Gas projects in Global South get more global public finance than other energy sources: Report

This skewed financing is likely to have a long-term impact on the economies and their battle against global warming, the report reveals

Gas is fast becoming the preferred transition fuel for low- and middle-income countries in the Global South, including India, which are under pressure to cut down their fossil fuel emissions. A new report, however, revealed gas projects in these countries are receiving more international public finance than other energy sources. This, in turn, is seriously jeopardising the economic future of these countries along with global efforts to curb warming, according to the report by the International Institute for Sustainable Development (IISD).

Skewed financing

The Global South is suffering from the worst impacts of climate change, even though their contribution towards it is meagre when compared to the rich economies of the Global North. They also lack the resources needed to mitigate climate change. But their energy needs are growing by the day. 

New liquefied natural gas (LNG) exporters, such as the US and Australia, are looking to expand their markets, while gas companies are looking for new resources to extract and export. According to the report, the Global South, therefore, has become a lucrative investment destination for these entities.  

The report found between 2017 and 2019, gas projects received nearly $16 million in international public finance – four times more than wind and solar. A majority of this money is going towards power generation, where gas is least needed, and building high-emission LNG infrastructure. This would potentially lock a large section of the economy into gas, the report stated. It also found gas accounted for 75% of multilateral development banks’ (MDBs) support for fossil fuels last year, despite the pandemic. 

Where India stands

The Indian government is pushing for the use of gas as it attempts to move away from fossil fuels. It is a fast-growing importer of gas. India’s industrial sector is the largest user of gas, the report found. However, according to the report, the high cost of importing gas has meant more than half of the installed gas power capacity remains unused. The country is looking to ramp up its import and distribution infrastructure, which risks becoming redundant because of increasingly competitive alternatives. Gas in India is failing to keep up with cheaper and cost-effective renewables, which are emerging as the largest competitor to coal, the report stated. 

Gas more a wall than a bridge

The report debunks the argument of gas being a “bridge fuel” until the renewables sector is built to scale. It cites three factors why this is the case – the urgency of the climate crisis means there is no room for more fossil fuels in the limited atmospheric space; the cost of wind, solar and energy storage is falling rapidly and can be deployed at a large scale; the risk of methane leakage from gas infrastructure. The report pointed to the median 1.5°C scenario in the IPCC Special Report on 1.5°C, in which global gas use is halved from 2020 to 2040. 

Suggestions for the future

The report highlighted three challenges that international public finance institutions can help the Global South overcome when it comes to building renewable energy infrastructure. First, obtaining finance in situations that investors perceive as high risk and low returns. These entities can also help access technology with patents that are held abroad. And lastly, help integrate renewable energy, especially in poorly maintained and managed grids that suffer from blackouts often.  

The report also called on international public finance institutions to end all support to gas exploration and production, and other infrastructure such as power plants, pipelines and LNG terminals. It urged them to scale up clean energy finance to enable countries to stop relying on gas in order to transition. The report highlighted the importance of supporting a just transition, especially for affected workers and communities. 

For countries in the Global South, the report recommended planning effective energy and climate development strategies that are aligned with the Paris Agreement targets and are focused on renewables. The report also urged governments to stop building new infrastructure that would lock economies into gas.    

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