COMMONS

MPs call for end of taxpayer support for fossil fuel projects from 2021

10 June 2019

The Environmental Audit Committee publishes its report into UK Export Finance investigating the scale and impact of UK Export Finance’s financing of fossil fuels in developing countries. It reveals that most of UKEF’s investment undermines the UK’s climate commitments.

The report finds:

  • UKEF’s activities are the ‘elephant in the room’ undermining the UK’s international climate and development targets
  • UKEF’s support for fossil fuel energy is unacceptably high with the majority of investments in projects in low and middle-income countries
  • This risks locking them into high-carbon dependency for decades to come
  • UKEF should follow the lead of other export credit agencies, such as Sweden, and introduce a cap on lending to fossil fuel projects
  • UKEF plays a significant role in enabling fossil fuel projects by removing risk and sending investor signals to the market
  • Supports view of former UN Secretary General, Ban Ki-moon who urged a “recalibration” of UKEF’s policy to meet international climate trends and obligations
  • UKEF should end support to new fossil fuel projects by 2021, and should align its work with achieving net zero emissions by 2050.

Over a five-year period UKEF spent £2.6 billion to support the UK’s global energy exports. Of this, 96% (£2.5 billion) went to fossil fuel projects, with £2.4 billion going to fossil fuel projects in low and middle-income countries.

Chair's comments

Environmental Audit Committee Chair Mary Creagh said:

“Achieving net-zero emissions by 2050 will mean ending our addiction to dirty fossil fuels.

“The Government claims that the UK is a world leader on tackling climate change, but behind the scenes the UK’s export finance schemes are handing out billions of pounds of taxpayers money to develop fossil fuel projects in poorer countries. This locks them into dependency on high carbon energy for decades to come.

“This is unacceptable. It is time for the government to put its money where its mouth is and end UK Export Finance’s support for fossil fuels.”

Out of step with goals to tackle climate change:

The Government must change UKEF’s mandate to ensure that support is aligned with the UK’s national and international commitments and in line with the IPCC and Committee on Climate Change’s recommendations.

In May 2019, a report from the Committee on Climate Change (CCC) highlighted UK Export Finance as an area that "needs further progress," stating that in the UK “export finance is not aligned with climate goals, and often supports high-carbon investments.”

Case study - Enka UK:

Turkish company, ENKA UK, received £88m for phase one and approximately £490m for phase two in support from UKEF as a sub-contractor of GE (General Electric) for its role in delivering "two critical power projects” in Iraq, UKEF's largest liability for an energy project in 2017/18.

The Committee discovered that ENKA UK, a subsidiary of Turkey’s largest construction company, filed as a UK company the previous year without an office, staff or operations in the UK. In evidence the company said it intended to open an office in Birmingham with 12 staff. 8 staff recruited from outside of the UK are in post.

UKEF’s support for ENKA UK was based instead on its public policy that they will support projects with a minimum 20% UK content, supporting UK providers of goods and services. The ENKA UK project is aiming at 40% UK content.

The combined predicted GHG emissions from the two power plants is 6.88 megatons (6.88 billion kg) CO² equivalent each year, assuming the plants run solely on natural gas as the primary fuel.

Climate change leadership:

UKEF’s support for fossil fuel projects is at odds with a number of declared measures to tackle climate change, including a statement by Theresa May in 2017 to put the UK “at the forefront of efforts to cut carbon emissions and develop clean energy” and a policy set out in the UK’s Clean Growth Strategy to “dedicate resources within the Department for International Trade to promote investment into the UK renewable energy landscape, develop this supply chain further and support UK exports”.

Exploitative:

Evidence from an independent group of global leaders (The Elders) described the gap between domestic and international policy as a form of exploitation, with support for fossil fuel projects reviving “painful memories of past exploitative behaviour to see the UK and other rich, industrialised countries proclaim their good intentions and act in a progressive way at home, whilst effectively exporting their emissions to poorer foreign countries and leaving them to pay the price socially and environmentally.”

Urgent change:

MPs urge changes to UKEF’s climate-related practices to help tackle climate change, and welcome UKEF’s willingness to address climate concerns by phasing out support for coal.

UKEF must rapidly end its support for high-carbon fossil fuel exports. Failure to do so could leave taxpayer money at risk through stranded assets at a time when innovation should be focused on low-carbon energy and energy transition.

Among recommendations:

  • UK Government should set out how UKEF will work towards net-zero emissions by 2050 to show climate leadership and a willingness to align the UK’s domestic and international approaches to job creation and climate change.
  • Use different measures to determine whether UKEF subsidises fossil fuels: the “price gap” method, and publish a measure of its inventory support for fossil fuels using the OECD method.

Legislation needed to enforce environmental accountability:

The report finds that UKEF is unlikely to change to take more environmental factors into account unless there is a change in the policy or legal frameworks governing its mandate.

Giving evidence, UKEF’s CEO Louis Taylor said that "within the statutory purposes of UKEF there is not a developmental or environmental statement in there at all,” though that in time there would be “progress on environmental standards."

Among recommendations:

  • Government should legislate to ensure compliance with the UK’s obligations under the Paris climate agreement and other national and international climate and environmental commitments including SDGs.
  • UKEF should report on the forecast and actual emissions of all projects it supports, as well as the portfolio totals, in a single document, so that it is easy to access and compare projects.

Energy transition:

The Committee heard conflicting evidence on whether UKEF's activities are supporting or hindering
the process of moving energy production and supply from fossil fuels to low-carbon alternatives, in particular that support from UKEF is delaying the transition to low-carbon energy by supporting fossil fuel projects that would not otherwise go ahead.

Among recommendations:

  • UKEF’s support for new fossil fuel projects should finish by the end of 2021.
  • UKEF should commit to only support British businesses in projects that support the UK's climate goals. In supporting a new energy project, UKEF should show how this supports transition to net zero emissions by 2050.
  • Projects supported by UKEF should be able to demonstrate that they have considered a range of potential lower-carbon and renewable options, and that they have selected the option with the lowest feasible emissions.
  • UKEF should state how its strategy will support a 'just transition' for workers in the UK who currently benefit from its support, and how this approach will support decent work in the areas affected.
  • UKEF should follow Sweden’s Export Credit Corporation (SEK) in introducing a 5% cap on gross lending to fossil fuel operations (coal oil and gas) as a proportion of total support. As with the UK’s domestic carbon budgets, this cap should progressively reduce in size, and should align with supporting net-zero emissions by 2050.

Further information

Image: cwizner/Pixabay

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