International Public Funds Are Fuelling a Dash for Gas in Developing Countries—Report

June 7, 2021—International financial institutions are providing four times as much funding for gas projects in low- and middle-income countries as for wind or solar, according to a new report from the International Institute for Sustainable Development (IISD). 

From 2017 to 2019, gas projects in low- and middle-income countries received an average of nearly USD 16 billion per year of international public finance, with 60% of this coming from the World Bank and three governments: Japan, China, and the United States. International financial institutions have continued to prioritize gas during the COVID-19 pandemic, the study finds—more than 75% of development banks’ support for fossil fuels went to gas projects in 2020. 

“International public finance is driving a new dash for gas in the Global South, undermining global climate efforts and imperilling countries’ economies by locking them into high-carbon energies of the past and risking stranded assets,” says Greg Muttitt, lead author of the report.  

The report reveals that gas is not needed to meet countries’ energy needs since renewable alternatives are available, including for power, buildings, and light industry technologies. For most uses, the study shows, renewables are already cheaper than gas or expected to become cheaper by 2030.

To avoid far-reaching climate and economic liabilities, researchers say that countries in the Global South need international public finance to lead the way in supporting clean energy. The report recommends that international finance institutions end all support to gas exploration and production, new gas power plants, and other long-lived gas infrastructure, such as pipelines. 

Instead, the study suggests that these institutions should invest in helping the Global South develop resilient, sustainable economies by integrating renewable energy into power grids, promoting technology sharing, and supporting universal clean energy access. Public finance plays a disproportionate role, setting the trend for wider investments and unlocking private capital.

“We are at a fork in the road,” says Muttitt. “Some international financial institutions, including the European Investment Bank, have decided to exclude new gas and oil funding in line with the Paris Agreement goals. But others continue to back gas. As countries like Australia and the United States massively expand their liquefied natural gas exports, the public money supporting new gas infrastructure looks more geared to serving powerful interests than helping Southern countries meet their needs.”

The report emphasizes that new gas development is not consistent with the Paris Agreement. The just-published Net-Zero by 2050 report from the International Energy Agency notes that there is no need for investment in new fossil fuel supply. According to 1.5°C scenarios published by the Intergovernmental Panel on Climate Change, global gas consumption must decline by 55% between 2020 and 2050 and unabated gas power generation by 87%. While gas advocates claim it can be a “bridge fuel,” IISD experts say that bridge has now collapsed due to the urgency of curbing emissions, the availability of renewables, and the extent of methane leakage from gas infrastructure.

“The United States is currently reviewing whether to end new oil and gas finance, and there is pressure on the World Bank and others,” Muttitt says. “While investments and policies are starting to move away from coal and oil, the key debate now is about the third fossil fuel: gas.”