss in September. The final meeting in November 2003 may then serve as the venue for agreement on a revision of the Common Approaches that can be put to the OECD Council for a formal decision, according to OECD officials. Any revisions or enhancements to the Common Approaches during 2003 may be limited because of the nature of the OECD negotiating process and the resistance of many members to some of the more controversial aspects of environmental guidelines. The United States is therefore unlikely to fully achieve its original negotiating objectives, although most OECD members would like the United States to accept the Common Approaches as a formal OECD agreement. The institutional framework of the OECD makes dramatic changes to the Common Approaches unlikely. The OECD commonly uses a combination of dialogue, peer review, and other forms of noncoercive peer pressure to encourage members to coordinate policies. In addition, OECD committees operate by consensus. Controversial topics can therefore be blocked by any single member, as the United States did with the Common Approaches. While such blocking is considered extreme and rare, according to OECD officials, it ensures that OECD policies evolve gradually. Several specific factors make it difficult to go beyond incremental changes to the Common Approaches, particularly in areas of interest to the United States. First, while the United States has sought to negotiate a firm set of technical standards that all OECD members would have to use in their reviews, most ECA officials we spoke with prefer to apply a flexible approach to technical standards. Another, more difficult, obstacle to surmount is the resistance to disclosing project information. While the United States has pushed for ex ante disclosure of project information, other ECG members are either unable or unwilling to do this. In addition, some other ECG members are unwilling to adopt disclosure practices that are significantly advanced over their major ECA competitors. For example, the Canadian ECA pulled back a proposed ex ante disclosure policy once it was clear that the Common Approaches would not require such a policy, out of concern that the competitiveness of Canadian exporters might be compromised. A final impediment to achieving a more than incremental advance in the Common Approaches is the effect of competing pressure on ECAs by both public interest and business groups. OECD members’ positions on environmental standards reflect an internal balance achieved in response to domestic pressure. While nongovernmental organizations in some OECD countries were successful in getting their governments to push for the start of negotiations on environmental standards for ECAs, they have been less successful in achieving their objectives in the negotiations. Nongovernmental organizations in all the countries we visited are uniformly displeased with the results of the Common Approaches to date and are pressing for a broader Common Approaches that includes human rights, labor, and other social issues as part of the review process. However, business groups we met with are resistant to expanding the scope of the Common Approaches. While some ECAs, such as those of the United Kingdom and Japan, may unilaterally take up these social issues, most countries in our sample are not yet ready to consider adopting them. This reluctance occurs primarily because business concerns are considered of paramount importance to legislators at this point, according to several experts. It will be difficult for the United States to fully achieve the objectives it sought at the conclusion of the Common Approaches negotiations in 2001. The United States no longer has the level of influence it had at the start of the negotiations. This is because the United States did not join the Common Approaches, which remains a source of resentment, and Ex-Im Bank no longer has the unique environmental expertise that it once did. Nevertheless, OECD members see benefits if the United States signs an OECD agreement. All the ECG members we met with stated that they would like to see the United States accept the OECD’s Common Approaches. Some of these officials believe that a formal OECD agreement will provide ECAs with a stronger basis for improvements and convergence. For example, some officials note that a multilateral agreement permits countries to bring ministerial pressure to bear on issues. This is not possible under the current framework, which is supported under a voluntary agreement. Several recent events, including an informal effort by ECG environmental experts, may lend momentum to the negotiations. At the negotiations’ outset, many ECG members did not have environmental guidelines and were reticent to negotiate on unfamiliar technical issues. However, as OECD members become more familiar with the application of environmental standards for ECAs, the likelihood of compromise increases, according to a number of the participants. Participants view a recent effort to share information among ECAs as a particularly promising vehicle for increasing their familiarity with technical aspects of environmental reviews. After the cessation of the negotiations in 2001, some of the members that had environmental experts (practitioners) in- house began to meet informally to discuss technical issues that were not addressed during the negotiations. These included issues such as defining a “greenfield site,” applying technical standards in specific instances, and more generally defining a project for the purpose of environmental review. To date, three such practitioners’ meetings have been held, with broad participation by ECG members. While the practitioners’ meetings are an unexpected consequence of the conclusion of the negotiations, ECA officials we spoke with stated that the meetings may help advance the Common Approaches. First, they have been very useful in giving practical information on technical issues to ECG members that have only recently adopted environmental guidelines. In addition, they may provide helpful information to the negotiators on technical issues. For