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UK government officials have announced an end to support for overseas fossil fuel projects. The country has come under fire in recent years for its financial backing of fossil fuel exports through UK Export Finance (UKEF), the state-owned export credit agency (ECA).

As indicated in a statement by the government, the new policy will see the “UK end export finance, aid funding and trade promotion for new crude oil, natural gas or thermal coal projects, with very limited exceptions”.

The policy will be implemented after a period of consultation and will come into force “as soon as possible”, before COP26 next November, it adds.

In the meantime, UKEF will continue to consider applications for support in the oil and gas sector – state funding for overseas coal projects was halted earlier this year.

In November, before the announcement of the new policy, the agency revealed that it is currently considering requests for support for seven projects involving fossil fuels and 10 applications for trade finance cover in the sector.

These projects and transactions under consideration are located across the globe, in Algeria, Azerbaijan, Brazil, Canada, China, Egypt, Iraq, Italy, Malaysia, Thailand, Turkey, Turkmenistan and the UK.

GTR understands that the 17 applications are still being reviewed and that UKEF has also received an application to support the East African Crude Oil Pipeline (EACOP).

The government’s latest announcement comes after intense scrutiny of UKEF in the past few years because of its financing of fossil fuels and, along with the Department for International Trade (DIT), its alleged lack of sufficient understanding of the challenges smaller exporters face when applying for financial support.

 

Evidence and inquiries

When it comes to fossil fuels, UKEF has been criticised over its considerable support for the sector – particularly as the UK government last year legislated a domestic net zero greenhouse gas (GHG) emissions by 2050 target.

Some experts have pointed out that it is hypocritical to have a strong domestic climate policy, while at the same time committing billions of pounds to overseas fossil fuel projects that are detrimental to the environment and hamper countries’ transitions to low-carbon economies.

As an export credit agency, UKEF has a duty to provide support to UK exporters where the private sector is unable to. But there have been calls for its activities to be more reflective of its government’s policies.

An inquiry by the Environmental Audit Committee, a cross-party group of MPs, into UKEF’s financing activities revealed that for the five years leading up to the 2017/18 fiscal year (FY), 21% of UKEF’s support, approximately £2.6bn, was allocated to the energy sector. Of those funds, 96% went to fossil fuel exports, with the remaining 4% to renewable energy exports. The largest proportion of energy sector support from UKEF went to fossil fuel projects in low or middle-income countries.

In the time since, campaign group Global Witness has submitted evidence for a separate inquiry into the agency, launched earlier this year by the International Trade Committee (ITC). The inquiry is examining UKEF’s project choices, approach to target-setting and user-friendliness of its products.

The evidence, dated September 23, references analysis by the NGO that estimates that for the 2019/20 FY, £761mn has been issued in support for fossil fuel projects, not including the Mozambique LNG project, for which UKEF backing will be worth up to US$1.15bn, it says.

It highlights other UKEF transactions including a US$2bn line of credit to Saudi Aramco and its support for an oil refinery in Bahrain. Documents uncovered by The Guardian in October last year also revealed the agency’s plans to invest in fracking in Argentina, it adds.

“Export credit agencies like UKEF, with high credit ratings and government backing, are often a crucial tool for ensuring the completion of risky fossil fuel projects. They also send a signal to investors and leverage support from the private sector for fossil fuel infrastructure,” the submission reads.

A spokesperson for UKEF previously told GTR: “This government is committed to tackling climate change and UKEF is helping to drive UK content into overseas renewables projects across the globe,” adding that: “We are proactively developing our support for low-carbon sectors, with £2bn recently allocated to our direct lending facility to support clean growth projects.”

Some of the recent renewable energy exports UKEF has supported include providing a London-based energy company with £47.6mn to build two solar plants in Spain and approving £230mn for UK businesses supplying the Formosa 2 wind farm off the coast of Taiwan.

Other governments are also stopping their support for fossil fuels. Sweden has banned support for the extraction and exploration of fossil fuels after 2022. Meanwhile, France last year prohibited any export credits for coal, shale oil and gas.