OECD labels gas and other fossil-based technologies climate-friendly

The OECD has adopted a new list of “climate-friendly” projects that will be able to benefit from preferential financial terms for export support. Yet, a number of projects included, such as ammonia, cause greenhouse gas emissions and others are poorly defined, potentially allowing for preferential financial incentives for export credit agency (ECA) investments in gas.

The list includes a wide array of vague, undefined terminology such as “environmentally sustainable energy production” and “clean hydrogen”. The “climate-friendly” category also includes fossil-based technologies that are unproven at scale and still cause emissions such as carbon capture and storage (CCS) and ammonia.

The climate-friendly incentives were intended to be adopted in November 2022 as part of a revision of the OECD’s Climate Change Sector Understanding dating from 2014, but the negotiations that took place behind closed doors did not conclude until now.

The OECD Arrangement on Export Credits governs OECD Export Credit Agencies (ECAs), which provide more public finance to fossil fuel projects than any other type of public finance institution, including the Multilateral Development Banks (MDBs). From 2019-2021, G20 ECAs provided seven times as much export finance to fossil fuel projects ($33.5 billion USD) than for renewable energy ($4.7 billion USD). These practices of continued new fossil fuel support directly counter climate science. The IPCC’s and the International Energy Agency’s (IEA) scenarios show that keeping a 50% chance of limiting global warming to 1.5°C, means no new investments in coal, oil or gas supply or liquified natural gas (LNG) infrastructure.

The problematic definition of what constitutes as “climate-friendly” goes directly against a recent joint position launched by over 175 Civil Society Organizations (CSOs) calling on the OECD to end export finance for oil and gas. To align the OECD Arrangement and Export Credit Agencies with international climate goals and a 1.5°C trajectory, CSOs call for an immediate prohibition on all new oil and gas financial support, not the promotion of false solutions.

Nina Pusic, Oil Change International, said: “The new scope of ‘green’ incentives under the OECD Arrangement is completely contradictory to what we know is needed to keep 1.5°C within reach, which is, an end to new fossil fuel support. Labeling problematic technologies that extend the lifetime of fossil fuel projects, such as carbon capture and storage, ammonia, and hydrogen, as ‘climate-friendly’ detracts from the critical work needed to reach 100% renewable energy based systems.”

Steven Feit, Senior Attorney, Center for International Environmental Law, said: “The recently released statement fails to reflect the urgent need to end fossil finance and transition away from fossil fuels. The willingness of governments to extend favorable public financing terms to technologies that prolong reliance on fossil fuels, such as carbon capture, or launder fossil gas into the economy, as do most hydrogen and ammonia projects, undermines climate action rather than advancing it. Carbon capture, hydrogen, and ammonia are the primary avenues through which the industry seeks to legitimize itself in the wake of escalating climate catastrophe and climate action. Labeling these projects as ‘green or climate friendly’ perpetuates a false narrative and brings us further away from the urgent action needed today to phase out fossil fuels.”

Kate DeAngelis, Friends of the Earth United States, said: “The OECD Export Credit Group should not be a piggy bank for the fossil fuel industry. We reject the pretense that technologies like carbon, capture and storage are ‘climate friendly,’ which export credit agencies would have us believe. Exporting credit agencies supporting these technologies extends a lifeline to the fossil fuel industry rather than encouraging the necessary shift toward a just energy transition.”

Davide Maneschi, Climate Justice Programme Officer, Swedwatch, Sweden, said: “It is concerning to see the inclusion of technologies such as CO? capture and storage, hydrogen and ammonia, and energy minerals and ores as climate-friendly investments by the OECD without fully considering their implications on the environment and human rights. While these technologies may have the potential to reduce emissions, we cannot ignore the fact that criteria for what is considered “clean” or “green” are repeatedly stretched beyond any reasonable limit, and can come to be loopholes exploited to maintain the status quo. When employed wrongly, these technologies have the potential to exacerbate climate change and further perpetuate inequalities in our society. As we seek solutions to mitigate climate change, we must prioritize investments that truly prioritize sustainability and justice for all, and put energy democracy at the center of the transition.”