The United States has challenged the Japanese government over moves to ramp up exports of coal-fired power technology and to offer cheap loans to lure buyers, according to a U.S. source with direct knowledge of the matter.

Japan’s shipments of the equipment soared to nearly $8 billion last year as it looks to boost infrastructure exports, defying U.S. calls for developed nations to stop investing in foreign coal projects, to curb greenhouse gas emissions.

While the issue is unlikely to blow up into a major dispute, it could taint the two allies’ typically close relationship on energy and comes ahead of a November gathering of the OECD where members are expected to discuss coal-fired power funding.

U.S. officials have told Japan, one of a handful of industrialized economies that still allows unrestricted financing of overseas coal projects by state-backed lenders, that it should only back coal plant construction that includes so-called carbon capture technology, said the source.

Japan has been exporting equipment that cuts carbon dioxide output by burning coal more efficiently, but that does not go as far as more expensive technology designed to capture around 90 percent of carbon dioxide emissions that is slowly being introduced on a commercial scale in North America.

The source said the dispute had taken place quietly and Japanese officials had politely rebuffed the criticisms.

Takafumi Kakudo, director for coal at the Ministry of Economy, Trade and Industry, said he was not aware of growing pressure from U.S. officials, adding that Japan’s coal-burning technology is far cleaner than alternatives that many developing countries could afford.

“Japan is trying to help foreign countries adopt low-pollution power systems such as renewable energy and liquefied natural gas plants as much as possible,” said Kakudo.

“But some countries can’t afford these systems, and those which produce coal want to utilize their own resources. In those cases, it is better to build plants with the high efficiency that Japan can provide.”

Coal-burning technology that runs turbines at higher temperatures and pressures is able to reduce carbon emissions by up to about 50 percent, according to the International Energy Agency.

U.S. officials were not immediately able to comment.

The friction with Washington comes as Prime Minister Shinzo Abe looks to triple infrastructure exports to about ¥30 trillion by 2020 after decades of stagnation at home. He has visited 49 countries, a record for a Japanese leader, as part of this drive.

Japanese exports of power station equipment, including turbines for coal plants, rose 55 percent in the year through March to $7.8 billion from the previous 12 months, according to the Japan Machinery Center for Trade and Investment.

In his Climate Action Plan launched last year, President Barack Obama said the U.S. would limit investment in foreign coal-fired projects and urged others to do the same.

The United Kingdom and several European nations have also cut state funding for coal plants, meaning a raft of major western economies have banned their export credit agencies from providing backing to most overseas coal-fired plant developments. Germany said last month it would limit such financing.

In contrast, the Japan Bank for International Cooperation is the world’s biggest public investor in coal projects, providing $11.9 billion finance from 2007 to 2013 for coal developments overseas, according to environmental group the Natural Resources Defense Council. That figure mainly comprises JBIC investment in coal-fired plants, but also coal mines.

JBIC said in September that it would provide around $900 million in finance for a coal-fired power plant project in Morocco, and extended a more than $200 million credit line for Vietnam Electricity in July to purchase Japanese equipment for a coal-fired power station.

Another state-backed agency, the Japan International Cooperation Agency, provided ¥41.5 billion in loans for Bangladesh’s Matarbari coal-fired power plant in June and a ¥1.73 billion loan to a project in Indonesia last year. They were the first credits from the development agency in at least four years.

The Asian Development Bank, which has Japan as its main shareholder, is now one of few multilateral agencies that backs coal projects.

“Japan has emerged as a regressive force in the global effort to address climate change,” said Steve Herz at the Sierra Club, a U.S. environmental group. “It would be a huge missed opportunity if the OECD and export credit agencies did not use the Paris summit to announce they have made progress on limited coal project lending,” he said, referring to a U.N. conference on climate change late next year.

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