UK Government to end support for overseas fossil fuel projects

Earlier in the year, UKEF confirmed that has provided no support towards fossil fuel projects overseas for the 2021-22 financial year, marking a first

The UK Government will end direct support for fossil fuel projects overseas “with very limited exceptions”, the Prime Minister confirmed over the weekend. The UK Government announced the decision at the virtual Climate Ambition Summit, which it is co-hosting with the UN and France and in partnership with Italy and Chile.

More than £20bn of oil and gas exports has been funnelled into overseas energy projects through trade promotion and export finance in the last four years. However, the Government has faced continuous criticism over allocation of finance, which has favoured fossil fuel projects.

The Government is set to introduce the financing ban once a consultation has been concluded, but has pledged to implement the decision before COP26 next November.

Prime Minister Boris Johnson said: “Climate change is one of the great global challenges of our age, and it is already costing lives and livelihoods the world over. Our actions as leaders must be driven not by timidity or caution, but by ambition on a truly grand scale.

“By taking ambitious and decisive action today, we will create the jobs of the future, drive the recovery from coronavirus and protect our beautiful planet for generations to come.”

The decision builds on the recent enhanced Nationally Determined Contribution (NDC), from the UK which will see the UK aim to reduce emissions by 68% by 2030. The virtual summit was hosted as a means to encourage other nations to submit more ambitious targets to the Paris Agreement.

While the UK is pushing for more ambitious commitments, green groups have been calling for the Government to get its financing decisions in alignment with the net-zero target for 2050.

The UK Government’s direct lending facility, UK Export Finance (UKEF), could support 42,000 jobs in the renewables sector each year by 2035, up from 2,000 today, for example.

It could do so by matching the same support it provides to the oil and gas sector. Research notes that the Government currently underwrites each job in the oil and gas sector at a sum of around £250,000. However, this finance could be better used to support small renewable companies.

The Chancellor announced in March the UKEF would receive an additional £2bn to finance clean energy projects overseas. However, UKEF is facing heavy public criticism over its spending.

Criticism arose 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.

Carbon Tracker has also summarised the ways in which UKEF’s activities are “incompatible” with the Paris Agreement’s 1.5C trajectory. 

Reaction and response

Commenting on the decision, Clara Goldsmith, campaigns director of The Climate Coalition said: “This is a huge boost to the UK Government’s leadership credentials ahead of the crucial United Nations climate summit – COP26 – next year.

“This decision will reverberate around the world. The support for fossil fuel development overseas has been a stain on the UK’s climate reputation this year and this ban will help to restore it. The Government must now lead a global push to get other governments to join them and accelerate the transition to clean energy.”

Luke Murphy, Head of the IPPR Environmental Justice Commission said: “This is a welcome, though long overdue, decision. The UK simply cannot claim the mantle of climate leadership whilst funding fossil fuel projects abroad.

“The devil will be in the detail. The government has already said that UK Export Finance will continue to consider applications for support in the oil and gas sector whilst the consultation is ongoing, but we would urge the government to go further and block any further support.

“The UK government also needs to get its own house in order and commit to moving on from oil and gas here at home. That means a firm commitment to keeping fossil fuels in the ground and offering a blueprint for affected workers and communities to make the most of the huge opportunities offered by the zero-carbon economy.”

Dr Alison Doig, International Lead at the Energy and Climate Intelligence Unit (ECIU) said: “The UK government has finally seen sense, that we need to match our action on climate change at home with an equivalent effort overseas. Climate change is a global problem which can only be delivered when all countries start to move beyond a high carbon, fossil-fuelled economy. Investing instead in an international green energy transition will create new markets overseas and secure future trade and jobs for the UK; a win, win.

“The move is especially important coming as it does at the opening of the Climate Ambition Summit. As host of next year’s UN climate summit in Glasgow, UK leadership is bolstered by both this pledge and the country’s new climate target announced last week. Combined with other announcements such as China’s new climate target and a determination for ambitious climate action from the incoming Biden Administration in the US, it is possible to see the outline of how next year’s critical summit can deliver on the Paris Agreement. The UK will play a vital role in ensuring that it does.” 

The Government had also submitted a national climate change adaptation plan, which includes a commitment to doubling its International Climate Finance contribution, raising it to £11.6bn by 2026.

Matt Mace