This article was published by the Thomson Reuters Foundation on May 25, 2022.
This week, G7 environment, climate and energy ministers are meeting in Berlin. Their objectives to “accelerate the energy transition” and promote “sustainable infrastructure and investment” have taken on a whole new meaning since the start of Putin’s war against Ukraine. This is a fossil-fuelled war, funded by oil and gas exports.
The G7 governments have taken some important steps to cut reliance on Russian oil and gas – but countries’ public finance for energy remains an underused tool both for ensuring energy security and shrinking Russia’s war chest. Public finance is a big topic on this weeks’ agenda, and the G7 countries have a tangible opportunity to end public investments in all new fossil fuel infrastructure and instead prioritize energy security through scaled-up support for renewables and energy efficiency.
Instead of putting this potential breakthrough at risk by backsliding on past commitments with new gas investments, the G7 members need to follow through and bring Japan along. The end of the fossil fuel era is the only effective response to the compounding debt, climate and energy price crises.
In last month’s flagship UN climate science report, the Intergovernmental Panel on Climate Change (IPCC) warned that continued large-scale public finance for fossil fuels is the most glaring example of global financial flows remaining severely misaligned with climate goals.
This is also the case for the G7. Between 2018 and 2020, they provided over $100 billion for fossil fuel projects, of which 94 per cent went to oil and gas. This was more than four times their support for clean energy, which totalled $25 billion and exceeded their climate finance. Rather than growing exponentially as urgently needed, G7 clean energy support has stagnated since at least 2015. This is a massive missed opportunity both in terms of addressing the climate crisis and reducing dependency on conflict-fuelling fossil fuels.
Despite increased military aggression under Putin over the last decade, Russia was the third-largest recipient of G7 fossil fuel finance. Between 2018 and 2020, Russia received $9.9 billion in G7 support for fossil fuel projects. A large share of this financing went to oil and gas extraction and controversial Liquefied Natural Gas (LNG) projects, such as Arctic LNG 2 and Yamal LNG.
The war, debt, climate and energy price crises demand that the G7 urgently change direction – and they have a unique opportunity to do so. After the G7 reached a commitment to end international coal finance at last year’s global climate conference in Glasgow, 39 countries and institutions committed to end international public finance for fossil fuels by the end of 2022 and instead prioritize their support for clean energy. All G7 members signed onto this commitment with the exception of one: Japan.
The other G7 members, and in particular Germany as the G7 host, the United Kingdom and the United States, must follow-through on their commitments and urge Japan to follow suit and cement their Glasgow commitment at this week’s ministerial.
Getting Japan on board would make a tangible difference – a $10.9 billion a year difference to be precise. Japan is the world’s second-largest provider of public finance for fossil fuels and the leading driver behind gas expansion in Asia and globally. Japan’s support for LNG is sparking strong opposition from communities, including the Tiwi people in Australia and the Wet’suwet’en in Canada, which have not been properly consulted and have not given their consent to these developments.
Meanwhile, the IPCC points out that investments in energy efficiency and clean energy are nowhere near where they need to be. By lowering investment risks and signalling government priorities, public finance has an outsized impact in shaping future energy markets – and the G7 following-through on their commitments to shift public finance is critical to unlocking the needed trillions for real climate and energy security solutions.
Investments in new fossil fuel infrastructure are not only fundamentally incompatible with limiting global heating to 1.5°C. Neither are they needed to meet energy access and energy security needs. Research tells us that energy efficiency and renewable alternatives can rapidly replace Russian fossil fuel supply, while eliminating the need for investments in new fossil fuel infrastructure. They also provide many development benefits.
Renewables are the cheapest source of electricity in most parts of the world, generate more jobs, avoid technological lock-in – and can be community-led and owned. Clean energy solutions can be deployed fast, while new fossil fuel infrastructure takes years to build and involves fossil fuel price volatility and stranded assets risks.
The world is at a critical juncture. With the fossil-fuelled war in Ukraine and the ever-worsening climate crisis, there is only one effective G7 response. Rather than investing in new fossil fuel infrastructure, the G7 must this year end public finance for fossil fuels and prioritize finance for the energy efficiency and renewable solutions that can accelerate the transition to a more secure, sustainable, and peaceful future.