At the COP26 summit in 2021, 39 countries and public finance institutions, including Canada, the UK, France, and the European Investment Bank, pledged to end their financing of fossil fuels. A year after the deadline, the signatories appear to have made substantial progress in reducing their funding for oil and gas, according to a new report by the International Institute for Sustainable Development (IISD).
Since 2021, the signatories have reduced their support for the oil and gas sector by two-thirds, down to $5.2bn in 2023, which the IISD sees as a sign that the pact is working.
However, the report warns that less progress has been made in increasing clean energy subsidies. In 2023, CETP members provided $21.3bn for clean energy, an increase of just 16% from the 2019–2021 baseline and less than the $26bn allocated in 2022.
The report also highlights a disparity in funding allocation, with most clean energy finance directed towards developed countries like Spain, Poland, and the United States. In contrast, most funding for lower- and middle-income countries has been provided as loans, exacerbating the debt crisis in the global South. Debt servicing costs in these regions are consuming 41.5% of budget revenues and nearly half of government spending, according to research by the campaign group Debt Relief International.
Natalie Jones, lead author of the report and policy advisor at the IISD, said: “It’s encouraging to see leaders cutting international public finance for coal, oil, and gas, which is incompatible with a safe climate. Now, they must match that by scaling up investment in clean energy for all, including targeted support for the countries that need it most.”
Adam McGibbon, campaign strategist at Oil Change International and co-author of the report, added: “The CETP is a global success story that’s shifting finance away from fossil fuels—but this progress is despite broken promises from the U.S., Italy, Germany, and Switzerland. These countries need to honour the commitments they made in Glasgow or face increasing international pressure.”
However, the report also identified significant laggards. While the United States, Italy, and Germany reduced but did not eliminate support for coal, oil, and gas, Switzerland increased its support.
The IISD report calls for signatory states to end all fossil fuel subsidies and significantly increase funding for clean energy. It also advocates for providing finance to the Global South on fairer terms to prevent further escalation of the debt crisis.
The issues of fossil fuel subsidies and financing the energy transition in the Global South are expected to be key sticking points at this year’s COP29 summit in Baku, Azerbaijan, in November. Last year’s COP28 summit succeeded in raising additional funds for the energy transition in the Global South, but the topic of fossil fuel subsidies was largely excluded from the official agenda. With COP29 to be held in another oil-producing nation, there is a risk that the topic will be marginalised again.
Data from the International Monetary Fund (IMF) shows that global fossil fuel subsidies increased to $7.1trn in 2022 and could exceed $8trn by 2030.
A report by the International Energy Agency (IEA) released earlier this year shows a sharp increase in renewable energy generation, predicting it could account for up to 45% of all electricity generation worldwide by 2040. However, the IEA also warns that traditional frameworks for ensuring electricity security will not be sufficient amid rapidly growing demand for electricity. “The challenge for policymakers and system planners is to update policies, regulations, and market design features to ensure that power systems remain secure throughout their clean energy transitions.”
