The deal to end public financing of foreign fossil fuel projects – which Canada co-led on the world stage – fell apart in the face of major holdout countries and the new administration of US President-elect Donald Trump .
Canada, alongside the United Kingdom and the European Union, propose in 2023, to end financing through export credit agencies – government agencies that support foreign trade – of overseas oil and gas projects and instead divert the money to clean energy.
The United States, under President Joe Biden, only threw its support behind the deal just after the presidential election in November last year, sparking a mad rush to reach a deal before the inauguration of Trump. Ultimately, it wasn’t enough time.
The Organization for Economic Co-operation and Development (OECD) confirmed in a statement to CBC News that no deal had been reached despite several months of negotiations.
At the OECD, unanimous agreement is needed to reach a deal. Besides late support from the United States, other countries that resisted were Turkey and South Korea, due to concerns over energy security and the economy.
Trump, who has indicated he wants to expand oil drilling and is filling his cabinet with pro-oil industry leaders, is unlikely to support such a deal to limit financing for fossil fuels.
Nina Pušić, senior climate strategist for export finance at Oil Change International, an advocacy group that is closely following these negotiations, said it was a “huge missed opportunity for the climate.”
“I think the bottom line is that if we want to achieve the goals of the Paris Agreement, we need our public finances to be dedicated to financing a clean and just energy transition, instead of digging the hole even further fossil fuels,” Pušić said. .
How public finances stimulate risky investments in fossil fuels
The proposal made by the OECD, a group of 38 industrialized countries, stems from a commitment made at the 2021 United Nations climate conference in Glasgow to phase out these types of fossil fuel subsidies and divert the money towards clean energy.
The proposal targeted a specific type of fossil fuel subsidies: those granted by export credit agencies for international projects. This is public financing that supports projects that might be risky and have difficulty obtaining initial financing from private investors and banks. Once public funding arrives, projects may find it easier to obtain additional private funding.
In Canada, this agency is Export Development Canada (EDC), which provides financing, bonding and insurance products to overseas projects 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 reduce investment risks. So they basically provide a loan guarantee or some kind of cover for a project, which then invites investment from the private sector,” Pušić said:
“That’s why they play such an important role in this ecosystem to support the fossil fuel industry.”
The US Export-Import Bank, for example, provided a US$500 million loan for a gas project in Bahrain in 2024 and a US$100 million loan for an oil refinery in Indonesia in 2023. the last days of the Biden administration, the bank approved An additional $500 million for a huge gas power plant in Guyana.
Why some countries resisted a deal
One of the main holdouts, South Korea, has blocked negotiations over concerns about its domestic industries supporting liquefied natural gas (LNG). South Korea is the world’s second-largest financier of fossil fuels, mainly because it is the largest builder of LNG carriers, which transport the fuel around the world.
“However, given the global energy transition already underway, Korean companies with an outdated focus on fossil projects will quickly find themselves left behind,” said Dongjae Oh, who leads gas industry research within the Korean think tank Solutions for. Our climate.
“The best thing to do to maintain competitiveness is not to invest in renewable energy projects,” he said.
Korean officials also expressed concern that the country was not yet ready to abandon fossil fuels to meet its energy needs and needed more time, according to Oh. He said Korea spent about US$10 billion on international fossil fuel financing for 2020-2022, and that amount could increase.
The way forward for countries
Kate DeAngelis, deputy director of economic policy at the advocacy group Friends of the Earth US, said countries like Canada that supported the proposal must continue to negotiate despite political changes in Washington.
“It’s important to remember that under the first Trump administration, OECD countries were able to tighten restrictions put in place on coal financing,” DeAngelis said.
“These governments cannot use this as an excuse to drop the ball.”
In 2023, Canada announced that it phase out “Inefficient” fossil fuel subsidies – funding that encourages higher carbon emissions and hinders the transition to clean energy. Despite this, a report The advocacy group Environment Defense has found that Canada continues to spend billions on oil and gas subsidies.
Meanwhile, the EDC promised phase out direct financing of international fossil fuel projects, but it is also a major donor national oil and gas.
DeAngelis said that despite the lack of a deal with the OECD, countries can redouble their efforts to deliver on their existing promises by closing loopholes and truly cracking down on all fossil subsidies.
“Countries are very good at making commitments. What’s much more difficult is making sure they actually follow through on them,” DeAngelis said.
