An OECD Deal on Ending Oil and Gas Export Credits is Urgently Needed. Here’s What it Could Look Like

One year ago, the European Union (EU), United Kingdom, and Canada introduced a proposal to end oil and gas financing by export credit agencies at the Organisation for Economic Co-operation and Development (OECD). Now, pressure is building to reach a deal by the end of 2024.

What are export credits, and what role does the OECD play?

Export credit agencies (ECAs) have a key role in fossil fuel expansion. ECAs are public financial institutions, typically owned or controlled by governments, that promote exports. They provide finance in the form of loans, guarantees, and credit to domestic companies to facilitate the export of goods and services, including capital equipment and large-scale infrastructure projects in other countries. Since many of these projects are too risky for the private sector to take on alone, they depend on ECA support to go ahead.

The OECD Arrangement on Officially Supported Export Credits is the main international regulatory framework for export credit. Agreed in 1978, it regulates the most generous financial terms and conditions that countries and export credit agencies may offer. Its purpose is to foster a level playing field ‘to encourage competition among exporters based on quality and prices of goods and services exported rather than on the most favourable officially supported export credits’ (Article 1). It applies to all official export credit support, as well as tied aid.

Export credits can be considered a form of export subsidy under the legally binding World Trade Organization (WTO) Agreement on Subsidies and Countervailing Measures (CSM) signed by 166 countries. While the WTO prohibits export subsidies, it makes an exception for export finance that is provided on interest rate conditions in line with the OECD Arrangement.

The OECD Arrangement is a non-legally binding gentlemen’s agreement that applies only to certain OECD member countries that are also the biggest providers of export finance: Australia, Canada, the European Union, Japan, the Republic of Korea, New Zealand, Norway, Switzerland, Türkiye, the United Kingdom, and the United States.

OECD governments already ended export credits for coal-fired power generation in 2021.

Why is a deal on ending oil and gas export credits important?

A deal is important because there is no room in 1.5°C carbon budgets for any new oil and gas projects. ECAs have been a key enabler of the liquefied natural gas (LNG) boom, supporting over 80% of new LNG export terminal projects built from 2012-2022.

Between 2018 and 2020, ECAs in OECD countries provided an average of USD 41 billion annually to new fossil fuel projects, almost five times their annual support for clean energy (USD 8.5 billion). Fossil gas received 30% of this support, and 40% of gas finance went to LNG projects. OECD ECAs, as a group, are the world’s largest international public financiers of fossil fuels, with 7 out of 10 of the top global financiers being OECD countries.

What could the deal look like?

Details of the EU proposal were published in July 2024. Under this proposal, Article 6(a) would be amended such that participants to the Arrangement ‘shall not provide officially supported export credits or tied aid for fossil fuel energy sector except in limited and clearly defined circumstances that are consistent with a 1.5°C warming limit and the goals of the Paris Agreement’. That consistency ‘is to be assessed against the latest scientific evidence provided by the IPCC and the IEA’. Article 6(b) would be amended to clarify that Article 6(a) covers all projects relating to ‘exploration, production, transportation, storage, refining, distribution of coal, crude oil, natural gas, or conversion into electricity or heat of coal, crude oil, natural gas and its derivatives’. The entire value chain is thus covered by the proposed prohibition.

The EU proposal contains an exception for projects that meet the standards set out in the Climate Change Sector Understanding, which includes fossil fuel plants with operational carbon capture and storage with a carbon intensity of less than 350 metric tons of CO2 per GWh or a capture rate of 65% or greater, hybrid power plants, and smart grids.

The proposal also contains a new transparency requirement. This would see the OECD Secretariat preparing an annual report on officially supported export credits or tied aid provided for the fossil fuel energy sector and clean energy projects. This would include the number of transactions and aggregate credit values by country of origination and destination, type of fossil fuels, and a break-down on upstream, midstream, downstream and power generation activities for the fossil fuel energy sector.

Because there has been a round of negotiations since the EU proposal was released in November, it is likely the draft agreement has changed shape. However, details of the negotiations have not been published. It is imperative that a robust agreement is reached, with limited loopholes.

What is the relationship between the OECD Arrangement and the Clean Energy Transition Partnership?

Several of the OECD Arrangement countries have already ended, or committed to ending, export credit finance as well as other international public support for the unabated fossil fuel energy sector, including coal, oil and gas, as part of their membership of the Clean Energy Transition Partnership (CETP). 

The United Kingdom, Canada, New Zealand, France, Finland, Belgium, and Sweden have fully delivered on their commitment, and as a result CETP signatories’ financing for fossil fuels has dropped by two thirds to USD 5.2 billion in 2023. Norway and Australia joined at COP 28 and have until the end of 2024 to deliver on their commitments. The US and Portugal are members of the CETP but have not yet passed policies to implement their pledge. Germany, Italy, and Switzerland are CETP members and have adopted implementing policies, but the policies contain large loopholes that continue to allow support for fossil fuels.  

While CETP is a partnership limited to export credit in the energy sector, the OECD Arrangement applies to the whole economy. CETP is a stepping stone toward a stronger OECD ECA Arrangement, particularly in its commitment to drive multilateral negotiations—in particular within the OECD—to review, update and strengthen governance frameworks in line with the Paris Agreement. The Republic of Korea and Japan are the largest providers of export finance for fossil fuels that have not signed on to the CETP, financing respectively USD 9.7 billion and USD 7.4 billion each year on average between 2018 and 2020. Japan was a part of the 2022 G7 commitment to end new direct public support for the international unabated fossil fuel energy sector, except in limited circumstances that are consistent with a 1.5°C warming limit and the goals of the Paris Agreement. However, as it stands Japan has not followed through on this commitment. Türkiye is one more country that is party to the OECD arrangement but not a CETP signatory.  

The time is now. OECD countries must put aside their differences and come to a deal before the end of the year. There will be no transition away from fossil fuels without an end to public finance for fossil fuels.