In 2015, the Paris Agreement entered into force. The Agreement is a hybrid of legally binding provisions, including procedural commitments, and non-binding provisions. The Parties are obligated to prepare, communicate, and maintain a nationally determined contribution (NDCs), and submit information necessary to track progress. However, the achievement of NDCs is not legally binding. Since 2015, G20 countries have been criticized for not taking enough proactive steps to eliminate their Export Credit Agencies’ (ECAs) support for fossil fuel projects. Generally, the actions of ECAs are attributed to the state because they are either government branches or officially mandated private companies. ECAs provide officially supported export credits in support of domestic exporters competing for oversea sales. On November 13, 2021, the Glasgow Pact entered into force during the Conference of the Parties (COP). The Pact calls the Parties to accelerate “efforts towards the phase-out of unabated coal power and inefficient fossil fuel subsidies, recognizing the need for support towards a just transition.” Although Parties agree to steer finance flows in the direction of lowering greenhouse gas emissions, it does not explicitly prohibit ECAs from financing fossil fuel-related transactions.
Customary International Law
In recent years, many organizations have been positing that even though treaty law does not require ECAs to haul support for fossil fuel projects, customary international law requires ECAs to do so. International Law Commission sets out a two-element approach to identify a rule of customary international law, which assesses 1) whether such rule is a general practice, and if so, 2) whether the general practice is accepted as law (opinio juris). General practice refers to the practice of states that contribute to the formation, or expression, of rules of customary international law. The practice must be widespread having some representative nature in the international community. The second requirement is opinio juris. It is used to differentiate general practice that is accepted as law from general practice of mere usage or habit that does not constitute a rule of customary international law. For example, it is a general practice that states behave with courtesy, but they do not undertake such practice with a sense of legal obligation. The states concerned must therefore feel that they are conforming to what amounts to a legal obligation.
ECAs continue to be the largest financier of these projects. Very few of them have made explicit commitments to cease support of fossil fuel. In fact, the amount of fossil fuel support has continued to be substantially greater than the funding for clean energy. This suggests there is a lack of representative nature in the international community to phase out export credit support for fossil fuel. Thus, there is no general practice among ECAs to phase out fossil fuel support, and it logically follows that there is no sense of legal obligation to undertake such a practice.
Despite a lack of legal basis in treaty law and customary international law to prohibit ECAs from financing fossil fuel projects, one may find a legal basis under a non-traditional source of international law. A unilateral declaration is a non-traditional source of international law. It is possible for a state to make a unilateral declaration, orally or in writing, that ultimately has a legally binding effect under international law. The International Law Commission has provided guidance on this. The key element is the state’s intention to create legal effects in the international community. In Nuclear Tests, Australia and New Zealand sued France for causing a nuclear radiation effect. During the pendency of the cases, France made a series of unilateral statements at the press conferences that they will not do any further atmospheric tests. The International Court of Justice held that France was legally bound to its unilateral statements because it found France had intent to create some obligations to the world. In Mali v. Burkina Faso, International Court of Justice held that the public statement at issue did not have legal effects because it was not directed towards any state recipient.
Two major G20 countries, the United States and China have both made public statements pledging to end international public financing of carbon-intensive fossil fuel projects. President Biden has made numerous statements pledging to cut carbon emissions. In January 2021, President Biden ordered federal agencies to “identify steps through which the United States can promote ending international financing of carbon-intensive fossil fuel-based energy.” In April, President Biden set forth the U.S. International Climate Finance Plan that directs the Export-Import Bank of the United States to identify ways to significantly increase support for renewable energy exports from the United States and to achieve the Paris Agreement’s goals. It is unlikely that either President Biden or Chinese leader Xi Jinping intended to create legal effects in the international community. President Biden’s public statements do not create a legally binding effect under international law because they were only intended to have legal significance on the federal agencies.
In September 2021, Chinese leader Xi Jinping pledged that China would not build any new coal-fired power projects abroad. Many considered this a big win for the international effort to cut greenhouse gas emission because China was the largest financier and the last government still financing coal-fueled projects. President Xi’s public statement does not create any legal obligation under international law. The content of the pledge is vague. To date, it is still unclear how the new policy is to be implemented and the scope of application to Chinese entities. It is highly unlikely that President Xi intended to create legal effects in the international community through his pledge.
Despite the lack of an existing binding obligation for ECAs to cease financing of fossil fuel projects, it is hopeful to see Parties take more proactive steps to combat carbon emission. The Parties’ latest achievement, the Glasgow Pact, is considered a big step forward because this is the first-time a COP document makes an explicit reference to fossil fuels. It is hopeful to envision that more G20 countries will undertake additional measures in limiting export credit support and financing of fossil fuel-related transactions.
Author Biography: Sandy Chen is a moderator for the International Law and Policy Brief (ILPB) and a J.D. candidate at The George Washington University Law School. She received a B.A. in Political Science and Philosophy from Queens College.