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Financing for fossil fuel projects come under fire at climate summit

22 April 2021 Amena Saiyid Kevin Adler

World leaders as well as citizen activists targeted financing and taxation of fossil fuel projects at the Leaders Summit on Climate the Biden administration is holding 22-23 April.

Fossil fuel burning by power businesses, homes, or factories, or to fuel automobiles remains the largest source of GHG emissions. These fuels, notably oil, coal, and natural gas, also remain an integral part of the energy mix in most developed nations — and certainly in developing countries, where they are cheaply available.

Replacing their use remains a challenge because, until quite recently, renewable power was not affordable.

On the first day of the summit, President Joe Biden, who campaigned on weaning the country off fossil fuels, called for changes in federal tax policy for fossil fuel production, while announcing the release of the country's first-ever international climate financing plan.

On the same day, the US House of Representatives Committee on Oversight and Reform Subcommittee on the Environment held a hearing on the same topic, indicating interest, at least among Democrats, in large-scale reform of domestic taxation and incentives for the fossil fuel industry.

Unlocking financing for vulnerable countries

The Biden climate financing plan seeks to unlock funding for countries that are most vulnerable to climate change and lack the funds to transition to cheaper and cleaner sources of energy.

"Scaling back public investments in carbon-intensive fossil fuel-based energy is the necessary corollary to increasing investments in climate-friendly activities," the plan said.

The Department of the Treasury will take the lead on this initiative by developing guidance on fossil fuel energy activities at multilateral banks (MDB), which it will use as part of its criteria when casting US votes on specific projects. These MDBs include the African Development Bank, the Asian Infrastructure Investment Bank, Islamic Development Bank, the International Monetary Fund, and the World Bank.

The plan directs the US Agency for International Development to develop a new climate strategy that will help countries "transition away from fossil fuels and the integrity of the renewable energy supply chain." This strategy is due for release in early November to coincide with the upcoming United Nations COP26 climate meeting.

Biden reiterated his pledge to double, by 2024, the US' share of public climate financing to developing countries relative to the average level the White House gave during the second half of the Obama-Biden administration. He also pledged to triple the funding for adaptation by the same period.

Total US international public climate financing averaged around $2.8 billion a year during the period, with around $500 million going toward adaptation, Leonardo Martinez-Diaz, an aide to Special Presidential Envoy for Climate John Kerry, tweeted in response to a question about the Obama funding.

To that end, Treasury Secretary Janet Yellen, who also spoke at the summit, said the administration's fiscal year 2022 budget request -- for the period beginning 1 October 2021 -- asked Congress for $1.2 billion for the Green Climate Fund (GCF) as well as $485 million for other multilateral initiatives and $100 million for adaptation. The GCF was established under the 2015 Paris Agreement to help developing countries reduce their GHG emissions and adapt to climate change effects.

Even with Biden's funding request for the GCF, which the US Congress has to approve, the US share still remains $1 billion short of the $3 billion Obama pledged. Obama was only able to provide $1 billion for the fund when he was in office.

The US is not the only country that pledged to move away from fossil fuels during the climate summit. South Korea President Moon Jae-In said the country would no longer finance coal-fired power projects abroad and would stop issuing permits for domestic coal-fired power plants as well.

Recognizing the difficulties that developing countries may face in transitioning away from coal, Chinese President Xi Jinping urged the participants, especially those in the developed world, to take concrete steps to assist those countries' transition to a "green and low-carbon economy."

Xi also said China would work with its partners to promote "green" Belt and Road Initiative projects.

However, a report by Global Environment Monitor, released earlier in April, found that China's new construction of coal-fired power plants in 2020, at 38.5 GW of capacity, exceeded all the coal power plant shutdowns across the entire world, at 37.8 GW.

On the second day of the climate summit, Poland's Prime Minister Andrzej Duda spoke about his country's plans to shift from current reliance on coal for about 70% of its power to coal-free power by 2050 or earlier. Already, he said, Poland "is a European leader in production of lithium-ion batteries," which indicates how it is participating in the energy transition.

Also on board with Biden was Kristalina Georgieva, who heads the International Monetary Fund. She said phasing out fossil fuel tax breaks provides "a critical market signal" to producers as well as consumers. She said such a step has also been proven to advance investment in renewable energy and other clean energy technologies.

Impassioned appeal

Perhaps the day's most impassioned appeal for an end to fossil fuel financing came from Xiye Bastida, a Mexican-Chilean youth activist with the nonprofit Fridays for Future, who said world leaders "need to accept that the era of fossil fuels is over."

Fridays for the Future is a global youth movement that began in August 2018 with a strike staged in front of the Swedish parliament by then 15-year old Greta Thunberg, who jolted the conscience of world leaders for climate action when she appeared before the United Nations.

Speaking before the House subcommittee's 22 April on fossil fuel subsidies, Thunberg didn't mince her words. "… the fact that we are still having this discussion and we are still subsidizing fossil fuels directly or indirectly using taxpayer money is a disgrace…. It is clear proof we have not understood the climate emergency at all," Thunberg said.

Like Thunberg, Bastida, who is a member of the indigenous Mexican Otomi-Toltec nation, was equally vocal in reminding the summit participants that "green economy with business as usual will severely affect black, brown and indigenous communities."

She demanded that leaders transition immediately to renewable energy worldwide and "we demand you end fossil fuel subsidies."

Posted 22 April 2021 by Amena Saiyid, Senior Climate & Energy Research Analyst, IHS Markit and

Kevin Adler, Editor, Climate & Sustainability Group, IHS Markit

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