Inside the COP 26 deal to end international fossil fuel financing

A landmark deal announced at COP 26 to end international public financing for fossil fuels intends to challenge the narrative that oil, coal, and gas are necessary for the development of low-income countries, according to one of the officials who worked to secure the agreement.

The agreement, announced on Thursday, has the support of 26 nations and financial institutions, and — if implemented correctly — will see at least $18 billion of international public financing switch from fossil fuels to supporting clean energy, according to a civil society estimate.

“We will end new direct public support for the international unabated fossil fuel energy sector by the end of 2022, except in limited and clearly defined circumstances that are consistent with a 1.5°C warming limit and the goals of the Paris Agreement,” the agreement reads.

Signatories are as varied as the United Kingdom, United States, Mali, Ethiopia, Zambia, South Sudan, and Costa Rica. With Italy joining at the last minute — its late signing quickly outdating prepared press releases Thursday morning — there is hope that more countries will join as the talks in Glasgow continue. While the East African Development Bank and European Investment Bank were among the signatories, noticeably absent were the World Bank and many other multilateral development banks.

A U.K. government official involved in securing the agreement told Devex: “Having that developing country voice in support of this helped push back on the narrative that some like to push that developing countries ask for fossil fuels for development … We are trying to demonstrate that is moving and isn't the norm across these regions.”

Advocates hailed the agreement as “historic” and praised it for driving action on oil and gas up the COP 26 agenda, in a summit which has placed a strong emphasis on coal — for which G-20 countries already agreed to end international finance.

A ‘just transition’

The idea of the “just transition” has existed for decades. As part of it, low-income nations want to ensure their development is not stifled on the road to a low-carbon future, noting the advanced economies have historically created the most emissions. The U.K. official told Devex this announcement contributes to a just transition.

Despite the failure of high-income countries to reach the annual $100 billion climate finance goal — which is not expected until 2023 — the official acknowledged that trust was a key element in the COP 26 negotiations.

“We are asking countries to decarbonize, to reach net-zero by 2050 and have a development pathway aligned to 1.5 [degrees Celsius] — we can't ask them to do that without providing support,” said the official, who declined to be named due to sensitivities around ongoing negotiations.

But having the low-income countries joining the agreement was “a really strong signal to the donor countries that this is how they want the financial flows to be moving, and it’s another way they can provide a voice in asking the flows to go to the right place,” the official said.

The official added that the way the agreement is structured — “shifting what's already being spent [on fossil fuels] into other places” rather than creating new financial demands — is also important and “can maybe be seen as an easier ask for donors.”

When the U.K. began planning for the agreement in April, the intention was to create a “small but credible vanguard group of countries by COP [26] … in order to demonstrate this is the next frontier,” according to the official — who did not think “major players” such as Canada would join by the conference, which kicked off earlier this week.

But “it turns out there's a good number of countries, developed and developing, that agree with that approach,” said Iskander Erzini Vernoit, policy adviser at E3G, a think tank focused on climate policy.

Erzini Vernoit told Devex the agreement was “driven by the COP 26 presidency [the U.K.] but reflects a broader state of interest and position from a broader range of countries … [both] donor and recipient. It captures a new norm in international energy finance that has been emerging and continues to emerge and go mainstream.”

Key players left out

But major fossil fuel-producing countries in the global south, such as Nigeria and Angola, were absent from the agreement. Major Asian financiers of fossil fuels, such as China, Japan, and South Korea, were also absent.

Several African country representatives — from Nigeria, Gambia, South Africa, and Rwanda — told Devex the agreement will be further studied and aligned with their respective countries’ new, existing, and ongoing energy projects.

“We expect to hold bilateral meetings with our partners on this and other announcements to see how we can integrate all of them together and figure out how to fund them,” a Nigerian government negotiator said on condition of anonymity.

Nigeria earlier this year got upset at the World Bank after the Washington-based lender announced it would only fund gas projects in very limited cases as part of the bank’s alignment with climate goals. The country had argued this would hinder a just energy transition.

African representatives told Devex that specifics of the agreement are lacking, but if backed with adequate funding, it could help in accelerating the clean energy transition on the continent.

An official from the African Development Bank, which was not a signatory, told Devex that the announcement is well-aligned with one of its major objectives at COP 26, which is to amplify the continent’s voice on the global stage regarding renewable energy.

Al-Hamndou Dorsouma, the AfDB’s officer in charge of climate change and green growth, told Devex that Africa has great potential for all renewables, including solar, wind, geothermal, hydro, and other forms of clean energy.

“We hope the announcement will help Africa to harness those opportunities,” Dorsouma said. “Clean energy access is being promoted by the bank as a means to strengthen the resilience of communities and countries for them to access energy to build the economies, to build the livelihoods of communities, and also make sure that Africa will not contribute to global green[house] gas emissions.”

‘An ongoing underperformer’... or maybe not

The World Bank — another absentee from the agreement — received particular criticism on Thursday when Selwin Hart, special adviser to the U.N. secretary-general on climate action, branded the institution “an ongoing underperformer” on climate change and could not “continue to fiddle while the developing world burns,” the Financial Times reported.

The World Bank replied, saying in a statement to Devex that the accusation was “completely inaccurate” and noting that it pledged earlier this year to have all its financing come into alignment with the Paris climate accord by 2023.

“We will work with our client countries to help them achieve the 1.5 degree goal,” the bank said. The anti-poverty lender said it distributed $26 billion in climate finance in the last fiscal year, making it the largest multilateral funder in the sector for low- and middle-income countries. .

The World Bank’s vice president for sustainable development, Juergen Voegele, told Devex the agreement was a “very welcome announcement,” calling it “exactly the kind of international collaboration that’s needed right now.”

The agreement was also broadly welcomed by civil society groups, though many called for more governments to join and for greenwashing to be avoided.

“This statement is a start, but we urgently need more countries on board. Public finance shouldn’t be anywhere near fossil fuels if we want any chance of keeping within 1.5 [degrees Celsius],” said Robin Mace-Snaith, policy lead on climate and energy at the Catholic Agency for Overseas Development.

Mace-Snaith said CAFOD challenged the signatories to “ensure that the limited and clearly defined circumstances they reference are not just loopholes to continue supporting the fossil fuel sector … For many communities on the frontline of climate change, time has already run out, we must consign all fossil fuels to history now.”