Canberra’s Great Contortion: Supporting Green Energy Development and Foreign Gas Finance

The Australian government is shifting its funding from fossil fuels to green energy, yet it still allows foreign governments to finance fossil fuel projects in Australia. This incoherence impedes the nation’s transition to renewable energy and contradicts its climate goals. 

The Australian government now supports winding back its funding of fossil fuels and directing more support to green energy at home and abroad. Yet it continues to allow foreign governments to finance Australian-based fossil fuel projects. It has also not noticeably opposed partner governments continuing to finance fossil fuel projects in third countries. Canberra should prioritise ending these incoherent positions. 

Fossil fuels were in the national spotlight with last month’s Future Gas Strategy release. The document’s support for gas and liquefied natural gas to “2050 and beyond” attracted significant pushback. Prime Minister Anthony Albanese sought to differentiate the strategy from the Morrison government’s “gas-fired recovery” by noting “not a single government dollar” would be spent on gas because of its commitments. 

The Australian government already provides significant explicit and implicit financial support to gas and other fossil fuels. Yet there are certainly clear Morrison and Albanese government distinctions. The current government supports sustained gas use but is noticeably less committed to coal. The recent federal budget also contained no direct fossil fuel funding. It was instead most notable for a AUD$22.7 billion investment in the “A Future Made in Australia” plan, supporting export-focused sectors including hydrogen, critical minerals, and green metals tied to Canberra’s “renewable superpower” vision. 

At the international level, Canberra last year signed an agreement resulting from the 2021 Glasgow climate negotiations pledging to stop its foreign financing arms—largely Export Finance Australia and the Department of Foreign Affairs and Trade’s development program—supporting foreign fossil fuel projects. Canberra has also pivoted its international finance to greener pastures. The AUD$2 billion facility announced at the ASEAN-Australia Special Summit in March, for example, will particularly focus on boosting Southeast Asia’s energy transition. 

The sectors in which government institutions choose to direct finance are critical to the energy transition. They might sustain fossil fuel investment as private lenders relinquish support. They might instead crowd in investment for nascent clean energy sectors. To its credit, Canberra recognises it is now firmly in Australia’s national interest to simultaneously channel funds away from brown and towards green investment. 

Emissions impacts are borderless 

But government spending does not operate in a vacuum. Canberra must ensure its broader regulatory and policy landscape aligns with its rationale for spending public money. Australia could better ensure this if it also started pushing back against foreign public fossil fuel finance. 

Currently, Australia does not restrict other national agencies from financing domestic fossil fuel projects, and often seems to invite it. The Future Gas Strategy sought to counter previous Japan-led trading partner criticisms that Australia was losing appeal as a long-term gas and LNG investment destination. Officials will have known that their renewed support would invite public financing from these same partners. Australia’s top three LNG buyers—Japan, China, and Korea—are world-leading public fossil fuel funders. A 2021 report found Tokyo, Beijing, and Seoul provided a total of AUD$36.7 billion support to Australian fossil fuels from 2010-2020, including AUD$28 billion for LNG alone. 

While the gas strategy does not seem to have unlocked Australian public funds as promised, it may have already revived Tokyo’s interest. The Japan Bank for International Cooperation (JBIC) recently loaned AUD$1.5 billion to Woodside’s Scarborough project. JBIC said this would support Japanese investment, led by utility JERA, and ensure long-term LNG supply. 

Canberra might claim it only opposes using Australian public funds to fund fossil fuels, out of respect for voters demanding stronger climate action. But the Glasgow agreement provides no such insulation. Signing on compelled Canberra to “encourage other governments and institutions” to also meet its commitments. Japan, Korea, and China remain key holdouts. 

If Canberra does truly respect public desire for stronger climate action, it must also recognise that emissions impacts are globalised regardless of where and with whose assistance they are generated. This means that, for as long as Australia’s regulatory environment continues to welcome other governments’ fossil fuel finance, it will continue to facilitate outcomes that voters appear to consider undesirable. 

Continuing to permit the public financing of Australian fossil fuel projects will necessarily also impose opportunity costs on the renewable superpower vision. Canberra can only provide so much support to this. Yet it is currently and unhelpfully incentivising international partners to channel finite finance away from supporting investments in emerging green supply chains. 

The third country challenge  

The small size, and traditionally laissez-faire orientation, of Australia’s economy relative to its Northeast Asian partners magnifies the adverse impacts of Canberra only restricting its own public fossil fuel spending. The imbalances are most perverse where third countries are concerned. Canberra has always been a relatively small fossil fuel financer and will likely continue to be so on clean energy as well. While Export Finance Australia provided AUD$4.4 billion in fossil fuels support from 2009-2021, Japan, Korea and China’s equivalents spent more than AUD$100 billion each. This is to say nothing of development program support over this time. 

Other recipients of Northeast Asian fossil fuel largesse are generally poorer than Australia and more susceptible to external assistance, ensuring long-term carbon lock-in. This includes Southeast Asian nations whose genuine decarbonisation Australia is seeking to advance. 

Canberra has not noticeably opposed international partners using their public finance to support third country fossil fuel utilisation. This is even as the Glasgow agreement compels this, and as the status quo imposes heavy costs on both the climate and Australia’s renewable superpower pledge. Australia may even be helping sustain its partners’ fossil fuel finance to some degree. It is, for example, a partner to Japan’s Asia Zero Emissions Community, alongside most members of ASEAN. While nominally climate-focused, this extends much of its US$8 billion public support to dubious “transitional” fossil fuel pathways, including gas. 

A return to quiet quitting 

Canberra seems unlikely to explicitly restrict the foreign public financing of domestic fossil fuel projects, especially not from key strategic partners such as Tokyo. To avoid highlighting its hypocrisy, it is also unlikely to noticeably push back against international partners doing so elsewhere. But there is no escaping the fact that the impacts of the status quo are incompatible with the results Canberra and Australian voters seem to desire. 

An ideal resolution of this impasse would entail Australia implementing policies that naturally invite less foreign government financing of domestic fossil fuels, while working with partner governments to collectively pivot support from brown to green investment. 

The government seemed to once be heading in this direction through fossil fuel policies targeting greater climate action and other priorities. However, Australia’s Asian trading partners quickly attacked these policies. In 2023, the head of Japan’s Inpex, Takayuki Ueda, memorably accused Australia of “quiet quitting” gas in particular. 

Australian fossil fuel supporters amplified Ueda’s supposed warning and joined Asian governments in lobbying for the Future Gas Strategy’s renewed support. Canberra should have instead considered Ueda as offering an endorsement. It should have continued creating a regulatory environment that invited a measured communal fossil fuel retreat. Certainty of this kind might have better convinced Japan and others they needed to pivot their own energy interests, including public finance commitments. 

Australia should return to “quiet quitting” gas and other fossil fuels. It should simultaneously use all diplomatic tools to convince partner governments of their need to sunset fossil fuel finance and support genuine energy transitions at home and abroad. Canberra should take its Glasgow agreement commitments seriously in this regard. 

James Bowen is a consultant to NGOs, think tanks, and political advisories on Indo-Pacific climate and energy matters. He has previously worked at foreign policy think tanks in Australia, Germany, and the United States, and is a former political speechwriter on resources and energy.

This article is published under a Creative Commons License and may be republished with attribution.