- The US government has announced a new US policy on overseas fossil finance phaseout that aims to phase out its international finance for coal, oil, and gas except in restricted circumstances.
- While noting that further detail and strengthening of the US policy will be required to match best practice, E3G experts welcome this as big step forward in global norms in phasing out fossil finance.
- With this policy, the US follows the UK, the EU, and other countries committing to phase out overseas fossil finance, and puts pressure on China to announce an end to its fossil finance, starting with coal, by COP26.
Story – US overseas fossil finance phaseout
Today, the US government announced new policy to phase out its international fossil fuel finance, carrying out an Executive Order from President Joe Biden.
This policy is the first time the US broadly restricts its overseas finance for coal, oil and gas, both in terms of US agencies as well as the US shareholdings in MDBs. While questions remain regarding its implementation, potential loopholes, and the need for greater positive investment in developing countries, the new policy is still a major first step in restricting fossil finance by one of the biggest international financiers.
This decision is especially significant as it also applies to the US shareholdings in multilateral development banks (MDBs). As the single largest shareholder in many of these institutions (e.g. 15.7% in the World Bank International Bank for Reconstruction & Development, 30% in the Inter-American Development Bank), the US now puts great pressure on these banks to end their fossil finance. The new policy says that US Treasury “will oppose” MDB support for coal, oil, and upstream gas projects, and will only support other gas projects in restricted circumstances in poor and vulnerable countries.
This new policy is the latest in a historic trend towards ending international public fossil finance in recent years. This was kicked off with the world’s largest MDB, the European Investment Bank, committing to end almost all its fossil finance by end of 2021. Later, the UK announced an end to its overseas fossil finance, which was shortly followed by a commitment by the EU Foreign Affairs Council. Now, in the run-up to climate conference COP26, pressure will be on China to end its fossil finance, starting with coal of which it is the largest international provider of public finance.
Quote on US overseas fossil finance phaseout
Claire Healy, E3G Washington DC Director said:
“This is a historic move by the US that puts another nail in the coffin of international fossil finance. It follows similar commitments by the UK and EU. As we move to COP26, we need other major fossil financiers to follow suit, to make 2021 truly the year of the beginning of the end to international fossil finance.”
Alden Meyer, E3G Senior Associate said:
“Our common house is on fire and the world must come together to put it out. It’s critical to put an end to additional investments in production and use of oil, gas, and coal, which are just adding more fuel to the fire. Today’s announcement is a major step forward, building on similar decisions by other countries, and we welcome the Biden-Harris administration’s leadership on this front.”
Maria Pastukhova, E3G Senior Policy Advisor, said:
“As the world’s largest shareholder in the Multilateral Development Banks, this move by the US is a game-changer in making public fossil finance phaseout a new global norm. Support for fossil fuel is no longer the default, and this shift can free up resources to support a new model of energy systems without fossil fuels around the globe.”
Iskander Erzini Vernoit, E3G Policy Advisor, said:
“The new US policy should send ripples through the public finance sector and private capital markets, not least to countries like China who are resisting an end to coal finance in the G20. The signal is clear – in light of new technologies and stranded asset risk to poorer countries, fossil fuels are no longer a cost-effective or economically rational pathway to development.”
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