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Italy has walked away from a pledge to end support for international fossil fuel projects by the end of last year, indicating it will continue to provide export credit cover for parts of the oil industry in the short term and delaying a decision to put an end date on its backing for the gas sector.

Sace, the Italian export credit agency (ECA), yesterday published its long-anticipated plan for complying with its commitment alongside other nations at the 2021 Cop26 summit to “end new direct public support for the international unabated fossil fuel energy sector… except in limited and clearly defined circumstances that are consistent with a 1.5°C warming limit and the goals of the Paris Agreement”.

Signatories were supposed to have nixed backing for the sector by the end of last year, but the Sace policy shows that the agency did not end support for all exports involving the oil or gas sectors by that deadline.

The agency says it has stopped support for unabated gas-fired power generation but will only decide on a “gradual” phase-out plan for the rest of the gas supply chain once the EU’s taxonomy on sustainable finance is finalised. The taxonomy is expected to include gas as a sustainable energy source, but with several conditions designed to reduce greenhouse gas emissions.

The Sace document, published on March 21 by the Export Finance for Future (E3F) alliance, says Italy’s climate policy “takes into account both climate objectives, that remain a firm commitment for the Italian Government, as well as the current energy crisis, that may potentially require further investments in order to diversify sources of supply, in particular in relation to gas”.

The decision by Sace highlights the shifting views on gas in Europe since Russia’s invasion of Ukraine last year sent energy prices skyrocketing and sparked knotty questions over supply.

Some governments who signed the Cop26 pledge have instead scrambled to stock up on gas following the outbreak of the conflict, although the sudden loss of supplies from Russia also led to calls for Europe to reduce its reliance on fossil fuels. Other major suppliers of gas include autocratic countries such as Azerbaijan and Qatar.

 

Wide exceptions

The policy shows that Sace ended support for unabated gas-fired power generation in January this year, but gas exploration and production facilities will still qualify for support until 2026.

The International Energy Agency said in 2021 that no new fossil fuel extraction projects can be built if the world is to reach net-zero greenhouse gas emissions by 2050.

An end date for gas transportation, storage, refining and distribution eligibility will be chosen “following the inclusion of gas in the EU taxonomy and the current discussions on energy security”, the agency says.

Unabated oil-fired power generation and oil exploration activities stopped being eligible for Sace products in January. Support for oil transportation, storage and refining will end in January next year but distribution can still qualify for ECA cover until January 2028.

Sace declined to comment when contacted by GTR.

The agency nixed its backing for the thermal coal sector in 2021 although projects using carbon capture and storage techniques can still qualify.

But even after the phase-out dates for oil and gas kick in, Sace’s policy still allows for deals to receive approval under a wide range of exceptions including “national energy security”, “Paris Agreement alignment”, “energy efficiency” and “limited exception for country of destination”.

Simone Ogno, a campaigner at Italian NGO ReCommon, which is engaged in a legal dispute with Sace over its support for a gas project in Mozambique, says in a statement responding to the policy announcement that “we expected a poor implementation policy, but this is like not having any implementation at all”.

Speaking to GTR, Ongo adds that any projects winning Sace support in the next few years will not result in any gas imports to Italy until at least the next decade. “It is hard to believe that eight years is such an emergency timeframe to invoke ‘energy security’,” he says.

Adam McGibbon, a strategist with Oil Change International, a critic of Sace’s approach to fossil fuels, says Italy has become a “rogue state” on climate change and that it should be “kicked out” of the Cop26 pact. “The Italian government’s fossil fuel restriction policy is a new low, with so many loopholes that it is effectively useless,” he says.

Italy’s gradual approach to the energy transition was expected, with the country’s climate change envoy flagging last year that the country’s climate commitments may have to take a back seat in light of Europe’s energy woes.

“The decision taken in Glasgow has delicate elements also because it was taken before… the war in Ukraine, which put the energy sector under a lot of stress. This has created difficulties implementing that decision,” Reuters quoted Italy’s Special Envoy for Climate Change Alessandro Modiano as saying.

Many European countries are co-ordinating their export credit alignment with the Glasgow pledge through the E3F coalition, which formed in early 2021 and comprises 10 countries.

Of those, Denmark, Finland, France, Sweden and the UK axed ECA support for fossil fuels by the end of 2022 except for very limited carve-outs. Belgium, the Netherlands and Spain have published policies that largely end their support for the sector but with broader exceptions.

Germany is now the only E3F member not to have published a fossil fuel exit plan for its ECA. A government spokesperson told GTR earlier this month that exceptions to its Glasgow commitment are still being worked out, “taking into account the energy security crisis as a result of the Russian aggression against Ukraine and the compliance of exceptions with the Paris Agreement and the 1.5° pathway”.

In a statement last November, the E3F group said that the European energy crisis caused by Russia’s invasion of Ukraine “does not change their commitment to the implementation of the Cop26 statement”.