An agreement to end public financing for foreign fossil fuel projects – which Canada co-chaired on the world stage – collapsed in the face of key resistance countries and the new administration of US President-elect Donald Trump.
Canada, together with the United Kingdom and the European Union, proposed in 2023, ending financing of oil and gas projects abroad through export credit agencies – government agencies that support foreign trade – and instead redirecting the money to clean energy.
The United States, under President Joe Biden, expressed its support for the agreement only immediately after last November's presidential election, setting off a mad rush to reach an agreement before Trump's inauguration. Ultimately, there wasn't enough time.
The Organization for Economic Co-operation and Development (OECD) confirmed in a statement to CBC News that despite months of negotiations, no agreement could be reached.
In the OECD, unanimity is required to reach any agreement. Apart from the delayed US support, the other countries that opposed were Türkiye and South Korea on the grounds of energy security and economic concerns.
Trump, who has signaled he wants to expand oil drilling and is filling his cabinet with oil industry-friendly leaders, is not expected to support such a deal aimed at curbing fossil fuel financing.
Nina Pušić, senior climate strategy specialist for export finance at Oil Change International, an advocacy group closely following the talks, said it was a “huge missed opportunity for climate.”
“I think the big picture is that if we want to achieve the goals of the Paris Agreement, our public finances must be devoted to financing a clean and fair energy transition, not digging the fossil fuel hole even deeper,” Pušić said.
How public finances stimulate risky investments in fossil fuels
The proposal by the OECD, a group of 38 industrialized countries, follows a pledge made at the 2021 UN climate conference in Glasgow to phase out such fossil fuel subsidies and put the money towards clean energy.
The proposal concerned a specific type of fossil fuel subsidies – those provided by export credit agencies for international projects. This public financing helps protect projects that may be risky and cause difficulty in obtaining initial financing from private investors and banks. Once public funding becomes available, projects will be able to more easily attract further private financing.
In Canada, that agency is Export Development Canada (EDC), which provides financial products, bonds and insurance for overseas projects involving Canadian companies to support trade between Canada and other countries.
“One of the reasons why export credit agencies are also so important is that they reduce investment risk. They basically provide a loan guarantee or some kind of security for the project, which then encourages private sector investment,” Pušić said,
“That's why they play such an important role in the ecosystem supporting the fossil fuel industry.”
For example, the U.S. Export-Import Bank provided a $500 million U.S. loan for a gas project in Bahrain in 2024 and a $100 million U.S. loan for an oil refinery in Indonesia in 2023. In the final days of the Biden administration, the bank approved another $500 million for a massive gas-fired power plant in Guyana.
Why some countries followed through on the agreement
One of the main opponents, South Korea, blocked the negotiations over concerns about the country's liquefied natural gas (LNG) industry. South Korea is the world's second-largest financier of fossil fuels, which is largely due to the fact that it is the largest producer of LNG tankers that transport the fuel around the world.
“However, given the global energy transition already underway, Korean companies with an outdated focus on fossil fuel projects will quickly be left behind,” said Dongjae Oh, who leads gas industry research at Korean think tank Solutions for Our climate.
“The best thing you can do to stay competitive is not to invest in renewable energy projects,” he said.
According to Oh, Korean officials also expressed concern that the country is not yet ready to transition away from fossil fuels for energy needs and needs more time. He said Korea spent an estimated $10 billion on international fossil fuel financing from 2020 to 2022 and that amount could be rising.
The way forward for countries
Kate DeAngelis, deputy director of economic policy at the advocacy group Friends of the Earth US, said countries like Canada that supported the proposal must continue negotiations despite political changes in Washington.
“It's important to remember that during the first Trump administration, OECD countries were able to tighten the restrictions they had put in place on coal financing,” DeAngelis said.
“These governments cannot use this as an excuse to just let it go.”
In 2023, Canada announced that this would happen withdraw “inefficient” fossil fuel subsidies – financing that encourages higher carbon emissions and hinders the transition to clean energy. Despite, report by the advocacy group Environment Defense found that Canada continues to spend billions on oil and gas subsidies.
Meanwhile, EDK he promised phasing out direct financing for international fossil fuel projects, but it is also a big funder domestic oil and gas.
DeAngelis said that despite the lack of agreement with the OECD, countries could double down on existing promises by closing loopholes and effectively limiting all fossil fuel subsidies.
“Countries are very good at making commitments. It's much harder to make sure they actually follow them,” DeAngelis said.