Two companies have applied under a federal clean energy program for a combined $3.9 billion in loan guarantees to back the construction of a pair of petrochemical facilities, sparking outcry among U.S. lawmakers who say the projects directly contradict the program's stated goals.

Environmental groups have sounded alarms for months about the two projects, which are seeking financial backing under the U.S. Department of Energy's Title XVII loan guarantee program. Created in 2005, Title XVII was designed to provide federal loan guarantees for U.S.-based energy projects that use new or significant technology, have a reasonable prospect of repayment, and "avoid, reduce or sequester greenhouse gases."

In 2015, Northwest Innovation Works applied for a $2 billion loan guarantee to build a facility in Kalama, Wash., to convert fracked natural gas into methanol. The company would sell the methanol to industrial manufacturers of olefins, compounds commonly used in plastics production, in Chinese markets. Appalachia Development Group applied in 2017 for a $1.9 billion loan guarantee from the DOE to back the development of its proposed Appalachia Storage and Trading Hub, which the company envisions as a massive underground storage and processing facility for natural gas liquids fracked from vast shale plays in the Ohio River Valley.

Opponents of the two petrochemical facilities said they would increase greenhouse gas emissions, undercutting the mission of the loan program. The applicants argued the facilities would cut emissions from domestic and international supply chains for products such as plastics.

The Title XVII program is run out of the DOE's Loan Programs Office, which also runs programs that back financing for tribal clean energy and advanced-technology vehicle manufacturing projects. Title XVII funding was critical to launching the utility-scale solar photovoltaic industry in the U.S., according to a 2018 policy paper submitted to Congress by the Energy Futures Initiative, a Washington, D.C., nonprofit led by former DOE officials from Barack Obama's administration. Since 2005, the program has provided more than $25 billion in loan guarantees, leveraging billions more in private investments for innovative solar, wind, biomass, geothermal, nuclear and carbon-capture projects.

Democratic Reps. Ilhan Omar of Minnesota and Pramila Jayapal of Washington introduced an amendment to the funding package that would reemphasize that Title XVII funding is banned for "a project that does not avoid, reduce, or sequester air pollutants or anthropogenic emissions of greenhouse gases."

"It is incredibly worrisome that this administration would try to use a program designed for renewable energy to line the pockets of polluters," Omar said in a statement to S&P Global Market Intelligence.

A DOE spokeswoman declined to comment, saying that the applications are confidential.

A 'plastics project'

Steven Hedrick, chairman and CEO of Appalachia Development Group, said in a statement that the DOE invited the company to participate in the second phase of the loan guarantee application process but has not reached a final decision. The Appalachia Storage and Trading Hub would reduce greenhouse gas emissions because the "location of consumption of the [natural gas liquids] will be close to the point of extraction, and that consumption will be in the form of manufactured goods in close proximity to the market," Hedrick said.

Mitch Jones, the climate and energy program director of Food & Water Watch, a Washington, D.C., nongovernmental organization, said the project does not qualify because "this program is for clean energy projects, which this is not by any stretch of the imagination."

"It's a plastics project," Jones said. "It's not creating electricity; it's not a renewable program or a clean program because it's using as a product fracked gas."

Northwest Innovation Works acknowledged on its website that the Kalama facility would increase total greenhouse gas emissions in the state of Washington by 1%. But the facility would reduce overall greenhouse gas emissions in the global supply chain, the company argued, by cutting China's reliance on coal for methanol production.

Northwest Innovations Works did not reply to requests for comment.

Miles Johnson, senior attorney for Oregon-based Columbia Riverkeeper, in a Sept. 27 letter urged the DOE to deny the project application because the proposed refinery is intended for plastics production, not energy. He said the company's theory that the project would displace greenhouse gas emissions from the global methanol supply chain "rests on several unreliable assumptions and highly speculative predictions about the future of the methanol-to-olefin industry that are far beyond NWIW's ability to foresee, much less control."

Federal law gives wide latitude to DOE officials about which projects to select, said Joseph Hezir, a principal of the Energy Futures Initiative. The DOE in 2016, for instance, agreed to back up to $2 billion for the construction of the world's first methanol production facility to use carbon-capture technology.

"The statutory language says that a project, in order to be eligible, must either avoid, reduce or sequester air pollutants or greenhouse gases," said Hezir, who was DOE's CFO from 2013 to 2017. "And I just would simply point out that the language is very broad and leaves a lot of room for interpretation."

The Trump administration has also proposed in its budget for the 2020 fiscal year to eliminate the loan guarantee program entirely. Previous attempts by the administration to cut funding have failed.

"The private sector is better positioned to provide financing for the deployment of commercially viable projects," the White House said in its budget proposal.