07 November 2023 – This week, the Organisation for Economic Cooperation and Development (OECD) is meeting in Paris for its annual forum. On the negotiating table is a once-in-a-decade opportunity to end the flow of public money into fossil fuels, but you’d be forgiven for not knowing about it.
The OECD is made up of a group of primarily wealthy countries, who collectively set their own standards around big global issues like tax, trade and the environment. Despite being one of the world’s most influential trade bodies, decisions at the OECD often happen behind closed doors. Members say that this allows them to get on with ‘building better policies for better lives‘ without distraction. The problem is that channelling billions of dollars of public money into fossil fuels each year doesn’t square with that aim.
The OECD regulates its members’ ‘export credit agencies’. These are government-owned institutions that provide loans, guarantees, credit and other forms of financial services – often at subsidised rates – to large infrastructure projects around the world. OECD export credit agencies (ECAs) also provide more international public finance for fossil fuels ($41 billion) than any other type of public finance institution, including Multilateral Development Banks like the World Bank. They spend five times more on fossil fuels than renewable energy projects every year.
Without ECA support, many new oil and gas projects would not go ahead. Over the last decade, these institutions have pumped over $80 billion into liquefied natural gas (LNG) projects, which receive the overwhelming majority of ECA support. Projects include the Vaca Muerta gas pipeline in Argentina, a carbon bomb that threatens to release 50 billion tons of carbon dioxide over its lifetime; and $14 billion in loans and guarantees to a controversial LNG project in Mozambique. LNG is often cited as a bridge fuel in the clean energy transition, but the reality is the opposite. We already have more LNG infrastructure than we can use to stay within safe climate limits.
Every dollar spent on new fossil fuels puts the brakes on our clean energy transition. To keep global temperature rise to within 1.5C – as per the Paris Agreement goal – the International Energy Agency is clear there is ‘no need’ for investment in new supplies of coal, oil and gas. Under the Paris Agreement, all countries promised to ‘make financial flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development’, but the opaque governance structure of the OECD provides a loophole for oil and gas finance to keep flowing, via ECAs.
This isn’t a good way to spend public money. With peak demand for fossil fuels now expected as soon as 2030, any investment in new fossil fuel projects risks failing to deliver a return. Economists have estimated that around $1.4 trillion in oil and gas assets are at risk of becoming stranded. Far from delivering energy security, public investment in fossil fuels exposes us to huge economic risks, whereas channelling this money into clean energy could open up new economic opportunities. Every dollar of investment in renewables creates three times more jobs than investment in fossil fuels.
Poll after poll shows that voters in OECD countries don’t want their money going into fossil fuels either. Almost two thirds of British and Canadian voters want their governments to stop subsidising fossil fuels; while in the United States there’s majority bipartisan support for ending fossil fuel subsidies. Using public money to prop up a twilight industry isn’t in the public interest – it makes us all worse off.
At the Glasgow climate conference, COP26, a majority of OECD member countries committed to ending public fossil finance for the unabated fossil fuel energy sector by the end of 2022, including by driving multilateral negotiations through the OECD. Despite this, some OECD countries have backtracked on their commitment. Research from Oil Change International shows that since 2021, the United States, Germany, Italy and Japan have approved at least $5.2 billion in new public finance for international fossil fuel projects. This year alone, the US, via its ECA, the United States Export-Import Bank (EXIM), provided $740 million to oil and gas projects around the world. If President Biden is to become the climate leader he wants to be, there is clearly much more to do.
OECD members already signalled the beginning of the end for public fossil fuel finance, by ending ECA support to coal-fired power in 2021. The UK, EU and Canada proposals on the table represent a rare moment of leadership that must help set the stage for forging agreement on a global phase-out of fossil fuels at the upcoming climate conference in the United Arab Emirates. They must not be shut down and strung out by OECD members still clutching onto fossil fuels such as Japan, South Korea and the United States. Countries should use this week’s meeting to reform export credit agencies for good, so they catalyse the clean energy transition and preserve our planet, rather than destabilise it.
First published in Climate Home News.