example, the practitioners have recently created four subgroups to focus on issues in specific sectors that will report back to the ECG on their findings. Finally, the practitioners may also provide members with some assurance that the terms of the Common Approaches are being met. As one official told us, the practitioners can ask specific questions of one another about how environmental standards were applied to specific projects. This information would not otherwise be available through the formal annual reporting process. Another development that may lend some momentum to advancement in the Common Approaches is the commercial banking sector. Recently, 15 of the world’s leading project finance institutions agreed to apply a set of principles incorporating environmental reviews of their projects. These principles, called the Equator Principles, set out provisions calling for the application of World Bank technical standards in the Pollution Prevention and Abatement Handbook and the International Finance Corporation safeguard policies standards for projects costing $50 million or more and for which project sponsors are seeking direct lending from the banks involved. The banks that follow the Equator Principles pledged that they will screen and categorize projects based on environmental risk. They also will require environmental assessments demonstrating compliance with the World Bank guidelines for projects with high or medium environmental or social risk. While adherence to the Equator Principles is voluntary, it indicates a growing understanding in the commercial banking sector of the importance of assessing environmental risk along with credit risk for these types of projects. Some officials believe that this is evidence that the business community is increasingly accepting the environmental assessment process as the norm for large development projects. This development may exert a positive influence on the ECA negotiations. There is limited evidence that Ex-Im Bank’s environmental guidelines have affected U.S. exports, although the complexity of potential effects and the lack of information make identifying and quantifying impacts difficult. The evidence we reviewed indicates that any impacts are likely to be concentrated in certain areas, especially the energy sector. The majority of projects authorized by Ex-Im Bank do not require significant environmental review, and most projects in the full environmental review category are in the energy sector. Almost all are project finance cases. Trends in Ex-Im Bank financing to sectors where environmental reviews have been concentrated do not show clear impacts, and available data on applications and approvals are not adequate to capture decisions early in the applications process or through informal channels. Finally, we found that the evidence of business impacts is largely anecdotal and lack of data makes objective quantitative analysis difficult. A substantial portion of Ex-Im Bank financing does not require significant environmental review. Ex-Im Bank’s environmental reviews are concentrated in the energy sector, largely because of the financing structure of many energy projects. Energy sector projects are expected to be of continuing importance to Ex-Im Bank because of rising energy demand in developing countries. Only about one third of long-term Ex-Im Bank financing undergoes an environmental review after initial screening. Out of 522 long-term transactions authorized by Ex-Im Bank from October 1995 to May 2003, 42 were subject to a full environmental review, and 181 were subject to a medium review. As figure 3 shows, these transactions represented 14 percent and 22 percent respectively of long-term Ex-Im Bank financing in terms of contract value. The remaining long-term transactions were only subject to an initial screening. This is because Ex-Im Bank’s guidelines exempt from further review certain categories of projects considered to have little or no potential environmental effects, such as sales of aircraft, locomotives, and air traffic control systems. The remainder of Ex-Im Bank financing does not undergo environmental review. This is because medium- and short-term transactions are generally not subject to either screening or review. Our analysis of Ex-Im Bank data showed that about 40 percent of its financing is for short-term transactions. Environmental reviews of Ex-Im Bank’s long-term financing tended to be concentrated in the energy sector. For example, from October 1995 to March 2003, authorized transactions that underwent full environmental reviews were mainly energy-related transactions (that is, thermal power plants, oil and gas development, hydropower plants). Of the 42 that went through a full environmental review, 16 were for thermal power plants and 9 were for oil and gas exploration projects. (See fig. 4 for the sector breakdowns for full review projects.) Energy-related projects represent a high percentage of projects undergoing a full environmental review, largely because many are financed under project financing terms, which signifies greater overall financial risk to Ex-Im Bank. For example, the 16 thermal power projects and 9 oil and gas exploration projects were all financed under project finance terms. Energy-related projects have been an important part of the financing portfolio for both Ex-Im Bank, as noted above, and for other ECAs. For example, financing for energy sector transactions represented about 27 percent of Ex-Im financing during the 1990s and was 47 percent in 1995. In 2001, out of $12.5 billion of U.S. exports supported by Ex-Im Bank, nearly $2 billion was in energy sectors, including electric power generation and transmission and oil and gas explorations and refineries. In 2001, oil and gas facilities accounted for 38 percent of the Japanese ECA’s financing, and power generation and transmission projects accounted for 25 percent of the British ECA’s financing. According to the OECD, 36 percent of OECD member projects (18 out of 50) that required full environmental reviews (category A reviews) in 2002 were energy projects, and these projects