Public finance, whether on concessional or commercial terms, plays a critical role in propping up fossil fuel industries, especially coal. It materializes via production and consumption subsidies, financing from development finance institutions and export credit agencies, and capital expenditures and project financing from state-owned enterprises. It is estimated that 93% of coal power plants are well insulated from market forces and benefit from public support through long-term supply contracts, tariffs and other means.
In order to meet Paris Agreement goals, public funders need to act swiftly to remove public concessionary support for fossil fuels, eliminate finance for coal power generation and phase out oil and gas investment. Public policy should redirect investment and job growth toward clean energy and support the economic transition for affected communities. Leaders of the G20 countries, comprising the world’s 20 largest economies, pledged to stop public financing for new coal power plants overseas by 2021, and a coalition of 25 countries and the European Union aims to end new unabated coal power in their domestic electricity systems. However, the G7 countries have not been able to agree on fully ending public finance for fossil fuel energy.
In 2023, public finance for fossil fuels fell 26% from the previous year, driven by a reduction in consumption subsidies in line with falling international oil and gas prices. However, it was still higher than historical averages — totaling over $1.5 trillion, with $1.1 trillion directed to subsidies, $47 billion to financing of projects and $369 billion to capital expenditures. As a result, progress toward phasing out public finance of fossil fuels globally by 2030 was moving in the wrong direction as of 2023. It will need to fall by an average of $215 billion per year between 2023 and 2030 to meet the 2030 phase-out target.