EU and UK want to ban fossil subsidies – 10/30/2023 – Environment

The UK and European Union will press the world’s richest countries to end subsidies for foreign oil, gas and coal mining operations, at a closed OECD (Organization for Economic Co-operation and Development) meeting next month, according to people familiar with the matter.

The proposal to cut off the largest foreign source of public funding for fossil fuels is likely to trigger heated negotiations at the OECD headquarters in Paris.

The measure is based on the commitment of some OECD countries to align public finance institutions with the objectives of the Paris Agreement, to limit global warming to well below 2°C and, ideally, to 1.5°C compared to to pre-industrial levels.

But the push to end subsidies for foreign projects will draw attention to the prevalence of domestic subsidies for the oil and gas industries, even as a global agreement to end fossil fuel production without carbon emissions captured at the next climate summit of the UN, COP28, seems increasingly unlikely.

Ending the provision of loans and guarantees for fossil fuel projects by export credit agencies would be “an essential first step to keeping our international climate goals within reach,” said Nina Pušić, export finance climate strategist at the environmental group OCI (Oil Change International), from the United States.

According to the OCI, OECD member countries are estimated to have spent around US$41 billion per year from 2018 to 2020, through their export credit agencies, to support coal, oil and gas projects, almost five times more than its support for clean energy.

In addition to Mozambique, the largest beneficiaries of support during this period operate in developed countries, including Canada, the United Arab Emirates and Russia.

Rich countries agreed in 2021 to stop subsidies for coal-fired electricity generation abroad, showing that this type of OECD decision could “have a catalytic effect on the transition to clean energy”, Pušić added.

The initiative to redesign the position of the international organization’s members in relation to fossil fuels is also based on a commitment by some Member States, including the United Kingdom, Canada, France, Italy and the United States, at the UN COP26 summit in Glasgow, two years ago.

Their pledge to end new public support for international fossil fuels by the end of 2022 included exceptions for projects where emissions are captured and for cases “consistent” with the Paris Agreement.

Governments also committed in Glasgow to press bodies such as the OECD and multilateral development banks to update their governance structures to align with the objectives of the Paris Agreement.

Changes to the OECD agreement on export credits would be voluntary. They would also require consensus from a group of member states that includes major fossil fuel financiers that did not support the Glasgow commitment, such as Japan and South Korea.

It would also put pressure on signatories to control overseas fossil fuel financing through their export credit agencies.

Directors of the U.S. export credit agency Exim, for example, voted in May to release nearly $100 million to support the expansion of an oil refinery in Indonesia, as well as improvements in efficiency and safety.

They also voted in July to support credit to assist commodities trading company Trafigura’s purchase of liquefied natural gas from the United States for export to Europe.

Exim said these decisions would support more than 12,000 U.S. jobs by boosting the country’s oil and gas sales. She did not respond to a request for comment.

Louise Burrows, who coordinates climate and energy diplomacy for the Beyond Oil and Gas Alliance, made up of governments including France and Denmark, said OECD discussions would be a “useful pressure mechanism to start talks with laggards.”

People close to UK Export Finance, the UK’s credit agency, said Canada has committed to supporting the UK’s planned proposal to the OECD ahead of next month’s meeting. Canada’s finance department said it “looks forward to working alongside like-minded partners at the OECD and other international forums to promote and expand the clean economy around the world.”

The European Union put forward its own proposal, according to a person familiar with the matter, after member states agreed to a preliminary proposal last month, according to another person familiar with the matter. The European Union declined to comment.

The bloc is making a concerted effort to end support for oil, gas and coal.
Its negotiating mandate for this year’s COP28 summit in Dubai, agreed by the bloc’s climate ministers this month, states that the EU will call for “the phasing out as quickly as possible of fossil fuel subsidies that do not address energy poverty or the just transition”.

The European Union’s new climate chief, Wopke Hoekstra, has described fossil fuel subsidies as “outdated and counterproductive.”

But in a report published last week, the European Commission said total fossil fuel subsidies in the bloc “increased sharply” during the energy crisis in 2022, reaching 122 billion euros, after remaining roughly stable at 56 billion euros in the last year.

“Member States must accelerate action to end fossil fuel subsidies,” he said.