accounted for 48 percent of ECA financing. Energy sector financing is expected to continue to be important for ECAs because of projected increases in energy demand and associated investment needs in developing countries. The International Energy Agency’s 2000 World Energy Outlook projects that over the next 2 decades, nearly $3 trillion worth of investment in worldwide electricity generating capacities will be needed, not counting the need for transmission and distribution network sectors. The same report projects that world electricity generation is going to increase at an annual rate of 2.7 percent until 2020 and nearly 3,000 gigawatts of new generating capacity is projected to be installed around the world, with more than half of this in developing countries, especially in Asia. The report also projects that OECD countries’ share of world energy demand will continue to decline while developing nations' share will accelerate. For the types of ECA projects that are subject to environmental reviews, available data are limited and do not show clear impacts, and assessments are difficult because of the complex interplay of factors affecting financing and export trends. Trends in Ex-Im Bank financing to sectors where environmental reviews have been concentrated do not show clear impacts. In addition, available data on applications and approvals are insufficient for analytical purposes because they do not capture decisions early in the applications process or through informal channels. Further, environmental policies are only one among many factors that may affect the competitiveness of U.S. exports, and impacts vary depending on the nature of the exporter. At the company level, business views on the impacts of environmental guidelines are mixed. While many business representatives we spoke with have concerns about the environmental review process, including project delays, additional costs, and disclosure, most evidence is anecdotal. Several business representatives said they were less concerned about meeting technical standards of environmental guidelines than about dealing with uncertainties associated with the environmental review process, including reactions to the public disclosure of project information. We could not generally assess the magnitude or the extent to which the concerns reflected actual impacts caused by environmental guidelines. In addition, some business representatives stated that meeting Ex-Im Bank guidelines was consistent with their own requirements to identify issues that could potentially undermine projects. Trends in Ex-Im Bank financing to certain environmentally sensitive sectors do not show evidence of impacts of environmental guidelines, although a simple trends analysis would not be able to isolate those impacts from others. We reviewed Ex-Im Bank’s financing in four sectors: thermal power, oil and gas development, hydro power, and metal mining. Table 3 illustrates the share of authorized financing to these sectors for periods before and after the adoption of Ex-Im Bank guidelines. The proportion of financing to oil and gas development projects stayed about the same after the implementation of environmental guidelines. Financing of thermal power plants experienced a drop, and metal mining an increase. An additional data limitation is that formal decisions on Ex-Im Bank projects provide only partial information regarding the impact of environmental guidelines on projects for several reasons. First, several companies said they use informal channels to determine whether environmental issues are likely to be a stumbling block before they submit final applications and that they might not do so if they anticipated concerns. Second, projects may be withdrawn or cancelled throughout the application process for any number of reasons that are not publicly reported. Finally, some projects that might have been submitted to Ex-Im Bank in the past may have been withheld because of the belief that Ex-Im Bank may no longer be willing to approve applications for certain types of environmentally sensitive projects, although it is impossible to determine the extent of this phenomenon. The Ex-Im Bank Board of Directors reviews the environmental effects of projects on a case-by-case basis, and may approve a project that does not meet all Ex-Im Bank environmental guidelines, considering significant mitigating effects and circumstances. Financing may be conditioned on the implementation of mitigating measures. the information, and the project eventually proceeded with financing from other sources. Environmental policies are only one of many among many factors that affect the competitiveness of U.S. exports financed by Ex-Im Bank. Other factors include various Ex-Im Bank policies such as domestic content requirements, its application process and underwriting requirements, and the terms of coverage its policies provide. Other competitiveness factors are unrelated to Ex-Im Bank policies, such as foreign exchange rates and the geographic location of projects. In addition, factors such as the technological specifications of U.S. exports can be important to sourcing decisions. For example, one multinational company told us that whether the host country has 50 cycle or 60 cycle electricity technology is the overriding factor for determining where their products are going to be manufactured. The potential impacts of ECA environmental guidelines on U.S. exports depend in part on the overall business structure of the firms seeking ECA financing. For businesses that produce, or source, their products in the United States, the implementation of common environmental guidelines across ECAs should theoretically lower the threat of losing businesses to other ECAs with lax environmental standards. Since these companies are generally confined to doing business with Ex-Im Bank, they would otherwise lose export business if project sponsors select another ECA instead of Ex-Im Bank; therefore these companies have been the strongest business advocates for common guidelines. However, multinational companies may not be affected to the same degree. Officials