Germany pushes for G-7 reversal on fossil fuels in climate blow

German Chancellor Olaf Scholz attends a meeting at the Chancellery on April 27, 2022 in Berlin, Germany. (Jens Krick/Pool/Getty Images/TNS)

Germany is pushing for the Group of Seven countries to back out of a pledge that would end funding for fossil fuel projects abroad by the end of the year, according to people familiar with the matter. It would be a major reversal in the fight against climate change as Russia’s war in Ukraine upends access to energy supplies.

Draft text shared with Bloomberg would see the G-7 “recognize that state-backed investments in the gas sector are needed as a temporary response to the current energy crisis.”

The caveat in the proposal is that such financing is done “in a way that is consistent with our climate goals and without creating lock-in effects”.

The text remains under debate and could change before G-7 leaders hold their summit in the Bavarian Alps from Sunday hosted by Chancellor Olaf Scholz. The UK opposes the proposal, two people said. A German government spokesman declined to comment.

A person familiar with the talks said Italy did not actively oppose the German proposal. Italy, like Germany, is heavily dependent on Russian gas. At a press conference in Brussels on Friday, Prime Minister Mario Draghi said Italy had managed to reduce imports of Russian gas from 40% last year to 25% currently. This has also been possible by signing new gas agreements in countries such as Congo, Algeria and Angola.

A government spokesman said Italy did not support Germany’s idea.

Asked about the Air Force One proposal as President Joe Biden flew to Europe, National Security Council spokesman John Kirby said he did not want to preempt discussions at the summit. “Our position last May was that the president was clear that he didn’t believe these investments were the right course of action,” he told reporters. “I know of no such change in this policy.”

The debate comes as Europe in particular struggles for alternative fuel sources to Russian gas. The German government has warned that Russia’s measures to limit supply risk a Lehman-style meltdown in energy markets, with Europe’s largest economy facing the unprecedented prospect of seeing companies and consumers run out of electricity.

Germany has responded to budget cuts by reviving coal-fired power plants and providing funding to secure gas supplies, while continuing its plans to phase out nuclear power. The World Nuclear Association, an industry lobby group, is urging the G-7 to increase access to nuclear technologies.

Italy said it would monitor the potential need to trigger emergency energy plans. Such a move could also see it boost coal production.

A shift by the G-7 from a commitment initiated last year and confirmed in May would be a turnaround in global efforts to tackle climate change. It would be more difficult to rally the rest of the world around stricter targets and to invest directly in cleaner energy sources.

It would also go against International Energy Agency advice that no new oil and gas projects should be developed if the world is to limit global warming to 1.5 degrees Celsius.

G-7 Ministers, in committing to end direct international financing of fossil fuels by the end of 2022, recognized for the first time that fossil fuel subsidies are inconsistent with the Paris Agreement. The group also reaffirmed its commitment to end “inefficient” fossil fuel subsidies by 2025.

Ministers, however, acknowledged that investing in the LNG sector was a necessary response to the current crisis “in a way consistent with our climate objectives and without creating lock-in effects”.

“It would be a huge setback to the progress we made last month at the G-7 energy and environment ministers when we finally brought Japan, the last holdout from the G-7, to s ‘commit to ending this financial support for fossil fuels,’ said Alden Meyer, senior climate change associate think E3G.

“Where we saw Chancellor Merkel being the climate chancellor at the last G-7 summit hosted by Germany, Scholz could go down in history as climate chancellor, which I think would be a real mark on its balance sheet, and we don’t need to do that,” he added.

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