Climate Talks Highlight Rich Countries’ Poor Efforts on Fossil Fuel Financing

A recurring theme at the recent climate talks in Baku, Azerbaijan, was the mounting frustration from the poorest and most vulnerable nations over the inadequate financial support offered by developed countries. These nations urgently need such funding to counter the devastating impacts of climate change on their economies and communities.

This dissatisfaction, which has intensified across successive climate conferences, stems not only from the disproportionate burden borne by these nations despite their minimal contribution to climate change but also from what they perceive as hypocrisy by wealthier nations. While claiming they cannot provide more climate finance to developing countries, these nations continue to subsidize fossil fuels that drive climate change.

The agreement reached in Baku to mobilize $300 billion annually by 2035 marks progress compared to previous commitments but falls short of the financial needs assessed by developing countries. It also pales in comparison to the $378 billion in domestic fossil fuel subsidies provided by 23 developed countries in 2023, despite their Paris Agreement pledge to align financial flows with low-emission and climate-resilient development pathways. Additionally, these countries continue to allocate $41 billion annually in export credit finance for oil and gas, even after agreeing to cease such support for coal.

The Organisation for Economic Co-operation and Development (OECD) has a critical opportunity to demonstrate its commitment to redirecting public finance from fossil fuels to climate solutions. For the past year, OECD member states have been negotiating an agreement to end export credit finance for oil and gas. Initially proposed by the UK, EU, and Canada, the initiative has gained support from nearly all OECD countries. If the remaining holdouts can be convinced, this agreement could only be overturned if all participating countries collectively decided to reverse it.

Such an agreement would signal a significant shift in policy, addressing the demands of poorer nations to end subsidies for fossil fuels that drive the climate crisis. By redirecting public finance toward clean energy solutions, OECD countries could demonstrate their commitment to global climate goals and provide tangible support for the most affected nations.

Restricting export credit for oil and gas would also benefit developing economies by mitigating risks associated with fossil fuel projects. According to the International Energy Agency, global demand for oil and gas is expected to peak before 2030, even without new climate policies. This trend increases the likelihood of stranded assets—projects unable to recover their investment costs—as new fossil fuel infrastructure becomes obsolete.

Public financing for fossil fuels has a disproportionately large influence compared to private finance. Since it is often government-backed, provided at below-market rates, and structured over extended timeframes, it can attract additional investments for polluting projects that might not otherwise be financially viable.

The potential for multilateral leadership in export finance is not without precedent. In 2021, the OECD successfully ended export credit financing for coal-fired power, marking a critical milestone in phasing out international public finance for coal. A similar move for oil and gas could free up significant public funds to accelerate the adoption of clean energy technologies, benefiting both the planet and the most vulnerable populations.

The discussions in Baku underscore the urgent need for wealthy nations to align their financial policies with climate goals. By redirecting public finance from fossil fuels to sustainable solutions, OECD countries have the chance to lead by example, addressing global climate challenges while fostering equitable development.

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