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American Focus > Blog > Environment > In his final weeks, Biden aims to cut off funding for oil and gas projects abroad
Environment

In his final weeks, Biden aims to cut off funding for oil and gas projects abroad

Last updated: December 12, 2024 2:12 pm
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In his final weeks, Biden aims to cut off funding for oil and gas projects abroad
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Export credit agencies play a significant role in the international finance landscape for fossil fuels. These government bodies provide funding to companies undertaking large and risky infrastructure projects, often in developing countries, in exchange for the use of materials from the country of the agency. This financing has made export credit agencies some of the largest public funding sources for energy infrastructure globally, surpassing multilateral institutions like the World Bank.

As the Biden administration nears its end, officials are collaborating with international partners to advance an agreement that would drastically reduce funding for oil and gas projects by export credit agencies. This initiative, which the administration initially hesitated to support before Donald Trump’s reelection, is being discussed within the Organization for Economic Cooperation and Development (OECD), a group of 38 wealthy nations that coordinate export credit terms to avoid distorting trade relations.

If the OECD countries reach an agreement to restrict export credits for fossil fuels, it would require a major policy shift for the United States’ Export Import Bank (EXIM), the country’s export credit agency. The U.S. would have to halt approvals for loans to oil and gas infrastructure projects, potentially cutting off billions of dollars in financial support for such ventures.

The groundwork for this agreement was laid by former President Barack Obama’s administration in 2015 when a coalition of OECD countries agreed to stop funding high-emission coal power plants. Subsequently, the rest of the OECD followed suit, significantly reducing coal finance globally. However, the bulk of export credit financing is directed towards oil and natural gas projects, posing a greater challenge to curb.

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Despite President Biden’s executive order in 2021 to limit international public funding for fossil fuels, the EXIM Bank proceeded with financing several large oil and gas projects, including an oil refinery expansion in Indonesia and a $500 million oil-drilling operation in Bahrain. The approval of these projects has led to resignations from members of EXIM’s climate advisory council.

EXIM officials have cited constraints in the bank’s charter that prohibit discrimination based on industry as a reason for continuing to finance fossil fuel projects. However, experts argue that this language may not be an insurmountable barrier. Momentum for expanding the coal pledge to oil and gas projects has primarily come from European countries.

The outcome of the ongoing discussions within the OECD will have significant implications for the future of international financing for fossil fuels. If an agreement is reached to restrict funding for oil and gas projects, it could mark a crucial step towards aligning public finance with climate goals and transitioning towards cleaner energy sources. Last year, the European Union put forth a proposal aimed at reducing oil and gas export credits to other OECD nations, with the United Kingdom and Canada also backing the initiative. The U.K. has been at the forefront of ending fossil fuel export credits within the OECD, with its export credit agency drastically reducing support for oil and gas projects. In a significant shift, the agency’s former head of energy finance, who previously managed fossil loans, now oversees renewables and the transition to cleaner energy sources. Notably, the U.K. even provided an export credit loan for decommissioning fossil fuel infrastructure in Brazil.

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Initially, the U.S. declined to support the framework, but following Trump’s reelection, the White House reversed its stance and endorsed the proposal. The timing of this change coincided with the realization that swift action was necessary to make an impact on Biden’s climate agenda. However, despite the Biden administration’s backing, the deal is not yet guaranteed, as certain countries like South Korea have reservations due to their reliance on oil and gas clients.

Recent developments have seen member countries engaging in extensive negotiations to finalize the agreement on fossil fuel export credits. Multiple overtime sessions have been scheduled, indicating that a resolution may be imminent. While a unified stance among OECD countries, including the U.S., would send a strong message, there are concerns that other nations may find alternative ways to support oil and gas projects, such as through private banks.

The International Energy Agency has emphasized the need to limit global temperature increases to 1.5 degrees Celsius, which requires halting new coal, oil, and gas ventures. Despite this, such projects continue to move forward. While an agreement on export credits may not completely halt these endeavors, it could redirect resources towards renewable energy investments and potentially deter risky oil and gas ventures in the future.

In conclusion, while a deal on fossil fuel export credits may not be a definitive solution, it could have a significant impact on redirecting financial resources towards cleaner energy alternatives. The ongoing negotiations within the OECD underscore the importance of international cooperation in addressing the urgent climate crisis and transitioning towards a more sustainable future.

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