Huge reduction in overseas fossil fuel funding, even if the US doesn’t comply

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A group of more than 30 countries cut public funding for overseas fossil fuel projects by up to $15 billion last year, a report found, even as the U.S. continued to pour billions into oil and gas financing.

At the COP26 UN climate change conference in Glasgow in 2021, countries including the US, Canada, UK and France pledged to switch up to $28 billion of their annual trade and development money from fossil fuels to clean energy.

The countries, which formed the Clean Energy Transition Partnership (CETP), managed to reduce such funding by $10 billion-$15 billion to $5.2 billion in the scheme’s first year of implementation in 2023.

This is a drop of up to two-thirds compared to the 2019-2021 average, according to a report by the International Institute for Sustainable Development.

However, the report, published on Wednesday, found that countries have not adequately increased funding for clean energy. This was up just 16% last year to $21.3 billion compared to the 2019-2021 benchmark.

Adam McGibbon, a co-author of the report, said rich countries were not “extending clean energy finance fast enough”.

The move away from fossil fuel projects targets export credit agencies, which typically provide cheap loans and insurance for companies to trade overseas.

“(Previously) If I was a fossil fuel company in the UK and wanted to export gas turbines to Iraq but thought it was a bit risky, the UK government would step in and provide insurance and a loan at lower rates of the market to help make that transaction,” he explained. “It also directly finances (oil and gas) production. It tends to be along the entire fossil fuel value chain.”

The IISD found that OECD governments’ export finance agencies were “actually a more significant source of energy finance than multilateral development banks”, he added.

The report said the United Kingdom, France and Canada were among the most diligent signatories. Since the pledge was implemented, UK Export Finance (UKEF), the UK’s export credit agency, has reduced its fossil fuel trades from $11.3 billion to zero between 2010 and 2020. Previously, UKEF allocated typically more than 99% of its energy funding for fossil fuels, the report said.

However, the US – the largest member of the CETP – was the biggest breacher of the pledge, providing $3.2 billion for 10 fossil fuel projects last year. The US Export-Import Bank recently approved financing for six mega projects, including $500 million to develop 300 oil and gas wells in Bahrain. It envisages financing projects in Guyana, Papua New Guinea and Mozambique.

Switzerland, Italy, Germany and the Netherlands all broke the pledge.

According to the OECD’s Fossil Fuel Subsidy Tracker, the US also provided $12 billion in domestic subsidies to its oil and gas companies in 2022.

McGibbon said it was “disappointing” that the US had failed to honor the pledge, pointing to President Joe Biden’s signing of an executive order in early 2021 to phase out financing for fossil fuel exports.

He suggested that statutory requirements and Eximbank’s status “mean that it is not legal for them to discriminate against certain types of exports”.

The OECD group of developed countries is now pushing for a binding commitment to end the $41 billion in annual financing of oil and gas exports, which would also trap money flows from Japan and South Korea.

The US did not state its position during the negotiations, but McGibbon said the downward trend in fossil fuel funding was now fixed.

Data visualization by Janina Conboye