from several of the companies we met with stated that as multinational companies they have been able to get financing from ECAs other than the U.S. Export- Import Bank. These companies are large and flexible enough that they can seek financing from ECAs in other countries where they have a business presence if they believe that Ex-lm Bank’s policies, including its environmental review process, would constitute a significant barrier to winning a project. Business views on ECA environmental guidelines are mixed. Some business representatives we spoke with expressed concerns about specific impacts of the environmental review process, such as delays and costs. Others were concerned about the impacts of more intangible aspects that lend uncertainty to the process, such as public disclosure of project information. Some business representatives also acknowledged that their businesses are integrating the ECA environmental review policies and procedures into their own risk assessment processes. Representatives of several companies cited delays during the project approval process as the key impact of the environmental assessment. Ex- Im Bank often asks for additional information from the project sponsors and suppliers to supplement the initial environmental impact assessment submitted. In our review of 24 thermal power plant, oil and gas development, and metal mining projects authorized by Ex-Im Bank between 1995 and 2003, we could not determine if the environmental assessment caused any project delays claimed by the companies. We found delays in some instances related to the gathering and submission of existing documentation to Ex-Im Bank for review and discussion of any outstanding issues, but the records were insufficient for attributing delays to environmental reasons as opposed to financial or other issues. We did find that Ex-Im Bank, in some cases, took measures to limit delays caused by environmental reviews and requirements. This included sending staff to review documentation in country, and making project support contingent on certain documents being provided at a later date. Business representatives also cited additional costs as an area of concern, especially when project costs increased due to modifications necessary to meet environmental requirements. We found that in some instances Ex-Im Bank engineering staff did require project modifications to meet Ex-Im Bank guidelines for the 24 projects we reviewed. For example, a coal-fired power plant located in China met all of the air quality standards except for particulate emissions. The Chinese-built pollution control device met local standards but daily emissions would exceed the Ex-Im Bank guidelines. The local operator agreed to operate the device at a slightly higher control efficiency, which reduced emissions sufficiently to meet Ex-Im Bank’s daily emission limit. Ex-Im Bank officials noted that, as companies have become more familiar with Ex-Im Bank guidelines, new projects are now much less likely to require modifications upon review. Some businesses are also concerned about other aspects associated with the environmental review process. Many business representatives we spoke with believe that their products can readily meet the technical standards of environmental guidelines. They are concerned, however, about aspects that may result in lost business. For example, some elements of Ex-Im Bank’s environmental guidelines require a more qualitative judgment of project impacts, such as how to mitigate socioeconomic and sociocultural impacts (such as those associated with the dislocation of people). However, some business representatives stated that these more qualitative areas of environmental standards present challenges and risks to businesses, because of the importance of other parties such as host governments in making and carrying out commitments. Disclosure of project information during environmental review is another concern for some businesses. Some companies are concerned that disclosure of project information may result in their losing business to competitors if their competitors become aware of a project through the disclosure process. Other companies were also concerned about the potential impacts of public scrutiny. One company representative said that part of the reason the company’s sourcing has shifted to Europe was because of Ex-Im Bank’s disclosure policy, since European ECAs do not disclose information prior to project approval, although most did not identify differences in environmental guidelines as the determining factor in sourcing decisions. We did not find specific examples where the disclosure of project information had negative impacts. Company representatives we spoke with did not provide us with any specific cases where they lost business because of the publication of the environmental impact assessment; their concerns were primarily hypothetical. The environmental impact assessments we reviewed did not contain any business proprietary information and did not contain information on the specific companies involved in the projects. According to Ex-Im Bank officials, any such information would be removed by the applicant or owner of the environmental assessment prior to the release of the document to interested parties. Some companies have acknowledged that they are integrating the ECA environmental review policies and procedures into their own risk assessment processes. For example, several companies said that environmental review is increasingly viewed as a key component of their overall due diligence, which they conduct regardless of ECA requirements. Companies also acknowledge that since environmentally sensitive projects are coming under increasing NGO scrutiny, their reputations may be at risk if the projects they are involved in are deemed to be environmentally damaging. We provided a draft of this report to the Secretaries of State and the Treasury, and the Chairman of Ex-Im Bank. The Department of the Treasury and Ex-Im Bank provided written comments on the draft report, which are reprinted in appendixes V and VI, respectively. The Department of