Receive our Behind the Headlines email and we’ll post a free copy of Byline Times
Advanced economies are breaking their own climate change obligations by investing massively in fossil fuels rather than switching to clean energy sources, according to a landmark new report.
OECD countries financed $41 billion worth of fossil fuel exports between 2018 and 2020, almost five times the amount allocated to clean energy sources, the new report by Oil Change International found.
According to the report’s authors, “OECD export finance for energy continues to remain severely misaligned with climate goals”.
Despite pledges made by leading economies, the report found that export credit agencies (ECAs) – institutions intended to support domestic industries with overseas investments – had bankrolled fossil fuels, directed 71% of OECD export finance towards fossil gas and a further 5.4% towards coal.
The OECD’s export finance initiatives are in contravention of internationally-determined climate change obligations. In 2021, 39 governments signed the Clean Energy Partnership at the COP26 conference in Glasgow, an agreement which committed to “driving multilateral negotiations in international bodies, in particular in the OECD, to review, update and strengthen their governance frameworks to align with the Paris Agreement goals”.
Yet despite 52% of OECD countries having signed the Partnership agreement, fossil gas received 30% of all OECD export finance between 2018 and 2020. The report confirmed that “despite long standing commitments to align financial flows with climate goals, public finance and, in particular, export finance remains skewed in favour of fossil energy”.
The International Energy Agency has previously warned that new oil and gas development is incompatible with maintaining a livable planet, while the Intergovernmental Panel on Climate Change (IPCC) has published research described by UN Secretary General António Guterres as a “clarion call to massively fast-track climate efforts by every country and every sector and on every timeframe”.
Subsidising Natural Gas
The report found that approximately 42% of all fossil fuel export finance allocated by OECD countries supported ‘midstream’ economic activities such as pipelines or shipping for natural gas infrastructure, while 36% supported projects including extraction, processing and transportation.
Arguing that “restrictions on upstream oil and gas projects will be insufficient to curb OECD support for the fossil fuel industry in support of a clean energy transition”, the report demonstrated that OECD export finance aimed not only to maximise profits on existing fossil gas infrastructure, but to extend the longevity of future projects beyond the time frame allotted by the IPCC.
Between 2012 and 2022, export finance provided $80.7 billion in loans and guarantees and investments for new LNG infrastructure currently under development.
Among the top four recipients of new export finance was the United Arab Emirates, which despite being scheduled to host the COP28 conference on climate change later this year, is host to State-owned oil firm ADNOC, and continues to aggressively pursue new fossil fuel expansion.
Saddling Developing Nations with Debt
Warning that the OECD finance had subsidised “several potentially catastrophic large-scale oil and gas projects,” as of May 2023, Oil Change International argued that “most OECD ECA oil and gas support in low income countries is for upstream and midstream projects, often focused on boosting exports instead of delivering on energy access”.
Disputing that establishing new fossil gas infrastructure in Global South countries would boost domestic energy consumption or alleviate energy poverty, the report instead argues that the OECD’s finance initiatives would “cause local communities in the Global South to bear the burden of the environmental and social costs of continued fossil fuel extractions”.
The second-largest recipient of OECD finance between 2018 and 2020 was Mozambique, where the majority of the finance supported facilities linked to the extraction and export of liquified natural gas.
There is a history of predatory foreign firms establishing energy projects in Mozambique which yield negligible economic benefits for the country, instead inflaming local tensions and exacerbating human rights violations. Last year, Friends of the Earth sued the British Government for its decision to pledge £9 billion to fund a gas project in Mozambique, after more than 700,000 civilians were displaced following attempts by multinational corporations to seize land.
A new report reveals that the Ministry of Defence has made no real progress on reducing the carbon footprint of its military bases in the UK
The report argues that “there are real social, environmental, and economic risks that this trend towards gas expansion in Africa will only intensify going forward”, acknowledging that predatory energy projects such as those set up in Mozambique could incur debt obligations in Global South countries which could derail any chance of divesting from fossil fuels.
Indeed, countries such as Zambia, which have been saddled with debt from private lenders, will be compelled to spend four times as much on debt repayment than on addressing climate change over the course of the next decade.
Claire O’ Manique, public finance analyst at Oil Change International, told Byline Times that “the debts countries are paying out means that they are stuck with these projects, and locked into unsustainable futures on multiple scales – both economically and environmentally” and “there are implications for public health and jobs”.
“Eurodebt released a report which found that 80% of poor countries’ debts to richer countries are from export credits – and when you look at what these debts are financing, they are bankrolling projects which are highly unsustainable,” she added.
She also argued that OECD countries had framed predatory investments in the Global South as beneficial for domestic energy security – a key theme across numerous attempts by lobbyists and trade associations representing the fossil fuel industry to prolong oil and gas investments in the aftermath of the war in Ukraine.
She said: “We are seeing narratives of gas for development, that emphasise energy access, particularly in Africa. We are also seeing with export credit finance that none of this finance actually supports energy access. They (OECD countries) are using this narrative to achieve their aims, but most of the development is gas for export to the Global North.”
Don’t miss a story
There is a risk that, owing to the impact of internationally-determined decarbonisation initiatives, the rapidly declining costs of renewable energy sources and falling demand for oil and gas, it will be uneconomic to extract fossil fuels in future.
New fossil gas infrastructure may be unlikely to reap a favourable return on investment, as in a 2015 study which analysed 400 of the world’s largest gas fields, Goldman Sachs acknowledged that up to $1 trillion worth of investments in future oil projects could turn out to be unprofitable, as oil suffers from diminishing returns.
Oil Change International’s report demonstrates that fossil fuel infrastructure, which often takes decades to build and maintain, remains a centrepiece of the production plans of many OECD countries. Yet, despite the myriad of risks incurred by extracting more oil and gas – from saddling developing countries with unpayable debt to contravening climate change obligations agreed upon at the Paris Agreement – OECD nations continue to prioritise short-term profits over the long-term survival of the planet.