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A proposal to end export finance for oil and gas supported by the UK, EU and Canada will remain under discussion at next year’s OECD meetings after being tabled last week during negotiations in Paris.

If agreed, the proposal would see a ban on export credits for new oil and gas projects, following the approach taken to prevent export credit agencies (ECAs) from financing unabated coal-fired power plants.

“The EU and UK position expands that coal-fired power prohibition to include all fossil fuels and all parts of the fossil fuel value chain, with some exceptions,” says Nina Pušić, OECD export finance climate strategist at Oil Change International (OCI), speaking to GTR from the negotiations.

No firm decisions were made last week, but the proposal will be discussed again when the OECD meets next year.

Restrictions on coal financing based on CO2 emission thresholds were first adopted by the OECD Arrangement in 2015, with ECA support for coal-fired power plants limited after 2017.

In 2021, these measures were replaced by Article 6, a prohibitive clause on export credits for new unabated coal-fired electricity generation plants – with the exception of plants that use “effective carbon capture utilisation and storage” (CCUS).

The current proposal calls for a similar prohibition on oil and gas, a move that would bypass the transition stage seen in the approach to coal of an emission threshold coming before an overall ban.

This could be a stumbling block in securing the agreement of the remaining eight countries in the Arrangement on Officially Supported Export Credits: Australia, Japan, Korea, New Zealand, Norway, Switzerland, Turkey and the US.

Opponents of the proposal as it stands argue that outright bans on oil and gas financing risk slowing down the clean energy transition by cutting off access to interim energy sources like “blue” hydrogen, which is produced using methane or coal, with the carbon generated in the process captured and stored.

“In the long run, fossil fuels have no future, but gas and oil will still be needed on the road to net zero. It is important to utilise smart technologies such as CCUS in order to reduce the carbon footprint as fast as possible,” says Daniel Bembennek, head of finance at thyssenkruppp Uhde, and a participant in the discussions last week as a Business at OECD (BIAC) delegate.

According to OCI, the proposal is likely to garner support as 52% of OECD countries – including the US – are also signatories to the Clean Energy Transition Partnership, agreed at Cop26 in 2021.

That agreement commits them to drive multilateral negotiations in the OECD “to review, update and strengthen their governance frameworks to align with the Paris Agreement goals”.

“Having Canada, the UK and the EU aligned is certainly helpful, but you’d need to convince the US and all the other countries eventually,” says Pušić.

“What we saw with the coal negotiations is that the US really used its diplomatic capital to shift Japan and Korea, and that was what was most successful. We imagine that that could be replicated with oil and gas, and that US leadership is critical to move the world’s biggest laggards forward,” Pušić adds.

According to OCI, Japan and Korea together provide on average more than US$16bn in oil and gas financing, based on 2018-2020 levels, while OECD ECAs provided an average of US$41bn per year in export support to fossil fuels between 2018 and 2020.

“Canada historically has been one of the biggest supporters of fossil fuels through Export Development Canada (EDC). This is quite a big step forward – it’s not impossible to have a laggard turn into a potential front-runner. However, domestic support to fossil fuels provided through EDC – which still stands at several billion dollars a year – remains unrestricted,” adds Igor Shishlov, head of climate finance at Perspectives Climate Research.

Pušić, Shishlov and other NGO representatives participated in the OECD Export Credits Forum on November 7, the public part of the talks.

OECD negotiations take at least two years, Pušić says, meaning the earliest the new rules could come into force will be 2025.

A high-ranking official in the export credit sector familiar with OECD discussions tells GTR that “anytime you put a new proposal on the table, that’s the start of the negotiations. You’ve got to get a consensus.”

“In that context, you have to move all the governance in the same direction, and sometimes that just takes time. I wouldn’t be surprised if there’s an agreement by the end of next year,” the official says.

They add that any change will need to take into account the scope of the ban and exceptions for developing countries that have fewer options for building renewable energy supplies, noting: “Are we talking about anything to do with fossil fuels, or are we only dealing with fossil fuel power?”

The OECD is set to meet again in Q2 next year.