A deal on ending public financing for foreign fossil fuel projects — which Canada co-led on the world stage — has died in the face of key holdout countries and the incoming administration of U.S. president-elect Donald Trump.
Canada, along with the U.K and European Union, proposed in 2023 to end financing through export credit agencies — government agencies that support foreign trade — for oil and gas projects abroad and divert the money to clean energy instead.
The U.S. under President Joe Biden threw its support behind the deal only right after the presidential election in November of last year, setting off a mad dash to get an agreement before Trump’s inauguration. Ultimately, it wasn’t enough time.
The Organisation for Economic Co-operation and Development (OECD) confirmed in a statement to CBC News that an agreement was not reached despite many months of negotiations.
At the OECD, unanimous agreement is required to get any deal done. Aside from the delayed U.S. support, the other countries holding out were Turkey and South Korea, over energy security and economic concerns.
Trump, who has indicated he wants to expand oil drilling and is filling his cabinet with oil industry-friendly leaders, is not expected to support such a deal to limit fossil fuel finance.
Nina Pušić, senior export finance climate strategist at Oil Change International, an advocacy group closely following these talks, said it’s “a huge missed opportunity for the climate.”
“I think the big picture is that if we want to reach the Paris Agreement goals, we need our public finance to be going into funding a clean and just energy transition, as opposed to digging the hole of fossil fuels even deeper,” Pušić said.
How public finance spurs risky fossil fuel investment
The proposal made by the OECD, a group of 38 industrialized nations, stems from a pledge made at the 2021 UN climate conference in Glasgow to phase out these kinds of fossil fuel subsidies and divert the money to clean energy.
The proposal targeted a specific kind of fossil subsidy — those given out by export credit agencies for international projects. It’s public financing that helps backstop projects that could be risky and have difficulty getting initial funding from private investors and banks. Once the public finance comes, projects can have an easier time getting further private funding.
In Canada that agency is Export Development Canada (EDC), which provides financing, bond and insurance products to projects abroad that involve Canadian businesses, with the goal of encouraging trade between Canada and other countries.
“One of the reasons export credit agencies are also so important is that they de-risk investment. So they basically provide a loan guarantee or some kind of cover for a project, which then invites private sector investment,” Pušić said,
“That’s why they provide such an important kind of role in this ecosystem of propping up the fossil fuel industry.”
The U.S. Export-Import Bank, for example, gave a $500 million US loan for a gas project in Bahrain in 2024 and $100 million US loan for an oil refinery in Indonesia in 2023. In the last days of the Biden administration, the bank approved another $500 million US for a massive gas energy plant in Guyana.
Why some countries held out on a deal
One of the main holdouts, South Korea, blocked the negotiations because of concerns over its domestic industries that support liquefied natural gas (LNG). South Korea is the world’s second largest fossil financier, mostly related to it being the largest builder of LNG carriers, which transport the fuel around the world.
“However, considering the global energy transition already taking place, Korean companies that maintain an outdated focus on fossil projects are going to quickly find themselves left behind,” said Dongjae Oh, who leads research on the gas industry at Korean think-tank Solutions for Our Climate.
“The best thing to do to maintain competitiveness is not investing in renewable energy projects,” he said.
Korean officials also expressed concern the country was not yet ready to transition away from fossil fuels for its energy needs, and needed more time, according to Oh. He said that Korea spent an estimated $10 billion US in international fossil finance for 2020-22, and that amount may be rising.
The way forward for countries
Kate DeAngelis, deputy director of economic policy at advocacy group Friends of the Earth U.S., said that countries like Canada who supported the proposal need to keep negotiating despite the political changes in Washington.
“It’s important to remember that under the first Trump administration, the OECD countries were able to strengthen coal finance restrictions that were put in place,” DeAngelis said.
“These governments can’t use that as an excuse to just drop the ball.”
In 2023, Canada announced that it would phase out “inefficient” fossil fuel subsidies — funding that encourages higher carbon emissions and impedes the transition to clean energy. Despite this, a report by advocacy group Environment Defence found that Canada is still spending billions on oil and gas subsidies.
Meanwhile, the EDC pledged to phase out direct financing for international fossil fuel projects, but it is also a big funder of domestic oil and gas.
DeAngelis said that despite the lack of an OECD deal, countries can double down on this existing promises by removing loopholes and truly clamping down on all fossil subsidies.
“Countries are very good at making commitments. What’s much harder is making sure that they actually adhere to them,” DeAngelis said.