the Treasury considered the report well balanced, but also emphasized its belief that U.S. leadership on this issue has had a significant positive impact among export credit agencies, despite the lack of a formal OECD agreement. Ex-Im Bank stated that the report provides a thorough analysis, but emphasized its view that, despite progress, the broad nature of the Common Approaches does not yet level the playing field for U.S. exporters. The Department of State did not provide formal comments. We are sending copies of this report to interested congressional committees, the Secretaries of State and the Treasury, and the Chairman of Ex-Im Bank. We will also make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-4347. Other GAO contacts and staff acknowledgments are listed in appendix VII. The Chairman of the House Committee on International Relations and the Chairman of the Subcommittee on Europe, House Committee on International Relations asked us to examine the effect of environmental standards for export credit agencies. In response, we assessed (1) the achievements of the Common Approaches and the remaining differences among the members of the Organization for Economic Cooperation and Development (OECD), (2) the prospects for further advancement on common environmental guidelines for export credit agencies, and (3) the impact that environmental guidelines for export credit agencies may have on U.S. exports. To identify the achievements of the Draft Recommendation on Common Approaches on Environment and Officially Supported Export Credits (Common Approaches) and the remaining differences among the OECD members, we met with and obtained information from officials at the OECD secretariat, export credit agency (ECA) officials in a number of OECD member countries (Belgium, Canada, France, Germany, Japan, and the United Kingdom), and from several U.S. government agencies. Specifically, we interviewed officials in the OECD Trade Directorate’s Export Credit Division and reviewed OECD documents presented in meetings of the Working Party on Export Credits and Credit Guarantees (ECG). We also met with ECA and other government officials in Belgium, Canada, France, Germany, and the United Kingdom. In addition, we met with senior officials from the Japanese ECA in Washington, D.C. We reviewed and compared the environmental policies of these countries’ ECAs as well. We also met with officials from the U.S. Departments of the Treasury and State and the Export-Import Bank. We obtained an understanding of the environmental policies of each ECA we visited based on information we received in interviews and the documents we were provided. We reviewed and compared the ECA policies according to key procedural elements we identified, such as the screening and categorization of projects, the technical standards used during the review, and public disclosure policies. To determine the prospects for further advancement on environmental guidelines for ECAs, we interviewed and obtained information from OECD, ECA, and other officials from Belgium, Canada, France, Germany, Japan, and the United Kingdom. We also interviewed representatives from nongovernmental organizations (NGO) active in ECA issues in Belgium, Canada, France, Germany, the United Kingdom, and the United States. In addition, we interviewed business groups knowledgeable about export credit issues in Canada, France, Germany, the United Kingdom, and the United States to understand their views on the progress that OECD countries have made since the conclusion of the negotiations and on what they believe will and should happen next. We gained these officials’ perspectives on their goals for further negotiations on ECA environmental guidelines and what additional provisions they would like to include in the next revision of the OECD Common Approaches. We also reviewed documents from the OECD detailing members’ experiences with implementing the Common Approaches. To understand what impacts environmental guidelines for export credit agencies may have on U.S. exports, we met with, and obtained and analyzed data from, officials at Ex-Im Bank and representatives of U.S. businesses. We first obtained and analyzed data from Ex-Im Bank on long- term transactions that had been authorized by Ex-Im Bank to determine the number of transactions and the amount of Ex-Im Bank financing that falls into each of the three environmental risk categories. We determined that Ex-Im Bank data were sufficiently reliable for analyzing for this engagement, based on our assessment of the completeness and accuracy of the data. We reviewed the data to determine industry sector representation in each of the categories. We then selected 24 of the authorized projects to more specifically determine how they had been affected by Ex-Im Bank environmental guidelines. These 24 projects were selected using several criteria. First, we focused on the three industry sectors (thermo power, oil and gas development, and metal mining) representing about 70 percent of non-nuclear long-term higher risk projects. We also selected projects from the entire period that Ex-Im Bank’s guidelines were in effect. Finally, we selected projects that received both a full and a medium environmental review, with an equal number in each category for oil and gas and thermo power. We selected all four metal mining projects, since there was a limited number. We analyzed Ex-Im Bank environmental assessments for each of these projects and met with Ex-Im Bank officials in the Engineering and Environment division to discuss the environmental review process and their interaction with applicants for financing. In addition, we interviewed representatives of nine U.S. companies, including a U.S. subsidiary overseas, to obtain their views and concerns about the impact of environmental guidelines on their exports. These businesses were responsible for 82 out of the 522 long-term projects authorized between October 1995 and May 2003 and 19 of the 38 non-nuclear projects that underwent a full environmental review. The information on foreign laws or regulations in this report does