Ending Export Credits for Oil and Gas: How OECD countries can end 2024 with a climate win

A consistent theme at the climate talks in Baku, Azerbaijan, was extreme frustration from the poorest and most vulnerable countries at the inadequate finance offered by developed countries—finance they sorely need to address the ravages of climate change on their economies and communities.

This frustration, building from one climate conference to the next, is not only because poor countries are bearing the brunt of climate change while having done little to cause it—it is because of the hypocrisy they see on the part of rich countries who claim they are unable to provide more to developing countries while continuing to subsidize the fossil fuels causing climate change.

The deal reached in Baku to mobilize USD 300 billion a year by 2035 is a progression on previous commitments but falls short of developing countries’ assessed needs. It also falls short of the estimated amount of public money that developed countries are providing to fossil fuels.

Despite the commitment to make “finance flows consistent with a pathway towards low greenhouse gas emissions and climate resilient development pathways,” domestic fossil fuel subsidies in 23 developed countries—those who are responsible for providing climate finance under the Paris Agreement—totalled at least USD 378 billion in 2023. And outside of national borders, rich countries still provide export credit finance of USD 41 billion per year to oil and gas, following their earlier agreement to end export credit support for coal.

Members of the Organisation of Petroleum Exporting Countries (OECD) have a critical and immediate opportunity to address at least the export credit finance element of public finance for fossil fuels to show they are serious about shifting funds from fuels that are exacerbating climate change to solutions that will protect planet and people, especially those in the poorest countries.

For a year now, OECD governments have been negotiating an agreement that could put an end to oil and gas export finance. Originally put forward by the United Kingdom, the European Union, and Canada, the proposal is now backed by nearly all OECD countries. If the few holdouts can be persuaded, this deal could only be reversed if all negotiating countries agreed to undo it.

Following the acrimony in Baku, this would be a very real way for the mostly rich countries of the OECD to show policy coherence, respond to calls from the poorest countries to stop subsidizing the fuels that are causing the climate crisis, and shift public finance to solutions.

A restriction on export credit support to oil and gas is also pro-development in another way. To the extent that these credits are being offered for projects in the developing world, they are placing these economies at increased risk. The International Energy Agency projects that oil and gas demand will both peak before 2030, even if no new climate policies are rolled out. New oil and gas infrastructure, such as gas-fired power plants, are at risk of becoming stranded assets unable to recover the original investment costs.

Public financing for fossil fuels has an outsized impact compared to private finance. Since it is government-backed and often provided at preferential below-market rates and longer time horizons, it helps leverage additional investment for proposed projects. It makes viable polluting projects that might not otherwise be financially feasible.

We have seen the potential of multilateral leadership in export finance before. In 2021, the OECD ended coal-fired power export credit financing, a key milestone in the phase-out of international public finance for coal. Now OECD countries have the opportunity to replicate this success for oil and gas. This could free up much-needed public finance to accelerate the uptake of clean energy.