US and EU differ over the future of fossil fuel subsidies in OECD talks

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The world’s richest countries are at odds over ending subsidies for oil and gas development as the US and EU differed over the extent of a ban, according to people familiar with the talks.

OECD countries have held a second round of closed-door talks in Paris to debate proposals by the EU and UK to cut off most export credit agency loans and guarantees for oil, gas and coal mining projects, which are the biggest source of international public finance for the sector. This would follow an agreement in 2021 to stop providing such support for coal-fired power.

A person familiar with the talks said the US was still assessing the EU’s proposals, with discussions scheduled to continue in June and November. The US Treasury declined to comment.

The US, Canada, France, Germany and the UK were among countries that agreed around the UN COP26 climate summit in Glasgow in 2021 to align their public finance institutions with a Paris agreement goal to limit global warming to ideally 1.5C above pre-industrial levels.

But this could affect the role of Exim, the US’s credit export agency, which will need to secure fresh funding from the US Congress in 2026, opening it to political scrutiny from Republican lawmakers who are resistant to cutting off finance for oil and gas, and progressive lawmakers critical of the bank’s climate record.

Exim recently offered $500mn in financing for an oil and gas project in Bahrain, despite six Democratic lawmakers urging it not to go ahead with the deal because it would undermine international climate progress.

Exim’s charter contains a clause that prohibits it from “discrimination” against any particular sector or industry. Senior officials at Exim say this clause could only be changed by congressional action.

“The US is dragging its feet at a time when it needs to step up to prove its climate leadership, ahead of the polls later this year,” said Nina Pušić, an export finance climate strategist at US environment campaign group Oil Change International.

Export credit agencies of G20 countries provided seven times more support for fossil fuel projects than for renewable energy sources between 2019 and 2021, the campaign group said. Fossil fuel projects received $33.5bn a year on average compared with $4.7bn for clean energy development, it found.

Under the EU’s proposal, the export credit agencies could only back fossil fuel projects if the OECD individual member countries each determined that the projects were aligned with the need to keep warming to 1.5C above pre-industrial levels.

The International Energy Agency has said there was no room for new oil and gas exploration projects if Paris climate targets were to be met.

The EU is also proposing a new transparency requirement, whereby countries would publish details of the funding of fossil fuel projects.

“An outright ban would be cleaner and send a stronger signal but the question is whether you can get the same political outcome but with a more politically palatable approach,” said Claire Healy, senior associate on international climate policy and diplomacy at E3G.

Changes to the OECD’s voluntary arrangement on export credits would require the consensus of a group of the 38 member states that includes the US, EU, UK and Canada, but also big fossil fuel financiers that had not agreed to align public finance with the Paris agreement, such as Japan and South Korea. Even within the EU, policy implementation on ending subsidies has been patchy.

“We’re at a moment where differences in attitudes to export credits within the G7 are creating an unlevel playing field,” a European diplomat familiar with the OECD negotiations told the Financial Times. “We’ve got to be realistic, we will not be able to have a unique methodology with a single cut-off point.”

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