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Ahead of crunch talks within the OECD Arrangement, climate groups are pressuring the US, Korea and Japan to agree to a comprehensive proposal that would halt billions of dollars in fossil fuel financing each year.

In recent days, over 40 environmental and social activity groups have written to members of the OECD Arrangement on Officially Supported Export Credits, urging them to expand an existing ban on coal financing to also include oil and gas projects.

Export credit agencies (ECAs) are among the world’s largest backers of fossil fuel transactions, often in developing regions such as Asia and Sub-Saharan Africa. Climate groups argue their support – in the form of guarantees, insurance and loans – can be vital in ensuring projects reach financial close.

In the past year, the Export-Import Bank of the United States (US Exim) has seen two advisors on its climate board quit over a US$500mn loan guarantee backing oil and gas field expansion in Bahrain, while Japan’s agency has come under fire for financing a new gas field in Western Australia.

Friends of the Earth, Oil Change International and BankTrack are among the signatories of the letter, which says it is “unthinkable that OECD agencies continue to pour billions into fossil fuel projects”.

“Out of the 10 largest international public financiers of fossil fuels, the top three are all OECD ECAs – the Republic of Korea, Japan, and Canada. On average they provide US$41bn per year into new planet-wrecking fossil fuel projects, with over 90% of those transactions flowing to oil and gas.”

Climate groups hope that participants in the OECD Arrangement will usher in a ban on fossil fuels when they meet in late November.

Last year, the EU tabled a proposal to fellow members of the group, which governs the export credit activities of large economies across Europe, North America and Asia – though notably excluding export finance powerhouse China.

The European plan, which according to the NGO letter has now been endorsed by the UK, Canada and Norway, would ban financing for power generation and all other aspects of fossil fuel value chains.

A European Commission spokesperson tells GTR: “The negotiations to update Article 6 of the Arrangement regarding fossil fuel support are still ongoing and the EU continues to push for an ambitious outcome.”

“The comments we have received from the other participants helped us to improve our proposal. We will carry on discussions, in various formats, with the aim of reaching agreement at the November meeting.”

In March, Brussels strengthened the wording of the proposed ban to clarify that all support must be aligned with the Paris Climate Agreement goals of limiting global warming to 1.5 degrees Celsius above pre-industrial levels.

According to an industry source with knowledge of preliminary discussions, the EU adopted language from the Clean Energy Transition Partnership, as several signatories – including the UK, US and Australia – are already part of this agreement, which was established at the Cop26 climate summit in 2021.

However, the US has reportedly yet to endorse this plan, and it is “currently unclear” what the White House will do, the source says.

“At the moment, there are a lot of questions over how this will go and how the Joe Biden administration will act.”

In September, Bloomberg reported that Korea and Turkey could also block an outright ban.

As shown in a document obtained under a Freedom of Information request, the Korea Trade Insurance Corporation (K-sure) has voiced opposition to the European strategy over energy security and fair competition concerns.

The K-Sure memo also revealed that Turkey had questioned the feasibility of the ban due to national security and energy security issues.

 

Trump’s shadow looms large

The outcome of the US election in early November will likely have a bearing on the fossil fuel negotiations, experts say.

Americans will head to the polls two weeks before the OECD Arrangement talks, and should Republican nominee Donald Trump win, there is the prospect he could repeal any agreement in early 2025.

Trump has described the White House’s climate agenda as a “scam” and pledged to achieve “energy dominance” for the US by increasing oil and gas output – despite production reaching record highs under President Joe Biden.

Nonetheless, climate activists are urging President Biden to back a fossil fuel ban within the OECD Arrangement.

“Instead of forcing Trump to overturn an international agreement, the Biden White House is making it easy for him by failing to take any action,” says Kate DeAngelis, senior program manager for international finance at Friends of the Earth.

“They are forgetting that Trump upheld the OECD agreement on coal, so why not test him to see whether he would similarly uphold an agreement on oil and gas?”

Climate activists have repeatedly criticised US Exim for continuing to support oil and gas, arguing the agency has undermined a pledge made by President Biden in an executive order issued in early 2021.

“Unfortunately, I’m not very hopeful that an agreement will be reached,” DeAngelis says, arguing that US Exim has shown little inclination to rein in its fossil fuel activity. Just last week, it approved a direct loan worth US$690mn for a petrochemical complex project in Malaysia that will produce goods such as jet fuel.

US Exim has consistently defended its actions, noting it is bound by its charter to evaluate all transactions equally, regardless of sector.

There are also political considerations. The ECA must secure another reauthorisation from the US Congress by 2026, otherwise it would once again be forced to freeze operations and stop signing deals worth over US$10mn.

Fossil fuel advocates on Capitol Hill are closely scrutinising US Exim, and are questioning its delayed funding for a US$14.9bn LNG project in Mozambique. These policymakers will ultimately have a say over US Exim’s bid for reauthorisation.