The United Kingdom and the European Union will press the world’s richest countries to end subsidies for foreign oil and gas operations and coal mining at a closed-door OECD meeting scheduled for next month, according to the Financial Times.
The proposal to cut the largest source of public funding for fossil fuels is expected to trigger heated negotiations at the OECD headquarters in Paris.
The measure is based on the commitment made by some OECD countries to align public financial institutions with the Sustainable Development Goals (SDGs) and the Paris Agreement to limit global warming to less than 2°C and ideally 1.5°C above pre-industrial levels.
But the effort to end equity stakes and investments in foreign projects will draw attention to the prevalence of domestic subsidies to the oil and gas industries, even as a global agreement to end fossil fuel production without the emissions captured at the upcoming COP28 UN climate summit looks increasingly unlikely.
Ending export credit agency loans and guarantees for fossil fuel projects would be “an essential first step in keeping our international climate goals within reach,” points out Nina Pušić, export finance climate strategist for the US environmental campaign group Oil Change International.
Mozambique gas “can help reduce use of other fuels”
Although the British government announced last March that it was ending its funding for fossil fuel exploration abroad, it has maintained its support for the offshore liquefied natural gas (LNG) project in the Rovuma basin in Cabo Delgado, northern Mozambique, which, as we know, has been awarded to a consortium led by the French oil company Total.
Valued at between 20 and 25 billion euros, the gas extraction megaproject is the largest private investment underway in Africa, backed by various international financial institutions and includes the construction of industrial units and a new town between Palma and the Afungi peninsula. Before construction was suspended, the first export of liquefied gas was scheduled for 2024.
In a document published in August, the UKEF admitted that construction will produce carbon dioxide emissions, but considers that most of the emissions will occur at the end consumer (and not at the source, in Cabo Delgado), and emphasises that natural gas has the potential to replace other more polluting fuels.
“The potential for the Project’s gas to remove or replace heavier and lower carbon fuels was considered in the financing (…). It is considered that, over its operational life, the project will result in at least some displacement of more polluting fuels, with the consequence of some net reduction in emissions,” he explains.
Overall, it is estimated that 41 billion dollars a year were invested by the export credit agencies of the OECD countries to support coal, oil and gas projects between 2018 and 2020, according to the OCI, almost five times their support for clean energy.
Apart from Mozambique, the biggest beneficiaries of support during this period operated in developed countries, including Canada, the United Arab Emirates and Russia.
Rich countries agreed in 2021 to end subsidies for coal-fired electricity production abroad, showing that this kind of OECD decision can “have a catalytic effect on the transition to clean energy,” Pušić added.
The initiative to redefine the position of the international organisation’s members on fossil fuels is also based on the commitment made by some member states, including the UK, Canada, France, Italy and the US, at the UN COP26 summit in Glasgow two years ago.
The promise to end new public support for international fossil fuels by the end of 2022 included exceptions for projects where emissions were captured and for cases “consistent” with the Paris Agreement.
In Glasgow, governments also pledged to put pressure on organisations such as the OECD and multilateral development banks to update their governance frameworks to align with the objectives of the Paris Agreement.
Changes to the OECD agreement on export credits would be voluntary. It would also require the consensus of a group of member states that includes major fossil fuel financiers that did not support the Glasgow compromise, such as Japan and South Korea.
It would also put pressure on the signatories to control the financing of their foreign fossil fuel export credit agencies.
The directors of the US export credit agency Exim, for example, voted in May to disburse almost 100 million dollars to support the expansion of an oil refinery in Indonesia, as well as improving fuel efficiency and safety.
In July, they also voted in favour of credit to support Trafigura’s purchase of liquefied natural gas from the US for export to Europe.
According to Exim, these decisions will support the creation of more than 12,000 jobs in the United States by increasing the country’s oil and gas sales. The company did not respond to a request for comment.
Mozambique gas “could help reduce use of other fuels”
Although the British government announced last March that it was ending its funding for fossil fuel exploration abroad, it has maintained its support for the offshore liquefied natural gas (LNG) project in the Rovuma basin in Cabo Delgado, northern Mozambique, which, as we know, has been awarded to a consortium led by the French oil company Total.
Valued at between 20 and 25 billion euros, the gas extraction megaproject is the largest private investment underway in Africa, supported by various international financial institutions and includes the construction of industrial units and a new town between Palma and the Afungi peninsula. Before construction was suspended, the first export of liquefied gas was scheduled for 2024.
In a document published in August, the UKEF admitted that construction will produce carbon dioxide emissions, but considers that most of the emissions will occur at the end consumer (and not at the source, in Cabo Delgado), and emphasises that natural gas has the potential to replace other more polluting fuels.
“The potential for the Project’s gas to remove or replace heavier and lower carbon fuels was considered in the financing (…). It is considered that, over its operational life, the project will result in at least some displacement of more polluting fuels, with the consequence of some net reduction in emissions,” he explains.
Overall, it is estimated that 41 billion dollars a year were invested by the export credit agencies of the OECD countries to support coal, oil and gas projects between 2018 and 2020, according to the OCI, almost five times their support for clean energy.
Apart from Mozambique, the biggest beneficiaries of support during this period operated in developed countries, including Canada, the United Arab Emirates and Russia.
Rich countries agreed in 2021 to end subsidies for coal-fired electricity production abroad, showing that this kind of OECD decision can “have a catalytic effect on the transition to clean energy,” Pušić added.
The initiative to redefine the position of the international organisation’s members on fossil fuels is also based on the commitment made by some member states, including the UK, Canada, France, Italy and the US, at the UN COP26 summit in Glasgow two years ago.
The promise to end new public support for international fossil fuels by the end of 2022 included exceptions for projects where emissions were captured and for cases “consistent” with the Paris Agreement.
In Glasgow, governments also pledged to put pressure on organisations such as the OECD and multilateral development banks to update their governance frameworks to align with the objectives of the Paris Agreement.
Changes to the OECD agreement on export credits would be voluntary. It would also require the consensus of a group of member states that includes major fossil fuel financiers that did not support the Glasgow compromise, such as Japan and South Korea.
It would also put pressure on the signatories to control the financing of their foreign fossil fuel export credit agencies.
The directors of the US export credit agency Exim, for example, voted in May to disburse almost 100 million dollars to support the expansion of an oil refinery in Indonesia, as well as improving fuel efficiency and safety.
In July, they also voted in favour of credit to support Trafigura’s purchase of liquefied natural gas from the US for export to Europe.
According to Exim, these decisions will support the creation of more than 12,000 jobs in the United States by increasing the country’s oil and gas sales. The company did not respond to a request for comment.
Financial Times
