UK Needs to Provide Genuine Leadership on Fossil Fuel Financing

The UK’s Special Envoy to COP26, John Murton, announced earlier in October the United Kingdom’s intention to forge an alliance of governments and public-finance institutions to phase out international public finance for fossil fuels and increase support for renewables. There is no question that leadership on this critical issue is desperately needed to avert the worst climate outcomes.

The question is whether the United Kingdom will do what’s necessary to deliver on this promise, and whether other top fossil fuel financers will likewise rise to the occasion. Governments should urgently be taking every possible measure to stop the flow of financial support to fossil fuels. Such support—through subsidies and public finance—artificially reduces the cost of fossil fuel exploration, production, and consumption, incentivizing further production and wasteful energy use.

The International Energy Agency made clear in a 2021 report that all governments need to eliminate fossil fuel subsidies in the next few years and completely halt investment in new fossil fuel production this year to meet world climate targets. Ultimately, phasing out support for fossil fuels is a matter of governments meeting their human rights obligation to address the climate crisis. This move is key to reducing emissions and ensuring that governments can tap into their full resources to support communities bearing the brunt of climate impacts. Yet governments continue to provide billions of dollars in support for fossil fuels. From 2018 to 2020, G20 countries and the multilateral development banks they govern provided at least $63 billion per year in international public finance for oil, gas, and coal projects, 2.5 times as much as for renewable energy. Looking at public finance along with domestic subsidies and other supports, G20 governments provided $584 billion a year to support fossil fuels between 2017 and 2019. Positively, there is a growing movement to end international financing for coal, including a G7 commitment in June to phase out most public international finance for coal-fired power generation.

The Chinese government—by far the world’s largest international public financer of coal—pledged several months later to stop building coal-fired power plants overseas, potentially signaling a significant shift. Now, with COP26 and the G20 summit just around the corner, the United Kingdom’s climate team has set the ambitious goal of eliminating not only public financing for coal, but for all fossil fuels. This is an important step, and everyone should join in. In particular, countries such as Canada—the top fossil fuel public financer—and Italy, Germany, and France—among the top 15 G20 fossil fuel financers—should embrace this commitment. But more is needed. International public finance is key, but governments should also end the billions more they provide in domestic subsidies and broader government support for fossil fuels, while protecting low-income households from associated price increases. And while joint commitments are a positive first step, they must be followed by concrete, timely action. Past commitments to phase out fossil fuel subsidies have stagnated. Despite repeated pledges, G20 governments have collectively achieved just a nine percent reduction in the billions in fossil fuel subsidies provided from the period of 2014-2016 to 2017-2019.

The United Kingdom itself exhibits how commitments to eliminate government support for fossil fuels can fall short in important ways. On international public finance, the United Kingdom announced the immediate end to support for the fossil fuel sector overseas starting this year. But the plan has loopholes that will allow continued support for fossil fuels, particularly for gas.

The United Kingdom is in fact continuing support for a massive gas project in Mozambique that it agreed to fund just months before its commitment to end support for fossil fuels abroad. While pledging to phase out fossil fuel subsidies as a member of the G20, Boris Johnson’s government denies that the United Kingdom has fossil fuel subsidies based on its own narrow definition, which does not account for key subsidy measures like reduced tax rates on fossil fuel energy. Research published in 2020 by the International Institute for Sustainable Development ranked the United Kingdom worst among G20 Organisation for Economic Co-operation and Development countries when it comes to fossil fuel subsidies because it channels on average $16.4 billion in government support to coal, oil, and gas each year, and lacks transparency about these subsidies. According to 2021 OECD reporting, UK domestic support for fossil fuels increased 37 percent from 2017 through 2019, mainly driven by the “Ring-fence” corporate income tax break related to North Sea extraction activities. Financing climate catastrophe is not compatible with climate leadership, and all governments should be urgently working to eliminate support for fossil fuels at home and abroad.

The United Kingdom has an opportunity to deliver this year by committing to a clear roadmap ending government support for fossil fuels in the United Kingdom, and by working to build momentum on international public finance among partner governments and public finance institutions through its proposed alliance. As governments from around the world gather in Glasgow in November to chart a course forward on climate, with so much hanging in the balance, the United Kingdom and other big emitters need to break from the past and lead a new type of international collaboration to phase out support for fossil fuels. It should be marked by timely action, broad support, and clear commitments to prevent the worst climate outcomes and their impact on human rights the world over. .

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