not reflect our independent legal analysis but is based on interviews and secondary sources. We conducted our review from November 2002 through August 2003 in accordance with generally accepted government auditing standards. Table 4 represents the membership of the OECD’s ECG, and their respective positions on Common Approaches issues. There are 29 members of the ECG. With the United States declining to accept the Common Approaches in November 2001, 28 ECG members agreed to voluntarily adhere to the Common Approaches. By March 2003, 24 countries had reported to the OECD on their category A and B projects for 2002 (that number includes the United States, although they do not have to report since they are not technically adhering to the Common Approaches). Four adherents to the Common Approaches had not reported anything as of March 2002—the Czech Republic, Mexico, the Slovak Republic, and Turkey. Seventeen countries reported that during 2002 they had reviewed at least one category A or B project. ECAs provide financial support for a wide array of goods and services. However, projects in certain areas, such as thermal power, hydropower, and oil and gas, have been the most likely to require environmental review under the Ex-Im Bank’s or other export credit agencies’ guidelines. In this appendix, we describe five recent projects that have been subject to environmental review and briefly discuss environmental concerns associated with the projects and ECAs’ project involvement. Batu Hijau is an open pit copper and gold mine located on Indonesia’s Sumbawa Island. A consortium, comprised of U.S.-based Newmont Mining Corporation, Sumitomo (Japan), and PT Pukuafu Indah (Indonesia), operates the mine. Newmont holds majority ownership in the joint venture. Batu Hijau began operation in 2000 and is expected to continue operation for 20 years. When the mine is completely excavated, 3 billion tons of rock will have been mined, creating a mine pit that will be 2,625 meters wide (8,612 feet) and 460 meters deep (1,509 feet). As of January 2003, Batu Hijau employed approximately 6,700 people, 95 percent of whom are Indonesian. In 2002, the mine as a whole contributed more than $171 million to the Indonesian economy. The mine produced 657.7 million pounds of copper and 492 thousand ounces of gold in 2002. Batu Hijau is located primarily within a previously undisturbed tropical forest. Environmental concerns associated with Batu Hijau include loss of vegetation, specifically loss of primary tropical forest and habitat associated with the protected yellow-crested cockatoo; impact on local water levels and water quality (pH and sedimentation); disposal of large amounts of excavated rock and tailings, waste rock created during the extraction process; impact of air emissions from mine infrastructure and equipment; and maintenance of mine pit environmental programs following cessation of mine operation. In 1997, Ex-Im Bank provided $425 million in project financing to Batu Hijau project sponsors and developers. Japan’s export credit agency also provided support for Batu Hijau. Ex-Im required a number of environmental studies and project modifications designed to minimize the project’s environmental and social impacts before providing financing. Project developers have attempted to mitigate environmental concerns through, among other efforts, development of a deep-sea tailings disposal system, operation of a revegetation program, and study of water seepage patterns. The over $2 billion Camisea natural gas project, located near the Lower Urubamba River in the Echarte district in Peru, involves the extraction and processing of natural gas and natural gas liquids and the transportation of these products to markets in Lima and ports for export. Royal Dutch/Shell first discovered the Camisea gas fields in the mid-1980s, and Shell and Mobil Oil further explored the fields between 1996 and 1998. In July 1998, Shell and Mobil withdrew from the project, leading the government of Peru to pursue alternative developers. In December 2000, the government of Peru signed a series of contracts with PlusPetrol Corporation (Argentina) and with two consortiums, including Grana y Montero (Peru), Hidrocarburos Andinos (Argentina), Hunt Oil Company (USA), SK Corporation (Korea), Sonatrach (Algeria), Sucursal del Peru, Sucursal Peruana, and Techint (Argentina). The Camisea project is expected to supply a substantial portion of Peru’s energy needs and allow for natural gas export. Camisea requires construction of eight wells accessing the San Martin and Cashiriari natural gas fields; a liquid separation plant to separate water and liquid hydrocarbons; two pipelines (one for natural gas and one for natural gas liquids), one estimated to run 540 kilometers (336 miles) and the other 680 kilometers (423 miles); a coastal fractionation plant to separate liquids into commercial quality products, and an offshore loading facility. Construction of project components under the consortium contracts began in 2001 and was roughly 60 percent complete as of February 2003. The project is scheduled to begin commercial production in August 2004. The San Martin and Cashiriari gas fields together contain proven reserves of 8.7 trillion cubic feet of natural gas and 545 million barrels of natural gas liquids. Project officials estimate that project construction will employ an average of 1,700 people during the construction period. The Camisea project is located within Peru’s Amazon jungle in close proximity to several voluntarily isolated indigenous peoples. Two-thirds of the project area, sometimes referred to as Block 88, lies within the Nahua- Kugapakori Indigenous Reserve and straddles the Camisea River. The coastal fractionation plant will be located in the buffer zone of the Paracas National Reserve, Peru’s only coastal marine reserve. The project pipelines will traverse the rain forests between Camisea and the coast, passing over the Andes Mountains at an altitude of 4,500 meters (14,764 feet). The location of the project has led to major concerns about Camisea’s environmental and social impacts that