‘Historic breakthrough’: Over 20 nations pledge to end overseas fossil fuel finance by 2022
US, Canada, Italy, and host of African nations among 25 countries and multilateral development banks to sign up to UK-led pledge
Twenty-five nations and multilateral development banks have committed to ending new direct financial support for unabated fossil fuel energy projects overseas by the end of next year, in yet another sign that the global shift away from oil, gas, and coal and towards cleaner energy sources is accelerating.
The pledge was announced by the UK’s COP26 Presidency this morning in Glasgow, having secured a raft of key backers, including the US, Canada, Italy, and a number of African nations, in addition to the European Investment Bank and the East African Development Bank. More signatories are expected to be announced in the coming days.
Dubbed ‘Statement on International Public support of the Clean Energy Transition’, the pledge commits signatories to aligning flows of international public finance with the clean energy transition and phasing out unabated fossil fuels – including coal, gas, and oil – in a way that is consistent with a 1.5C warming pathway.
By the end of 2022, signatories pledged to end new direct public support for the unabated fossil fuel energy projects overseas “except in limited and clearly defined circumstances that are consistent with a 1.5C warming limit and the goals of the Paris Agreement”, it states.
Signatories to the statement also promise to encourage other governments, their export credit agencies, public financial institutions, and multilateral development banks to implement similar commitments ahead of next year’s COP27 Climate Summit and beyond.
“We will prioritise our support fully towards the clean energy transition, using our resources to enhance what can be delivered by the private sector,” the statement reads. “This support should strive to ‘do no significant harm’ to the goals of the Paris Agreement, local communities and local environments.”
The pledge also notes the rapidly declining costs of alternative clean energy sources, such as solar and wind, and the huge social and economic risks “especially through the form of stranded assets” associated with fossil fuel assets.
Other signatories to the statement include Albania, Costa Rica, Denmark, Ethiopia, Fiji, Finland, the Gambia, Mali, Marshall Islands, New Zealand, Moldova, Portugal, Slovenia, South Sudan, Switzerland, and Zambia. French development bank AFD, Dutch development bank FMO, and the Banco de Desenvolvimento de Minas Gerais (BDMG) in Brazil have also signed the statement.
Speaking at the launch of the statement earlier, the UK’s Business, Energy and Clean Growth Minister Greg Hands the UK “understands signatories may need to take different approaches” to the financing phase-out.
“We are under no illusions that this transition will be easy,” he said. “That’s why every signatory coming on board with this statement is welcome.”
Experts from climate think tank E3G estimated that the commitments today could directly result in around $17.8bn of finance being shifted away from fossil fuels in the coming years. As such the statement is likely to send a very clear market signal about the future direction of the global economy, and could help result in tens of billions of dollars a year in financing shifted away from fossil fuels towards cleaner energy sources.
The pledge was hailed by green groups as a hugely significant win in the quest to shift the global economy away from fossil fuels, especially given the involvement of the US, which is one of the world’s largest overseas financers of fossil fuel projects. Moreover, the backing of a number of developing economies signals a growing recognition of the opportunity for them to ‘leapfrog’ fossil fuel energy sources and move straight to renewables.
However, campaigners also expressed concerns over the absence of China, Japan, and most of the petrostates from the commitment.
Iskander Erzini Venoit, sustainable finance expert at climate think tank E3G, described the statement and the number of its backers as “a historic breakthrough that would not have been possible just a few years ago”.
“This leadership group of countries shows how quickly norms on energy are changing – reflecting donor countries who want to prioritise their energy support away from fossil fuels and towards clean energy, and developing countries who want support for clean energy rather than for increasingly expensive fossil fuels,” he said.
“This COP26 accouchement mainstreams and increases the ambition of prior commitments by the EIB, UK, EU and US, establishing international fossil fuel finance phase-out as a new international norm in 2021,” Venoit added. “It is a timely update capturing how renewable energy has now become the cheapest form of new-build power generation in most countries worldwide.”
Campaign groups also welcomed the announcement. “Last year at this time I would not have thought we would see countries commit to ending billions of dollars in support for international fossil fuel projects,” said Kate DeAngelis, international finance program manager at Friends of the Earth US. “While this is welcome progress, countries, especially the US, must hold firm to these commitments, shutting off the spigot to fossil fuel companies like Pemex and Exxon. Laggards like Japan and Korea must also step up and join this commitment to enhance its efficacy.”
The pledge follows a raft of fresh international commitments to tackle emissions from fossil fuel infrastructure to coincide with ‘Energy Transition Day’ at COP26, with scores more countries earlier promising to phase out the use of domestic unabated coal power altogether.
Meanwhile, Denmark and Costa Rica – both countries which have committed to ending fossil fuel exploration and phasing out domestic oil and gas altogether before 2050 – are also gearing up to launch a joint Oil and Gas Alliance at COP26, with a list of national signatories expected to be announced later.
