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A group of more than 30 countries cut public funding for fossil fuel projects overseas by up to $15bn last year, a report has found, although the US has continued to pour billions into oil and gas finance.
At the COP26 UN climate change conference at Glasgow in 2021 countries including the US, Canada, the UK and France all pledged to switch as much as $28bn of annual trade and development money from fossil fuels to clean energy.
The countries, which formed the Clean Energy Transition Partnership (CETP), managed to cut such financing by $10bn-$15bn, to $5.2bn, in the first year of the scheme’s implementation in 2023.
This represents a fall of as much as two-thirds compared with the 2019-2021 average, according to a report by the International Institute for Sustainable Development.
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However, the report, published on Wednesday, found that countries did not correspondingly increase funding for clean energy. This was up by only 16 per cent last year, to $21.3bn, compared with the 2019-2021 baseline.
Adam McGibbon, a co-author of the report, said rich countries were not “scaling up the clean energy finance fast enough”.
The initiative to move away from fossil-fuel projects targets export credit agencies, which typically offer cheap loans and insurance for companies to carry out overseas trade.
“[Previously] If I was a fossil fuel company in the UK and I wanted to export gas turbines to Iraq, but thought it was a bit risky, the UK government would step in and offer insurance and a loan at below market rates to help do that transaction,” he explained. “They also directly finance [oil and gas] production as well. It tends to be across the whole fossil fuel value chain.”
The IISD found that export finance agencies in OECD governments were “actually a more significant source of finance for energy than the multilateral development banks”, he added.
The report said the UK, France and Canada had been among the most diligent signatories. Since the pledge was implemented, UK Export Finance (UKEF), Britain’s export credit agency, cut its fossil-fuel transactions from $11.3bn to zero between 2010 and 2020. Previously, UKEF had routinely allocated more than 99 per cent of its energy finance to fossil fuels, the report said.
However, the US — the CETP’s largest member — was the biggest violator of the commitment, providing $3.2bn for 10 fossil fuel projects overseas last year. The US Export-Import Bank has also recently approved financing for six mega projects, including $500mn to develop 300 oil and gas wells in Bahrain. It is considering financing projects in Guyana, Papua New Guinea and Mozambique.
Switzerland, Italy, Germany and the Netherlands also all broke the pledge.
According to the OECD’s fossil fuel subsidy tracker, the US also gave out $12bn in domestic subsidies to its oil and gas companies in 2022.
McGibbon said it was “disappointing” the US had failed to honour the pledge, highlighting President Joe Biden’s signing of an executive order in early 2021 to phase out export finance for fossil fuels.
The OECD group of developed countries is now pushing to make a binding commitment to end $41bn of annual export finance for oil and gas, which would also capture the flows of money from Japan and South Korea.
The US has not declared its position during the negotiations but McGibbon said the downward trend in financing for fossil fuels was now fixed.
Data visualisation by Janina Conboye