The world’s biggest economies are to stop funding any overseas fossil fuel development from the end of this year, in a move likely to choke off some of the investment in “carbon bombs” that are imperilling efforts to meet the world’s climate targets.
The agreement could shift about $33bn (£26bn) a year from fossil fuels to clean energy sources, according to analysts’ estimates.
The energy and environment ministers from all G7 countries agreed at a meeting in Berlin on Friday to end taxpayer funding for oil, gas and coal projects overseas. The member countries are Japan – which held firm against such a pledge before last year’s Cop26 climate summit – the UK, the US, Canada, Italy, France and this year’s host country, Germany.
Alok Sharma, the British president of Cop26, said the commitment showed, in the context of the Ukraine war and high prices of fossil fuels, that the transition to clean energy was more important than ever. “We are united in the view that climate and environment security are absolutely synonymous with energy and national security and I cannot overstate that. Solving the global energy crisis and the chronic climate crisis requires the same solution – it’s about reducing our dependence on fossil fuels as part of a managed transition.”
Laurie van der Burg, a campaign co-manager at the green group Oil Change International, said: “The G7 committing to end public finance for fossil fuels and shift it to clean [energy] is a massive win. This is a timely reconfirmation [amid the Ukraine war] that the most viable pathway to energy security is prioritising public finance for clean energy. These promises should now urgently be turned into action.”
Projects that are already under way may escape the new commitment. That means many of the “carbon bombs” – new oil and gas projects around the world that are in development and, if fulfilled, will eliminate any chance of limiting global heating to 1.5C – that the Guardian uncovered in a recent investigation could still be eligible for such public funding.
The Guardian found nearly 200 carbon bombs, of which about 60% are already under way and have started pumping. Most of the finance for them is likely to come from private or public sources outside the G7 countries, but overseas public sector finance can be a significant catalyst for new oil and gas projects, as it provides reassurance to private and developing-country investors.
The G7 communique also failed to cover domestic public sector finance for fossil fuels, with some of the member countries still subsidising fossil fuels and providing hefty tax breaks.
On Thursday, the UK announced a windfall tax on fossil fuel companies, with a loophole that allows them to escape 90% of the levy if they invest in new oil and gas production in the North Sea, despite the UK’s carbon budgets. Critics said this would not help alleviate short-term supply issues as new exploration sites can take decades to come into production, and that it amounted to a de facto subsidy worth billions of pounds for new oil and gas.
The G7 committed last year to end overseas coal financing and some members agreed to end all overseas fossil fuel financing, but this is the first time all seven countries have reached a comprehensive agreement covering all fossil fuels.