COP26: US joins commitment to clip international public finance for fossil energy – S&P Global

Credit: Original article can be found here

A commitment by the US and at least 19 other nations Nov. 4 at the UN Climate Conference talks in Glasgow to steer their international public finance toward the clean energy transition drew cheers from environmental advocates keen on a quick phaseout of fossil fuels including oil and gas.

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The countries unveiled a commitment to “end new direct public support for the international unabated fossil fuel energy sector by the end of 2022,” except in limited circumstances aligned with Paris Agreement goals of a 1.5 Celsius warming limit.

The commitments pertain to institutions that provide international public finance; in the US, which is a major international donor, that entails the Export Import Bank and the US International Development Finance Corp. Unabated fossil fuel energy refers to facilities without carbon capture technology.

John Morton, the US Treasury Department’s climate counselor, speaking at COP26 session on public finance Nov. 4, said the agreement “is an indication of the growing recognition that there really is, with very few exceptions, a very high bar to prove why support might be necessary in certain exceptional cases” for fossil fuel development. He added: “The presumption has to be that direct finance and public finance towards energy in developing countries around the world has to be in the green and clean area.”

That is not such a troubling concept, he said, because the International Energy Agency reports that nearly 90% of new electricity generation added to the grid globally last year already was renewable.

Among the group of 20 countries signing onto the UK-led joint statement were the US, Italy, Canada and Denmark, along with five public finance institutions. The UK presidency of COP26 characterized the statement as the first time a COP presidency has “put a bold end date on international fossil fuel finance.”

The UK is expected to formalize the effort next year, and will look to expand the membership, a government official said. Several other significant European players were considering signing on.

The announcement came the same day a turn away from coal took center stage at COP26. South Korea, Indonesia and Vietnam were among 23 countries to commit for the first time to phase out coal-fired power generation.

‘Symbolic progression’

Anti-fossil environmental groups viewed the separate new commitment on international finance of unabated fossil fuel energy as an important signal to the oil and gas industry. Only several years earlier, the Trump administration showed increased interest in leveraging US international financing to help foster the development of natural gas infrastructure in emerging markets that could be future consumers of US LNG.

“It is a clear symbolic and a narrative progression forward,” moving beyond the fight over public finance for coal, said Collin Rees, US program manager at Oil Change International, in an interview Nov 4. “This is a very clear public statement that oil and gas are up next, that no fossil support is acceptable.”

“A year ago, I could not have imagined the United States committing to ending billions of dollars in support for international fossil fuel projects,” said Kate DeAngelis, international finance program manager, for Friend of the Earth US, said in a statement. She cautioned against exceptions that would “water down the commitment.”

Charles Riedl, executive director of the US trade group Center for Liquefied Natural Gas, said there still seems to be “a lot of nuance and a lot of latitude for those who signed on to basically find exemptions,” and it seems projects with carbon capture could still be supported.

“Probably the main takeaway is that it’s not going to make it easier for gas projects to get approved,” but’s unlikely to bring about a “full stop of gas projects,” he said. “If there are the technologies that we know, that are proven to work and be effective, and are cost effective, [that] are still eligible, then I would expect to see projects continue to still find funding from from public financial institutions.”

Oil Change argues the impact on fossil energy goes beyond an estimated $18 billion a year of government-backed support from the initial participating countries, to extend to the private capital unleashed by the public support.

“It’s actually probably hundreds of billions of dollars a year in averted fossil finance, because governments aren’t willing to provide that security,” Rees said.

Biden executive orders

According to the UK presidency at COP26, signatories the pledge announced Nov. 4 included OECD countries Canada, Costa Rica, Denmark, Finland, New Zealand, Portugal, Slovenia, Switzerland, the UK and the US, along with non-OECD countries Ethiopia, Fiji, Gambia, Mali, the Marshall Islands, Moldova, South Sudan and Zambia.

Additional public finance institutions signing on include the Development Bank of Minas Gerais of Brazil, the East African Development Bank, the European Investment Bank, the Dutch development bank Financierings-Maatschappij voor Ontwikkelingslanden, and France’s Agence Française de Développement.

US President Joe Biden’s first executive order in early 2021 on climate directed Treasury and other agencies to “identify steps through which the United States can promote ending international financing of carbon-intensive fossil fuel-based energy while simultaneously advancing sustainable development and a green recovery.”

Following upon that, the Treasury Department in August rolled out new guidance for multilateral development bank investments that prioritize clean energy investments over fossil fuels, opposing direct investments in oil-based energy projects and new coal -based projects, but allowing for “narrow support for natural gas.”