Canada slowing flow of money into foreign fossil fuels, but lags on renewables

Canada is among the countries leading the world in winding down international public financing of the oil, gas and coal industries, according to a report led by the International Institute for Sustainable Development (IISD). But it is failing to channel funding into clean energy projects abroad — and showing itself slow to eliminate backing for fossil fuel production at home.

One of 39 nations and institutions that pledged to turn off the tap on non-domestic support for fossil fuels at the 2021 UN COP26 climate change conference in Glasgow, U.K., Canada spent $6.75-billion less last year underwriting new sector projects, according to the IISD report, produced with data from Oil Change International, a clean energy advocacy group. 

"Canada has made fantastic progress in cutting its international public finance for fossil fuels” as part of the Clean Energy Transition Partnership (CETP) set up at COP26, said IISD policy advisor Natalie Jones, lead author of the report, Out with the Old, Slow with the New, in a written response to Canada's National Observer.

"What Canada needs to do now is ensure that finance is fully shifting to clean energy support in the countries that need it most,” she said, referring to those developing nations most exposed to the impacts of climate change, “as well as eliminating its domestic public finance for fossil fuels."

Export Development Canada (EDC) and other national crown corporations have provided $7.6 to $13.5 billion a year between 2020 and 2022 to support the domestic fossil fuel industry, as compared with just $147 million for in-country renewable energy production, number-crunching by the IISD revealed in June. 

Canada was criticized in the new report for a “lack of transparency in reporting” that made it hard to ascertain whether finance was going to domestic or international markets. EDC data shows it has provided $88 billion to the oil and gas sector since 2016.

International finance for fossil fuel projects between 2018 to 2022 represented at least 8 per cent of Canada's sector funding total, while 43 per cent was domestic. Where the remaining 49 per cent was spent was “unclear,” according to the IISD, though likely domestic “based on EDC’s analysis of how much finance their CETP policy would cover.” 

The report noted the Canadian government had announced it would halt domestic fossil fuel financing, with a plan promised “in the third quarter of 2024.” 

In addition to the government’s ongoing support of fossil fuel producers with public funds, Canada’s biggest banks were outed early this year as among the 20 largest fossil fuel financiers in the world, with RBC, Scotiabank, TD, BMO and CIBC collectively identified as having rubber-stamped some $140 billion for oil and gas sector projects. 

"These eye-watering sums to fossil fuels run counter to the clear imperative to transition away from fossil fuels agreed last year at COP28 [in Dubai],” said Jones. “Whether the money is public or private, there is no place in a climate-safe world for funding fossil fuel expansion.

“The public should be able to find out where public money is going — especially if it’s funding climate chaos,” she said, adding that all public financial institutions should be required to fully report on their investments.

In 2023, the CETP signatories financed a total of US$5.2 billion in fossil fuel projects globally, down as much as two-thirds compared with the 2019 to 2021 yearly average and suggesting the "pact is working", said the IISD report, though "signatories are making less progress on their commitment to prioritize support for clean energy."

“It's great to see leaders axing international public finance to coal, oil and gas, which is incompatible with a safe climate. Now they must match that with scaled-up investment in clean energy for all,” said Jones.

But the CETP signatories together spent a total of just over US$21 billion internationally on renewables last year — only up 16 per cent from the 2019 to 2021 average and significantly less than the US$26 billion delivered in 2022. 

"Most of this went to developed countries — Spain, Poland, and the United States were the three biggest recipients," the report said. "Of finance to lower- and lower-middle-income countries, 83 per cent was delivered as loans, contributing to the worst debt crisis in history." 

Certain CETP members either failed to update their policies in line with the COP26 pledge or only partly restricted fossil fuel finance, but left “big loopholes," the latest IISD report said. As a result, the United States, Italy, and Germany reduced but didn’t end financial support for coal, oil and gas, while Switzerland actually increased fossil fuel funding. 

Adam McGibbon, campaign strategist at Oil Change International and the report co-author, called the pact “a global success story that’s having a real-world impact in shifting finance away from fossil fuels."

"This is despite the broken promises of the United States, Italy, Germany and Switzerland. These countries need to live up to the promise they made in Glasgow or face growing international pressure to change," he added.

The report highlights five key steps CETP signatories should take to build on progress-to-date:

• adopt robust fossil fuel exclusion policies providing international public finance. 
• set ambitious targets for scaling up clean energy finance that bar "unproven” solutions such as blue hydrogen — generated with fossil gas but outfitted with technology designed to capture CO₂ emissions. 
• target support with grants and highly concessional instruments for lower-income countries. 
• update national and institutional policies and strategies to prioritize international support for clean energy. 
• match international policies with domestic climate leadership by ending domestic fossil fuel finance and subsidies, banning new licenses for oil and gas production and phasing out fossil fuel extraction on a globally just and 1.5°C-aligned timeline. 

Fully implemented, the CETP could redirect US$28 billion a year in backing from fossil fuels to clean energy. "The next round of climate talks in Baku, Azerbaijan, this November [is] set to focus on finance: this would send an important signal," said Jones.