Japan has joined fellow G7 governments in vowing to end public fossil fuel finance by the end of 2022, though campaigners warn the actions of these nations’ export credit agencies could mean countries miss the deadline.
Following talks in Berlin on May 27, G7 climate, energy and environment ministers issued a communique in which they promised to halt new public finance for the unabated fossil fuel sector by the end of the year, except in “limited circumstances clearly defined by each country that are consistent with a 1.5 degrees Celsius warming limit”.
All G7 nations bar Japan – one of the world’s largest financiers of oil, gas and coal – made a near identical pledge at the Cop26 climate summit in Glasgow in November.
In their most recent statement, members of the informal bloc, which includes Canada, France, Germany, Italy, the UK and the US, also flagged the need to “significantly increase” global investments in low and zero emissions energy.
“We commit to align our official trade, export and development finance policies towards these objectives, including the possibility of providing additional incentives for clean energy technologies, and implementing these commitments within this time frame,” they said.
Laurie van der Burg, public finance campaign co-manager at non-profit Oil Change International, says the communique is “significant” and binds Japan to meeting the year-end cut-off date.
“Japan is the world’s second largest provider of international public finance for fossil fuels. It provides about US$10.9bn a year in public finance for the sector, if you combine their development finance and export finance,” she tells GTR. “It also has a role in aggressively pushing for gas expansion globally, particularly in Asia.”
Data from Oil Change International show G7 countries have upped their exposure to fossil fuels since 2017, despite growing climate concerns. Between 2018 and 2020, they provided US$100bn towards oil, gas and coal projects through export credit agencies (ECAs) or development finance institutions – over four times their contribution towards clean energy.
At the same time, NGOs are warning of potential loopholes in the governments’ new commitment and argue there is a very real threat that G7 nations will continue to pump finance into fossil fuels beyond December 31 – and into 2023.
“The statement talks about unabated fossil fuels, but there are very broad and different definitions that countries use, and this term is not really defined in this communique,” van der Burg tells GTR. “Neither have they outlined the limited and clearly defined exceptions.”
Western ECAs have broadly moved to cut their exposure to fossil fuels, with members of the OECD Arrangement on Officially Supported Export Credits formally banning support for unabated coal-fired power projects in late 2021, despite reported pushback from certain countries, including Japan and Australia, to the proposal.
All G7 nations are participants to the OECD Arrangement, a non-binding “gentlemen’s agreement” which for decades has proposed rules on the activities of member ECAs, including the financing terms and conditions they can provide.
But van der Burg argues some countries have displayed signs of “backsliding” in recent weeks, despite their pledges at Cop26 and within the G7.
“The US is looking to finance liquefied natural gas (LNG) to replace Russian supply, and indicated it could use its export credit agency. Japan has been holding discussions with the US about investing in the US LNG sector. Germany’s chancellor Olaf Scholz visited Senegal recently and talked up investments in gas there, to offset lost Russian supplies,” she says.
“If G7 countries were to implement their commitments with integrity, such investments shouldn’t happen, because their commitment explicitly says financing needs to be in in line with a 1.5 degrees Celsius temperature rise.”
Governments – and the export credit community – are widely touting LNG’s role as a so-called “transition fuel,” that can take the place of coal or oil in the immediate term while renewable energy investment and capacity is ramped up. That’s despite warnings from climate groups that natural gas will continue to produce devastating levels of greenhouse gas emissions.
Last month, the Export-Import Bank of the United States’ new chair, Reta Jo Lewis, told GTR the agency is working with OECD partners to create green incentives and is seeking to quicken the pace of the transition, but also noted “there are cleaner sources of these [fossil] fuels. LNG, for instance, is a sector Exim remains open to supporting”.
French, Dutch and Danish government officials have likewise indicated support for natural gas will last beyond the 2022 deadline.
“We all know gas will play a role for a couple of years in our energy supply, that’s no secret,” Dutch state secretary for finance, Hans Vijlbrief, said in the latter months of last year following a meeting of the Export Finance for Future alliance.
With campaigners highlighting a fracture between governments’ wider climate ambitions, and the day-to-day activities of their ECAs, pressure looks set to grow on these agencies to nix their support for oil and gas for good.
In March, EU finance ministers called on the European Commission to launch a discussion with OECD Arrangement participants “in order to reach an agreement on ending officially supported export credits for projects in the fossil fuel energy sector, beyond coal and including oil and natural gas projects” except in some limited circumstances.
“With Japan joining this commitment, over 50% of OECD members have signed onto this pledge,” says van der Burg. The OECD is the main regulatory body for ECAs… and we expect discussions will soon start to emerge at the OECD level on oil and gas export finance restrictions.”