Canada is reducing its foreign fossil fuel investment, but it is lagging behind in renewables

Canada is recognized as a global leader in winding down international public financing for the oil, gas, and coal industries, according to a report by the International Institute for Sustainable Development (IISD).

However, the country is criticized for not adequately redirecting funds into clean energy projects abroad and for being slow to reduce support for domestic fossil fuel production.

Canada is one of 39 nations and institutions that committed to ending non-domestic support for fossil fuels at the 2021 UN COP26 climate conference in Glasgow.

The IISD report, which uses data from Oil Change International, highlights that Canada reduced its funding for new fossil fuel projects by $6.75 billion last year as part of the Clean Energy Transition Partnership (CETP).

Natalie Jones, the IISD policy advisor and lead author of the report titled Out with the Old, Slow with the New, praised Canada’s progress in cutting international public finance for fossil fuels.

However, she emphasized the need for Canada to fully transition its financial support to clean energy in developing countries most vulnerable to climate change and to end domestic fossil fuel financing.

Despite Canada’s international efforts, the report notes that national entities like Export Development Canada (EDC) provided between $7.6 billion and $13.5 billion annually from 2020 to 2022 to support the domestic fossil fuel industry, compared to only $147 million for domestic renewable energy projects.

The report also criticized Canada for a "lack of transparency in reporting," making it difficult to determine the allocation of funds between domestic and international markets.

Since 2016, EDC has provided $88 billion to the oil and gas sector.

From 2018 to 2022, international finance for fossil fuel projects accounted for at least 8% of Canada’s total sector funding, while 43% was domestic.

The destination of the remaining 49% is unclear but likely domestic, based on EDC’s analysis under the CETP policy.

The Canadian government has announced plans to halt domestic fossil fuel financing, with a detailed plan expected in the third quarter of 2024.

Canada's major banks and ongoing government support for fossil fuel producers are facing significant scrutiny in light of their substantial financial backing of the oil and gas sector.

In early 2024, it was revealed that Canada's largest banks—RBC, Scotiabank, TD, BMO, and CIBC—rank among the top 20 global financiers of fossil fuels, collectively approving around $140 billion for oil and gas projects.

This financial commitment starkly contrasts with the global push to transition away from fossil fuels, particularly following the agreements made at COP28 in Dubai.

Natalie Jones, policy advisor at the International Institute for Sustainable Development (IISD), emphasized the contradiction of these investments with climate goals, stating that such funding has no place in a world committed to climate safety.

She also called for greater transparency, insisting that public financial institutions should be required to fully report on their investments to ensure accountability, especially when public funds might contribute to climate change.

Despite a global decrease in public financing for fossil fuels—CETP signatories reduced their spending on fossil fuel projects to US$5.2 billion in 2023, down significantly from previous years—the report suggests that more progress is needed.

Although this reduction indicates that the CETP agreement is working, the IISD report points out that the shift towards prioritizing clean energy investment has been slower than necessary.

Last year, CETP signatories invested just over US$21 billion in international renewable projects, a modest increase that falls short of what is required to meet global climate goals.

The report also criticized the uneven distribution of renewable energy investments, with most funding going to developed countries like Spain, Poland, and the United States.

In contrast, lower-income countries received only a fraction of this support, and much of it was in the form of loans, exacerbating existing debt crises.

Certain CETP members have been criticized for failing to fully align their policies with the COP26 pledge.

While the United States, Italy, and Germany have reduced financial support for fossil fuels, they have not entirely ended it, and Switzerland even increased its fossil fuel funding.

This has led to calls for these nations to fulfill their commitments or face growing international pressure.

The IISD report outlines five key steps for CETP signatories to enhance their progress:

Adopt robust fossil fuel exclusion policies: To prevent international public finance from supporting fossil fuels.

Set ambitious targets for clean energy finance: Exclude "unproven" technologies like blue hydrogen, which relies on fossil gas.

Target support for lower-income countries: Provide grants and concessional instruments rather than loans.

Update policies to prioritize clean energy: Align national and institutional strategies with international climate commitments.

Match international actions with domestic climate leadership: End domestic fossil fuel finance and subsidies, ban new oil and gas licenses, and phase out fossil fuel extraction in line with the 1.5°C target.

Fully implemented, these measures could redirect an estimated US$28 billion annually from fossil fuels to clean energy.

The upcoming climate talks in Baku, Azerbaijan, in November 2024, are expected to focus on finance, offering an opportunity to signal a stronger commitment to climate goals.