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Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

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Funding Soars For Extreme Fossil Fuels

Oil industry

Big banks are still lending colossal sums to “extreme” forms of fossil fuel projects, with lending actually jumping by 11 percent in 2017 compared to the year before.

The Paris Climate Agreement was never going to be strong enough to force a wide-scale shutdown of oil and gas production. It was a modest agreement, made up of voluntary pledges to reduce greenhouse gas emissions. Because of its non-binding nature, many in the oil industry and Big Finance supported it.

Still, the agreement was supposed to be a signal to the fossil fuel industry about the intention, or the trajectory, of public policy. In other words, it was a warning for oil and gas companies, and their lenders, that carbon constraints are coming down the pike. Better to, at the very least, get out of the dirtiest, least competitive sources of energy production because they will likely be forced out of the market one way or another. In fact, exploring and developing new oil and gas reserves is largely incompatible with the aspirations of the Paris Climate Agreement.

Yet, the world’s largest banks seem undeterred, increasing lending to “extreme fossil fuels” by 11 percent to $116 billion last year, according to a new report from six environmental groups. That came after a decline in financing of extreme fossil fuels in 2016, the first year after the Paris Climate Agreement was signed.

The report identifies tar sands, the Arctic, ultra-deepwater, LNG, coal mining and coal-fired electricity as “extreme,” and measures how enmeshed the world’s largest banks are in these kinds of assets. The Fossil Fuel Finance Report Card says these categories of energy production are extreme because they pose environmental, reputation and financial risk to lenders. Related: OPEC Scrambles To Justify Output Cuts

The largest increase in lending by sector went to Canada’s tar sands, where financing jumped by 111 percent in 2017 compared to a year earlier. Unsurprisingly, Canada-based RBC and TD led the pack in terms of tar sands lending, but JPMorgan Chase was close behind. In fact, JPMorgan more than quadrupled its financing for tar sands in 2017.

BNP Paribas, Deutsche Bank and CIBC were the main lenders to Arctic drilling, although lending fell by half over the past three years.

Goldman Sachs and Deutsche Bank were the largest western banks financing coal projects (both mining and power generation), although their figures were dwarfed by the massive sums offered by China Construction Bank and Bank of China. In total, however, coal lending has stagnated over the past three years.

But those figures paled in comparison to the jump in finance for the tar sands, which more than doubled to $46 billion in 2017.

“The policy assessment shows that no bank has yet truly aligned its business plan with the Paris Climate Agreement, whose temperature goals require banks to cease financing expansion of the fossil fuel sector,” the report concluded. “Banks also must end their support for extreme fossil fuels.”

There are signs that the tide is turning, however. Restrictions on fossil fuels are proliferating around the world. China, India, the UK, France and California have all moved to ban or phase out the internal combustion engine over the next few decades.

French lender BNP Paribas said late last year that it would end its ties with companies that have the bulk of their business coming from shale or tar sands. It also said that it would align its lending practices with the Paris Climate Agreement. Not coincidentally, the French bank earned the best grades in the report, a “C+” grade. Other banks, such as HSBC, ING and BBVA have sustainability targets that guides their lending practices.

The World Bank said it would no longer offer financing to oil and gas extraction after 2019. AXA, a French insurance giant, said it would no longer insure tar sands production, pipelines, coal plants or coal mines. Other examples abound. Related: Europe Cracks Down On Diesel Vehicles

"Banks now have policies in place that restrict their financing to extreme fossil fuels in a way that was unimaginable definitely nine and even five years go," said Jason Disterhoft, senior campaigner for finance issues at Rainforest Action Network, one of the six groups that wrote the report.

In fact, the report on extreme fossil fuel lending illustrates a divergence in strategies between North American banks and their counterparts in Europe, where the latter group is ratcheting down lending to oil, gas and coal while U.S. and Canadian banks have increased financial support to such forms of energy production.

“At a time when some European banks like BNP Paribas and ING are adopting policies that sharply restrict their lending to some of the worst fossil fuels, US and Canadian banks like JPMorgan Chase and TD are moving backwards in lockstep with their wrong-headed political leaders,” Alison Kirsch at Rainforest Action Network said.

By Nick Cunningham of Oilprice.com

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  • Randy Verret on March 29 2018 said:
    Perhaps the North American banks are more driven by practicality rather than political pressure & ideology. More specific, maybe they (actually) realize that SCALABLE substitutes to fully replace & complete the transition away from fossil fuels will take decades (realistically) to achieve. Exploring for oil & gas is completely incompatible with the Paris Climate accord as that accord clearly does not address energy imperatives or suggest any CLEAN, sustainable or scalable solutions. Anybody can point out a problem. Coming up with constructive SOLUTIONS is a whole different ball game...

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