include increased contact between indigenous peoples and project employees and the associated risks of epidemic disease and cultural damage, improper use of project right-of-way by Peruvians seeking fertile land and erosion and loss of biodiversity along the right-of-way, loss of biodiversity in the Camisea River and related effects on indigenous peoples dependent on the river for fish and water, lack of sufficient information on alternative sites in the environmental assessment needed to justify construction of the project’s marine terminal facility adjacent to the environmentally sensitive Paracas Bay Natural Reserve, and loss of biodiversity in Paracas National Reserve. On August 28, 2003, Ex-Im Bank’s Board, in a 2 to 1 vote, declined to support Camisea on environmental grounds. The Chad-Cameroon Petroleum Pipeline Project accesses the oil fields at Doba in southern Chad and transports the oil 1,070 kilometers (665 miles) to an off-shore oil-loading facility on Cameroon’s coast. Sponsors of the project, ExxonMobil (USA), Petronas (Malaysia), and ChevronTexaco (USA), estimate construction costs will be $3.5 billion. Estimates indicate that the government of Chad will receive a total of $2 billion in revenues from the project, while the government of Cameroon will receive $500 million, assuming reserves of 917 million barrels of oil. In Chad, revenues from the pipeline could increase total government revenues by 45 to 50 percent. In the fourth quarter of 2002, wage payments of $12 million were made to the 9,643 workers from Chad and Cameroon that the project employs. As construction concludes, project developers are reducing the workforce; nonetheless, wage payments totaling $10.1 million were made to workers from Chad and Cameroon in the first quarter of 2003. Pipeline operation began July 24, 2003, and full operation is expected to commence by the end of 2003. The World Bank Group has provided $92.9 million in direct loans to the governments of Chad and Cameroon to finance the governments’ minority holdings in the project. Additionally, the International Finance Corporation, the World Bank Group institution that facilitates private sector projects, has provided $100 million in loans to the joint venture pipeline companies and has mobilized an additional $100 million from commercial lenders. Project sponsors undertook some project modifications to meet project standards established by the World Bank and Ex-Im Bank, including alteration of the pipeline route and development of a community consultation process. Concerned NGOs, however, claim that project developers insufficiently addressed the concerns of local residents and that few changes resulted from environmental reviews. Environmental and social issues raised by both World Bank and environmental NGOs include possible oil spills occurring along the pipeline or at the offshore oil- decreases in biodiversity along the pipeline right-of-way, particularly along the Sanaga River system, within Cameroon’s Atlantic littoral rainforest, and in the Kribi coastal region; negative effects on indigenous Bakola pygmies living in the vicinity of governmental repression of opposition to the pipeline as seen in the imprisonment of a Member of Parliament as a result of his opposition to the project. Both Ex-Im Bank and France’s ECA, Coface, have provided support to the Chad-Cameroon project. In 2000, Ex-Im Bank approved $200 million in export credit guarantees for a U.S.-based engineering firm contracted to build the pipeline portion of the project. The Olkaria III geothermal power plant, located in the Olkaria Domes geothermal field near Lake Naivasha, is Kenya’s first privately developed and owned geothermal power plant. Olkaria III is the third geothermal development project undertaken in the Olkaria region but the first under ORMAT, a U.S.-based geothermal developer. Olkaria I has been operational since 1981 under the governance of Kenya Electricity Generating Company Ltd. (KenGen), a Kenyan energy state-owned enterprise. KenGen is supervising the public sector development of Olkaria II, scheduled to begin operation in September 2003. Olkaria III began operation of an early production facility in August 2000 with scheduled expansion of production from 12 megawatts to 48 megawatts. ORMAT funded the entire $50 million first phase of the Olkaria III project. In 1984, 3 years after Olkaria I began operation, but before the creation of Olkaria II and III, Kenya created Hell’s Gate National Park, including in the park the tract of land upon which the Olkaria geothermal plants are located. Additionally, indigenous Maasai peoples have historically occupied the land surrounding Lake Naivasha. These two complicating factors have led to environmental and social concerns surrounding the Olkaria developments that include possible emissions-related negative health impacts on local Maasai Maasai loss of historically occupied lands, and possible negative impacts on local flower growers and wildlife dependent upon Lake Naivasha water. Olkaria III project developers have addressed some environmental concerns through use of air-cooled geothermal technology and reinjection of geothermal fluids produced by the plant, technologies not employed in Olkaria I or II. ORMAT’s application for Ex-Im Bank support has been pending since 2001. No decision had been made as of August 28, 2003. Ex-Im officials stated that the project delay was not due to environmental concerns. The government-owned Three Gorges Dam, located on the Yangtze River in China’s Hubei Province, will be the largest hydroelectric plant in the world when it is completed in 2009. Dam construction began in 1994, and the water sluice gates were first closed on June 1, 2003. Companies headquartered throughout the world have received construction contracts. The Chinese government has undertaken construction of the dam, primarily to increase China’s power generation capacity, control downstream flooding of the Yangtze, and improve river navigation for large vessels. The annual energy generating capacity of the dam’s 26 turbine generators will be 84.7 billion