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The decision to restrict public financing in fossil fuels — which came as negotiations were underway at a major United Nations climate conference in Glasgow — will further restrict investments in drilling, power plants and other projects by international development banks and other publicly-funded institutions.
Leaders of multilateral institutions, philanthropies and advocacy groups have urged the rapid phase out of coal, oil and gas operations, arguing that if done right, consumers worldwide would be able to make the transition from the carbon-emitting present to a decarbonized future.
The move to restrict public financing for all foreign fossil fuel projects doesn’t affect what countries do at home, nor did it include every major international funder of such efforts. China and Japan did not join the pledge. And there appeared to be some loopholes. But proponents still said that it could send a positive message.
“We hope this will lead to the same domino effect that we’ve seen with coal finance,” said Laurie van der Burg, a global public finance campaign manager at the nonprofit Oil Change International.
Stopping the flow of money to new fossil fuel development is essential to meeting the world’s climate goals, activists say. In May, the International Energy Agency published a “road map” to zeroing out carbon emissions by 2050; according to that plan, there should be no new development of fossil fuel supplies after this year.
After the World Bank announced it would stop funding coal projects in 2013, a growing wave of countries and financial institutions has made similar commitments. This year, the world’s 20 biggest economies agreed to end public finance for overseas coal projects. Restricting public funds for fossil fuels can also make them less attractive to private investors, who may see the projects as riskier without a backstop of government support. It also communicates that producers of polluting fuels have “lost their social license,” van der Burg said.
But van der Burg cautioned that the details of the international finance pledge still need to be fleshed out. Loopholes that permit indirect funding or that allow countries to continue supporting fossil fuel projects that use small amounts of carbon capture to reduce their emissions, for example, would diminish the pledge’s significance, she said.
The separate commitment to phase out coal power and not invest further in it, announced late Wednesday, attracted 18 new countries, including Poland, Vietnam and Chile, all major coal consumers. They committed to phase out coal by the end of the 2030s for richer countries and a decade later for less-developed ones, though oil and gas was not covered, limiting the pledge’s ambition.
“Coal has no part to play in our future power generation,” British Business Secretary Kwasi Karteng said in a statement. “The end of coal is in sight. The world is moving in the right direction, standing ready to seal coal’s fate.”
The efforts comes as rich nations are being pressed to do more to help their poorer, less energy-intensive neighbors.
Rajiv J. Shah, president of the Rockefeller Foundation, said this week that there is tremendous inequality in the energy sector. He said 3.6 billion people consume less than 1,000 kilowatt hours of energy per person annually. That compares with 8,000 in the Organization of Economic Cooperation and Development and 12,000 in the United States.
“You cannot have this grand transformation of the global economy take place if it does not capture the hopes and aspirations of billions of people throughout the planet,” said Shah, who along with Ikea Foundation and the Bezos Earth Fund this week launched an alliance to retire coal plants while accelerating renewable energy.
Mufson and Kaplan reported from Washington. Maxine Joselow in Glasgow, Scotland contributed to this report.
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