OECD coal discussions highlight tensions in Australia's position on climate change

While the UN Paris talks approach at the end of November, attention is currently focused on another forum, the Organisation of Economic Cooperation and Development (OECD), where member countries are negotiating a deal to limit public finance to overseas coal projects in emerging and developing countries.

Australia and South Korea are reportedly opposed to an agreement struck by the US and Japan and supported by other member countries, notably Germany and France, to prevent public finance to all but the very cleanest power plants.

How will these discussions at the OECD impact on the UN Paris negotiations? Australia’s approach to these international meetings would seem to be inconsistent.

Many pathways to action on climate change

The UN Framework Convention on Climate Change is still the main negotiating forum through which countries negotiate emission reduction commitments. However, over the last decade, other international forums, in particular the World Bank, International Energy Agency, G20, G7 and the OECD, have played an increasingly important role in progressing emission reduction outcomes.

The OECD’s broad objective is to assist governments foster prosperity and fight poverty through economic growth and financial stability. It helps to ensure that the environmental implications of economic and social development are taken into account. Pursuant to this mandate the OECD has worked with the G20 and G7 to address climate change, in particular through promoting green growth, reducing fossil fuel subsidies, reforming energy regulation and facilitating climate finance

This multi-forum approach to addressing climate change is critical as it diversifies the range of action, but it also maximises accountability in the process and exposes countries' weaknesses and internal inconsistencies in their climate change policy positions.

Given the different membership and mandates of international organisations, outcomes that might be impossible in one forum are able to be achieved in others. Clearly, this multi-layered approach is essential if we are to solve the climate change problem.

The strength of the UN process is in providing an overarching framework, whereas more concrete actions can be achieved through the OECD, the World Bank and other forums.

Limiting coal finance

The work on fossil fuel subsidies by international organisations was undertaken in response to a request by G20 Leaders when they met in Pittsburgh in September 2009.

At that time, leaders agreed to “rationalize and phase out over the medium term inefficient fossil fuel subsidies that encourage wasteful consumption”. They asked the OECD together with the International Energy Agency (IEA), Organization of the Petroleum Exporting Countries (OPEC) and the World Bank to “provide an analysis of the scope of energy subsidies and suggestions for the implementation".

Export credit finance is a particular type of fossil fuel subsidy, through which public credit agencies, such as the Export Finance and Insurance Corporation in Australia, provide government-backed loans and other types of finance to businesses wishing to invest in industries abroad. It is estimated that agencies from OECD countries channelled US$34 billion into coal power projects between 2007 and 2014.

The discussions to phase out export credit finance for coal power stations in the OECD commenced last year, but hit a stalemate in June this year. In November, however, the US and Japan will reportedly announce a proposal which would restrict export credit finance to all but the cleanest power stations, known as ultra-supercritical pressure coal plants, a technology that Japan is a leader in.

The text of the proposal also reportedly includes a clause that a coal plant could only win public funding if cleaner alternatives, such as renewables, were not viable. If adopted, the US-Japan proposal would substantially reduce the number of new power stations built in emerging economies in Asia and South America. Australia opposes these restrictions and also rejects the clause requiring project developers to look at cleaner alternatives.

OECD rules require that decisions are made by consensus by the members, so countries will need to reach a compromise next week, when the process concludes. The ultimate outcome will have a direct impact on the ambition of the Paris negotiations, so is important.

Australia is walking a fine line in climate diplomacy

Are Australia’s positions on climate change in the UN and the OECD inconsistent?

On the one hand, Australia supports the objective of keeping the global temperature rise within 2℃ and is willing to make some domestic emission reductions to assist in achieving this.

On the other hand, it is not yet willing to place any real limits on its coal exports to developing countries. It justifies this position on the basis that coal is required by developing countries to alleviate poverty and that it is not for Australia to decide how other countries allocate their public finance.

Other countries, notably the US, Japan and Germany, however, now accept that if we are to meet the 2℃ goal then developed countries have a responsibility, including through the direction of public finance, to ensure that emerging economies transition away from fossil fuels, by allocating funding to clean energy technologies instead.

This transition is not as fanciful as it once seemed, given the decreasing cost of renewable technologies every year. The International Energy Agency recently highlighted that in order to meet the 2℃ goal, any new power stations must on average emit 200 grams of CO₂ per kilowatt-hour, whereas even super-critical power stations emit above 600 grams per kWh. It is therefore clear that the cleanest power stations will be required to limit warming to 2℃, unless carbon capture and storage technology becomes viable for power stations, which currently seems unlikely.

While Australia’s economy is more vulnerable than others to the effects of restrictions on coal uptake, it seems inevitable that there will be a continuing decline in coal demand and thus the sooner we transition our economy accordingly, the easier this transition will be in the long term. Many businesses recognise this probability and are already planning scenarios around it.

In addition, taking a blocking position at the OECD has the potential to damage Australia’s credibility in other international negotiations and particularly as its role as co-chair of the Green Climate Fund. Overall, to address climate change, our policies on energy and climate change will need to align. As the US, EU and China step up their leadership on climate change, Australia will come under increasing pressure to reconcile its different positions.

Katherine Lake does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond the academic appointment above.