UK Government mulling ban on overseas fossil fuel financing, reports
Ministers are reportedly considering moves to ban the UK Government's direct lending facility from financing any new or existing fossil fuel projects overseas, following a series of high-profile exposés.
UK Export Finance (UKEF) first came under heavy public criticism last year, when the Environmental Audit Committee (EAC) published the results of its enquiry into the organisation’s global environmental impact. The findings showed that 96% of the £2.6bn spent by the body to support energy exports abroad between 2013 and 2018 was funnelled into fossil fuel projects, mostly in developing nations.
Since the EAC published these findings, several think tanks and journalists have undertaken investigations to uncover further information. Global Witness this year published a report stating that UKEF’s recent financial packages include a £734m support fund for the Duqm oil refinery project in Oman, financing worth £248m for oil exploration in Brazil, £171m for an oil refinery in Kuwait, and several hundred million for power projects in Iraq. Similarly, The Guardian documented leaked UKEF plans to invest up to £1bn in major fracking projects in Argentina.
Global Justice Now estimates that, since the Paris Agreement was ratified, UKEF has poured £3.5bn into dirty energy projects across the globe.
The past seven days have seen these accusations thrust back into the public spotlight, with Carbon Tracker producing a new blog summarising the ways in which UKEF’s activities are “incompatible” with the Paris Agreement’s 1.5C trajectory. The blog additionally highlighted the economic risk of investing in fossil fuel assets which could soon become stranded as nations bolster climate policies, investor demands change and clean energy costs continue to fall.
Against this backdrop, ministers are reportedly mulling policy changes that would effectively ban UKEF from financing energy projects not classed as low-carbon or renewable, in line with Prime Minister Boris Johnson’s desire to “lead by example” on climate and to encourage other nations to set net-zero goals.
Since Johnson’s election in December 2019, spokespeople for the Department of International Development (DFID) have repeatedly told journalists of the government’s intention to align “all future aid spend” with the Paris Agreement. But, while claiming to increase spending on clean energy, both DFID and UKEF maintained that they were required to take an “all sector” approach, including fossil fuels.
Green groups have been encouraging Ministers to ensure that international finance is fully aligned with the UK’s own net-zero target before the COP26 summit, in order to avoid accusations of hypocrisy, to encourage others to follow suit and, ultimately, to limit the global temperature increase.
Taking note of these recommendations, senior civil servants are understood to be planning new climate frameworks which would require all Government bodies to phase-out financial support for oil and gas in developing nations.
Supporters of such projects insist they are necessary to bring energy access to the one billion people currently living without electricity. But, during the EAC’s inquiry, experts stated that such support “locks” low-income nations into dependency on high-carbon energy, jeopardising the global energy transition and exposing poor communities to future economic shocks and the health impacts of fossil fuels.
The new plans represent something of a U-turn from Ministers. Under Theresa May, the Government broadly rejected recommendations from MPs for decarbonising the UKEF portfolio.