kilowatt hours, generated from a renewable energy source without creating pollution. The dam itself will stand 181 meters (594 feet) high and create a reservoir stretching over 600 kilometers (373 miles). The reservoir is expected to have a floodwater storage capacity of 28.97 billion cubic yards. A multistage ship lock and lift will provide upstream navigation to river vessels. Throughout planning and construction of the Three Gorges Dam, the project has raised environmental and social concerns that include inadequate treatment of water discharged above the dam and associated health risks for communities bordering the reservoir, relocation and provision of housing and employment for the up to 1.3 million people residing in the plain of the reservoir, loss of historical and archeological artifacts located in the plain of the possibility of sedimentation limiting the dam’s ability to control flooding and increasing regional seismic activity, and alterations in the Yangtze River’s ecosystem and surrounding river basin. The Chinese government has taken steps to address several of the above issues, including relocation of the 1.3 million people affected by the dam’s construction beginning in 1995, efforts to remove historical and archeological artifacts from the reservoir area, and creation of water treatment plants upstream of the dam. The results of the government’s efforts to improve the environmental impact of the dam have been subject to debate. In May 1996, Ex-Im Bank’s Board of Directors declined to issue a letter of interest to exporters seeking a financing commitment for the Three Gorges Dam project. This action was based on a determination that the information made available to date indicated that the project as planned would not meet the Bank’s environmental guidelines. The Ex-Im Bank sent a letter in July 1996 detailing the type and scope of information that it would need to identify and assess proposed mitigation measures that could be incorporated into the project in order to meet its guidelines. That information was never provided, and project developers eventually successfully sought support from other OECD export credit agencies. Table 5 details the environmental review procedures and policies of the export credit agencies of six OECD countries that have agreed to voluntarily adhere to the Common approaches, and of Ex-Im Bank. The screening procedures, impact categories, and environmental review processes are generally similar for all of the ECAs. The main differences are in the ECAs’ public disclosure policies and in their use of technical standards for environmental reviews. In addition to the persons named above, Stephanie Robinson, Ming Chen, Laura Yannayon, Sarah Ellis Peed, Rona Mendelsohn and Jane-yu Li made key contributions to this report. The General Accounting Office, the audit, evaluation and investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. GAO examines the use of public funds; evaluates federal programs and policies; and provides analyses, recommendations, and other assistance to help Congress make informed oversight, policy, and funding decisions. GAO’s commitment to good government is reflected in its core values of accountability, integrity, and reliability. The fastest and easiest way to obtain copies of GAO documents at no cost is through the Internet. 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Summary: Export credit agencies (ECA) are responsible for providing billions of dollars worth of support for large-scale industrial projects annually, but until recently most ECAs did not formally review the environmental impacts of these projects. The United States, whose Export-Import Bank began using environmental guidelines in 1995, pushed for negotiations on common ECA environmental guidelines at the Organization for Economic Cooperation and Development (OECD). The OECD negotiations halted in 2001 because the United States believed that the results, called the Common Approaches, were insufficient. The remaining OECD members then pledged to voluntarily implement the Common Approaches. In response to congressional interest in ECA environmental guidelines, GAO assessed (1) the level of convergence among OECD members and the prospects for further advancement and (2) what impacts such guidelines may have on U.S. exports. Since OECD negotiations began, members have made progress in developing environmental guidelines for their ECAs and are moving toward common environmental review practices. However, important differences remain. Having agreed to voluntarily implement the Common Approaches beginning in 2002, many OECD members adopted similar basic procedures for reviewing sensitive projects. However, OECD members' guidelines and practices differ in areas where the United States believes it has among the more advanced policies, including which technical standards ECAs use to review projects and the extent to which environmental impact information is publicly disclosed. Although OECD members are considering revising the Common Approaches in 2003, the United States is unlikely to achieve all of its original negotiating objectives because of the desire by some OECD members to gain more experience with the guidelines before renegotiating them and the reluctance of other members to take any steps that might be perceived as having a negative effect on the competitiveness of their exporters. There is limited evidence that the Export-Import Bank's environmental guidelines have affected U.S. exports, although the complexity of potential effects and the lack of information make identifying and quantifying impacts difficult. The evidence GAO reviewed indicates that impacts are likely to be concentrated in the energy sector. Most Export-Import Bank transactions do not require an environmental review because they are either short-term transactions, are in certain excluded sectors, or are not considered environmentally sensitive. Finally, while some businesses are more concerned about the impacts of environmental guidelines than others, their specific concerns are largely anecdotal and difficult to confirm.