The deal to end public financing of foreign fossil fuel projects — which Canada co-led on the world stage — has died in the face of key holdout nations and the incoming administration of U.S. President-elect Donald Trump.
Canada, along with the United Kingdom and the European Union, Suggested In 2023 to end financing through export credit agencies — government agencies that support foreign trade — for oil and gas projects abroad and shift the money to clean energy instead.
The United States under President Joe Biden did not provide its support for the agreement until after the presidential elections in November last year, leading to a mad dash to reach an agreement before Trump’s inauguration. In the end, there was not enough time.
The Organization for Economic Co-operation and Development (OECD) confirmed in a statement to CBC News that no agreement had been reached despite many months of negotiations.
In the OECD, unanimous agreement is required to complete any deal. Aside from late US support, other countries that held out were Türkiye and South Korea, due to energy security and economic concerns.
Trump, who has signaled a desire to expand oil drilling and fills his cabinet with pro-oil industry leaders, is not expected to support such a deal to limit fossil fuel financing.
It’s a “huge missed opportunity for climate,” said Nina Pusic, senior climate export finance strategist at Oil Change International, an advocacy group that follows these talks closely.
“I think the big picture is that if we want to reach the goals of the Paris Agreement, we need our public funding to go toward financing a clean and equitable energy transition, rather than digging the fossil fuel hole deeper,” Pusic said. .
How public finance stimulates risky investment in fossil fuels
The proposal by the OECD, a group of 38 industrialized nations, stems from a pledge made at the 2021 UN climate conference in Glasgow to phase out these types of fossil fuel subsidies and shift money to clean energy.
The proposal targets a specific type of fossil fuel subsidy, namely the support provided by export credit agencies for international projects. It is public financing that helps support projects that may be risky and have difficulty obtaining initial financing from private investors and banks. Once public funding arrives, it can be easier for projects to obtain more private funding.
In Canada, this agency is Export Development Canada (EDC), which provides financing, bonding and insurance products for projects abroad involving Canadian companies, with the aim of encouraging trade between Canada and other countries.
“One of the reasons why export credit agencies are also so important is that they de-risk the investment,” Bosic said. “So they basically provide a loan guarantee or some sort of cover for the project, which then invites private sector investment.”
“That’s why they serve such an important kind of role in this ecosystem to support the fossil fuel industry.”
For example, the US Export-Import Bank provided a US$500 million US loan for a gas project in Bahrain in 2024 and a US$100 million US loan to establish an oil refinery in Indonesia in 2023. In the final days of the Biden administration, the Export-Import Bank consent Another $500 million to build a massive gas power plant in Guyana.
Why do some countries stick to the deal?
South Korea, one of the main holdouts, has blocked negotiations over concerns about its domestic industries that support LNG. South Korea is the world’s second-largest fossil financier, much of it related to being the largest maker of liquefied natural gas tankers, which transport the fuel around the world.
“However, given the global energy transition already taking place, Korean companies that maintain an outdated focus on fossil projects will quickly find themselves left behind,” said Dongjae Oh, who leads research on the gas industry at Korean think tank Solutions for Solutions. “. Our climate.
“The best thing that can be done to maintain competitiveness is not to invest in renewable energy projects,” he said.
Korean officials also expressed concern that the country is not yet ready to transition away from fossil fuels to meet its energy needs, and needs more time, according to Oh. He said Korea spent an estimated US$10 billion in international fossil financing for 2020-2022, and this amount may rise.
The way forward for countries
Kate DeAngelis, deputy director of economic policy at the US group Friends of the Earth, said countries like Canada that supported the proposal need to continue negotiating despite the political changes in Washington.
“It is important to remember that under the first Trump administration, OECD countries were able to strengthen coal financing restrictions that had been put in place,” De Angelis said.
“These governments cannot use this as an excuse to drop the ball.”
In 2023, Canada announced it would do so Phasing out “Ineffective” fossil fuel subsidies – financing that encourages increased carbon emissions and hinders the transition to clean energy. Despite this, a report The environmental advocacy group found that Canada is still spending billions on oil and gas subsidies.
Meanwhile, EDC pledge To phase out direct financing of international fossil fuel projects, but it is also essential Big financier From domestic oil and gas.
De Angelis said that despite the lack of an OECD deal, countries could double down on these existing promises by removing loopholes and clamping down on all fossil subsidies.
“Countries are very good at making commitments,” De Angelis said. “The hardest thing is making sure they actually stick to them.”
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