In the corridors of COP27, ECO has heard loud and clear (even over the noise of the aircon) the repeated calls to reform the International Financial Institutions and for more finance from public development banks to fund the energy transition. Prime Minister Mottley, Al Gore, and the V20 are just some of the voices calling for the need to reshape the international financial system to respond to the climate crisis. The need for more concessional finance and more grant-based finance to kickstart a just transition in many Global South countries has been heard again and again.
Meanwhile, billions of dollars (even more than the cost of a hotel room in Sharm for a COP27 delegate) have continued to flow from the MDBs to fossil fuels. Between 2019 and 2020 US$55billionn per year flowed from MDBs to fossil fuels, while clean energy only received US$29bn per year.
The MDBs’ Paris Agreement alignment methodology includes only a full exclusion for burning thermal coal and peat. But the door remains open to oil, fossil gas and other fossil fuels which are considered on a case-by-case basis and with restrictions. As it is at COP27, gas is the ‘elephant in the joint-MDB room’ with many MDBs considering it a ‘transition fuel’. But a transition to where exactly? Fossil fuel lock-in, stranded assets, increased climate impacts, more loss and damage, and energy insecurity? ECO thinks that is not a bridge we want to cross.
ECO fully agrees that urgent and fundamental reform of the MDBs is needed to enable them to align with the Paris Agreement. As part of transformative change the MDBs must:
Phase-out all direct and indirect finance and policy support for fossil fuels including gas, across all levels of the institutions. (Only the EIB seemed to get the memo about signing the Glasgow Statement on Clean Energy).
Support a just transition to a low-carbon renewable energy model. This must include the whole economic sectors’ support to consider decent jobs, economic alternatives, appropriate policy and finance and energy access for all.
Implement renewable energy projects with environmental and social safeguards including strong human rights due diligence, upholding Indigenous Peoples’ right to free, prior and informed consent, and planning processes that are inclusive of and take leadership from local governments, workers, communities, women, CSOs, and trade unions.
Support strategies to scale up grant and concessional finance to kickstart the green transition. Debt cancellation is also necessary for some climate vulnerable countries to give them the fiscal space to implement their climate plans.
Include a science-based taxonomy that will enhance the reputation of renewable energy, de-risk investment and build national and local support.
Rule out support for Carbon Capture, Utilisation and Storage (CCUS), which locks the world into prolonged fossil fuel dependence and does not address fugitive emissions at the production and transportation stages.
Rule out high emitting technologies or fuels (including gas) that will hinder rapid decarbonisation trajectories beyond 2030, including infrastructure for fossil fuel production, transport, terminals, power plants and downstream markets for households and business users.
ECO considers this an essential to-do list for these institutions to finance the energy transition and respond to climate breakdown.