Canada and New Zealand have mapped out how they will put into action pledges to scrap export credit agency (ECA) and export finance support for fossil fuel projects, ahead of an end-of-year deadline.
At last year’s Cop26 summit in Glasgow, thirty-nine countries vowed to end public finance backing for fossil fuels by the end of 2022, which theoretically bars ECAs and export finance institutions from providing fresh backing for such projects from January 1, 2023.
The pathway laid out by Canada’s government will make a significant dent in the amount of fossil fuels financed by public finance institutions, particularly through export finance.
Canada was the second-biggest public financier of fossil fuel projects in the G20 between 2019 and 2021, according to a database compiled by campaign group Oil Change International, channelling US$8.5bn of support to the sector.
The finance was chiefly provided through Export Development Canada (EDC), which acts as an export-import bank and export credit agency. Canada is home to a large domestic natural resources industry and Canadian companies are also active players in the global energy and mining sectors.
The Canadian government published guidelines on December 8 which say that no new financing will be provided for new or existing “international unabated fossil fuel energy projects” from January 1.
This includes “the extraction, production, transportation, refining and marketing of crude oil, natural gas or thermal coal, as well as any unabated fossil fuel power generation projects” although there are limited exceptions for gas-fired power. Support for mitigation and carbon capture and storage projects will also be permitted.
EDC says it has already made significant inroads into reducing the emissions from its export finance portfolio, including cutting support for the oil and gas sector from C$12.5bn (US$9.2bn) in 2018 to C$4.4 billion in 2021. It says it currently has C$2.5bn in exposure falling under the scope of the Glasgow pledge, none of which will be renewed at maturity.
“EDC remains steadfast in our support to Canadian companies in all sectors of the economy, helping our customers understand and mitigate ESG risks, seize opportunities and innovate to reduce their environmental impact,” says Justine Hendricks, the agency’s chief corporate sustainability officer.
“We will continue working with the federal government to meet our climate goals while supporting Canadian exporters who provide innovative products, services and technologies to help international fossil fuel companies decarbonise.”
A group of Canadian and international climate NGOs welcomed the guidelines. “This new policy, if applied with integrity, should end Canada’s track record as one of the worst providers of international fossil finance in the G20 and shift billions towards climate solutions,” says Environmental Defence Canada’s national climate programme manager Julia Levin.
On the same day, EDC’s fellow ECA New Zealand Export Credit (NZEC) outlined a similar policy to cement its Cop26 commitment, including an end to support for fossil fuel exploration, extraction, transportation, storage and refining, as well as power plants and supporting infrastructure and services.
Even for a party which is “in the fossil fuel energy sector” but carrying out an unrelated transaction, “applications may be considered only where that party has a documented and realistic transition plan consistent with a 1.5°C warming limit and the goals of the Paris Agreement [on combating climate change],” the NZEC policy says.
NZEC will allow exceptions for circumstances such as small-scale energy resilience projects in developing countries where there are limited non-fossil fuel options.
New Zealand has historically provided limited support to fossil fuel energy and is one of seven signatories to the Glasgow pledge which actually provide more financing support to clean energy, according to a June report by the International Institute for Sustainable Development.
The release of NZEC’s policy means there are only five governments that are yet to outline how they will meet their commitments to axing public finance for fossil fuels by the end of this year, according to Oil Change International: Germany, Italy, Portugal, Spain and Switzerland.
Of these, Germany, Italy and Spain agreed earlier this year to publicise their plans to wind down ECA support for fossil fuels as part of the Export Finance for Future (E3F) alliance, but so far have not.
The trio are also the biggest backers of fossil fuels within the E3F alliance. Italy has funnelled most export credit support to fossil fuels of any coalition member, according to an E3F transparency report published in June. The country extended €8.37bn in medium and long-term export credit between 2015 and 2020, followed by Germany’s €6.45bn and Spain’s €4.6bn.
Skyrocketing gas prices caused in part by Russia’s invasion of Ukraine triggered a European scramble for gas supplies from alternative suppliers such as Qatar and the US ahead of the northern hemisphere’s winter.
The E3F alliance, which includes Germany, said in November that Europe’s energy dilemma “does not change their commitment to the implementation of the Cop26 statement” but just weeks later energy trading giant Trafigura said that Euler Hermes, the German ECA, had agreed to partially guarantee a US$3bn loan to finance gas supplies to Germany.
The German government also revealed in parliament that Euler Hermes is considering extending more than €1bn in support to fossil fuel projects in Brazil, Iraq, Uzbekistan, the Dominican Republic and Cuba.
Sace, Italy’s ECA, said as recently as October this year it is considering backing transactions related to gas fields and infrastructure in Brazil and Turkey.
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