One of the most hotly discussed topics at Cop26 next week will be how much cash rich countries are willing to stump up to help developing countries decarbonise. What is less frequently in the headlines is their continued financing of projects that contribute to climate change.
Rich countries made a pledge 12 years ago at Cop15 in Copenhagen to provide $100bn in climate finance a year by 2020. This was intended to help poorer nations mitigate and adapt to climate change – but it has gone unmet, despite being equivalent to just 0.2 per cent of the combined annual GDP of the EU, UK and US.
A new financing plan released this week would see the target only met in 2023 – which is likely to be too little, too late. Many observers have warned that failure to deliver on the pledge could create a lack of trust between the developed and developing world at Cop.
And as wealthy governments drag their feet over climate finance, they continue to invest billions of public money in new fossil fuel projects worldwide, shows a report released today (28 October) from Friends of the Earth US and Oil Change International. Some $188bn was invested by G20 countries and multilateral development banks – financial institutions that spend the money of two or more countries – between 2018 and 2020.
This public fossil fuel finance was 2.5 times greater than the support provided by countries for renewable energy over the same period, which stood at $78bn. Some 51 per cent of international public finance for fossil fuels flowed to gas projects, with one of the largest investments a $5bn loan from the US Export-Import Bank to support a terminal to export liquefied natural gas from Mozambique. Canada, Japan, Korea and China provided the most public finance for fossil fuels.
“Public finance for fossil fuels has continued to be a blind spot in discussions around decarbonising,” said Oil Change International’s Bronwen Tucker, one of the authors of the report. “It rarely comes up in discussions around domestic climate policy. And by keeping it up, it directly contradicts efforts to find the $100bn climate finance per year.”
“Wealthy nations are investing as if resource extraction is the only path to deliver development,” added Asad Rehman from anti-poverty charity War on Want, driving “deep environmental and economic injustices”.
Public finance institutions are often vital to getting infrastructure projects off the ground in developing countries to “de-risk projects for other investors”, said Tucker.
But as the global energy transition accelerates and consumers move away from fossil fuels, it is likely that big fossil fuel investments will not offer the returns that were originally expected – increasing the long-term risk of them turning into so-called “stranded assets”.
“If fossil fuel developments go ahead, it is likely emerging oil and gas nations like Mozambique, Guyana and Suriname will see their assets become unprofitable midway through, as demand falls,” said Deborah Gordon, senior principal at the Rocky Mountain Institute, a US think tank.
Wealthy countries with good credit ratings and diversified economies can, to some extent, absorb investments in fossil fuels that do not deliver expected returns. But developing countries that over-invest in fossil fuels risk taking on too much initial debt, and could suffer potentially catastrophic impacts.
Continued investment in fossil fuels also ignores calls from the International Energy Agency for an unprecedented increase in clean energy spending to put emerging economies on a path to net zero. Clean energy spending must expand more than seven-fold by the end of the 2020s, says the agency. However, in 2020, spending went in the opposite direction, declining by 8 per cent to less than $150bn, with only a slight rebound expected in 2021.
Change is slowly happening. The UK and the European Investment Bank have both announced they will stop funding all fossil fuels abroad – and have invited other countries to commit to the same thing during negotiations at Cop26. But all countries or institutions need to join them if the energy ship is to be turned around and clean energy given the financial boost it so desperately needs. Steps in this direction in Glasgow in the next two weeks would be welcomed by climate campaigners.