The Trump administration has moved forward with a US$4.7 billion loan from the US Export-Import Bank for a massive new liquefied natural gas (LNG) project in Mozambique. Backed by several European governments, the project includes offshore drilling wells, offshore pipelines, and port facilities.

The news comes as climate scientists warn that new investments in fossil fuel production will derail attempts to mitigate carbon pollution, and as public financial institutions face growing pressure to shift their money out of fossil fuels and into renewable fuels and technologies.

So, can export credit agencies – a particular type of government-owned bank – be used to fund renewable energy exports? Our research suggests that while turning off the tap for fossil fuels can be done quickly, financing renewables faces several hurdles.

What are export credit agencies?

Export credit agencies, or ECAs, are publicly owned banks that provide credit and insurance products to support national exports. They do so by offering direct loans and insurance products, such as insuring firms against the political risks of exporting to developing countries.

Most rich countries have an ECA that often works alongside development agencies. For example, Export Finance Australia supports Australian firms looking to sell goods and services overseas and works closely with the Department of Foreign Affairs and Trade to pair development objectives with economic wins for Australian exporters.

The problem is that these export credit agencies have helped to underwrite energy projects that are heating the planet, such as Total’s LNG project in Mozambique.

Following the money?

Our analysis shows that ECA investments have historically been carbon intensive, with annual fossil fuel expenditures more than 16 times annual clean energy expenditures.

But the good news is this is changing. In 2023, Australia joined the Clean Energy Transition Partnership, which commits countries to ending public support for international fossil fuel projects.

And since the Paris Agreement in 2015, there has been a downward trend in fossil fuel investments, with Canada, France, Japan, and the United Kingdom providing the largest financial flows to clean energy projects. For example, Germany has increased spending on clean energy from US$1.4 billion in the pre-Paris period to $3.1 billion after the Agreement.

So, can export credit agencies increase investments in renewable energy?

The short answer is yes, but there are several key hurdles, each of which raises concerns about whether they are the best banks for the job.

First is the type of political control over the ECAs. For example, the US Export-Import Bank, which is a statutory body, has resisted executive orders to limit fossil fuel lending under successive presidents. Whereas UK Export Finance, which is a government department, has directly responded to executive pressure by greening its lending portfolio.

When bureaucratic decision-making is autonomous from political pressure, and statutory mandates are weak on climate, it can be difficult to pivot public finance away from fossil fuels.

Even when there is demand for export finance from renewables industries, it is often the case that these banks do not have the right policy tools at their disposal.

Second is the size of the country’s green industrial base. In many countries, there are simply no large multinational firms looking to export renewable fuels and technologies. For example, there are no large solar panel manufacturers knocking on the door of Export Finance Australia asking for support.

Third, even when there is demand for export finance from renewables industries, it is often the case that these banks do not have the right policy tools at their disposal. For example, in the United States and United Kingdom, financing eligibility is restricted based on the percentage of foreign goods or services involved in a project, even when American and British renewables firms stand to gain business. Similarly, risk aversion at many of these banks greatly limits their willingness to venture outside traditional, well-known partners in the energy industry and take on investments with firms building pioneering green technologies.

At COP29, the international climate conference that took place in Azerbaijan in November, countries agreed to mobilise US$300 billion per year from public and private finance for developing countries by 2035. For this target to be met, governments are going to have to ramp up their support for renewable fuels and associated technologies; and do so quickly.

ECAs could be part of this shift, but they need to cease all financial support for fossil fuel projects immediately. They also need to consider how they can change their practices to support renewables, including by putting in place the right policy tools.