During the 12th December Climate Ambition Summit, in a major policy shift, the UK Government finally committed to end all direct taxpayer support for fossil fuel projects overseas. This ground breaking policy will be subject to a short consultation and is intended to come into effect before COP26 in November 2021.
The subsequent worldwide media coverage, from The New York Times to the Brisbane Times, shows that this is a significant climate moment. The UK is the first major country in the world to commit to ending taxpayer support for fossil fuels abroad.
The scope of this policy is sweeping, covering everything from the UK’s aid support, to export finance (support for British businesses who export their goods), trade promotion and the UK’s voting positions on the boards of Multilateral Development Banks (MDBs).
This ‘whole government’ approach sets a new gold standard on global climate action and adds significant credibility to the UK as COP26 host.
This would not have been a simple decision. For decades, the UK has been a major player in financing global fossil fuel extraction and production; providing £4.7 billion across 2010 to 2017. Government-backed financing has played major roles in everything from coal mining in Russia, oil refining in Bahrain, and gas extraction in Ghana. This new policy will see that number drop to practically zero.
For one particular government agency, UK export finance (UKEF), this is a major policy shift. UKEF is notorious for its fossil fuel support, which was 97% of its energy portfolio across 2010-2017. This received renewed attention in June 2020 when UKEF agreed a $1billion loan guarantee for a controversial liquified natural gas project in Mozambique. This is despite the project’s significant climate impacts and alleged links to corruption and human rights violations. The uproar following this decision accelerated the debate within government to end overseas support for fossil fuels.
As a world-first, this policy is momentous in its own right. However, its power now lies in being able to trigger a domino effect of other countries and financial institutions to follow suit. Here’s how:
- Mobilise an international coalition to follow suit: G20 countries are still spending more than half a trillion USD of public finance on oil, gas, and coal each year. Building on the success of the Powering Past Coal Alliance, the UK can now put its diplomatic weight behind mobilising a broader coalition of countries to end overseas public finance for fossil fuels. It can embed this work into COP26 priorities, helping to secure similar commitments before and at the Summit. Initial coalition targets include France, Sweden, Denmark, the Netherlands, and the new Biden Administration in the US, as each government is considering similar policies.
- This decision signals rapid and sweeping market change: It shows how the economics of energy are changing and that future prosperity lies in clean energy investment. It also signals to the market that governments will continue to play a proactive role in the energy transition and that investment in fossil fuels must end. Public finance is an essential part of the money pipeline that de-risks fossil fuel projects and unlocks huge swathes of private investment. This policy will therefore help shift private investors out of fossil fuels and into clean energy. This is more crucial as we understand further the social and economic risks fossil fuel investment can bring to a country’s development.
- Shifting fossil fuel finance from MDBs: The UK is an influential shareholder in many MDBs like the World Bank and the Inter-American Development Bank. It can use this policy to influence MDBs to shift away from high-carbon projects and scale up investments that are compatible with a 1.5°C world.1 The UK can coordinate with other MDB shareholders, especially the new Biden Administration, to amplify pressure and help catalyse a full phase-out of fossil fuel investments. The UK can also cooperate with the European Investment Bank on this agenda, despite Brexit, helping to shift EU shareholders and institutions.
Moving forward, there is still work to be done. The upcoming consultation for the new UK policy must avoid any weakening in its level of ambition and timing. Rather, the consultation can help close the loopholes on allowing support for gas power in ‘exceptional circumstances’ and indirect financing for fossil fuels. As it currently stands, around 52% of CDC Group’s portfolio is via financial intermediaries and can still be used to support oil and gas.
UKEF must also immediately start to reform its practices to scale up its clean exports. This will help create thousands of new domestic jobs whilst supporting the UK’s growing low carbon industry to unlock export opportunities overseas. This is crucial as countries are increasingly setting net-zero targets and creating opportunities for investment.
At present, this new policy is a historical commitment. The UK has now set a new global precedent, providing it with a mandate to mobilise other governments and financial institutions to follow suit. This has the potential to lead to rapid, systemic change and will help to drive climate ambition globally, as well as a successful COP26 summit next year.
Authored by Louise Burrows (E3G) and Adam McGibbon (Market Forces/ Global Witness) who both helped coordinate the civil society coalition that successfully argued for an end to the UK’s public finance for fossil fuels overseas
1 See E3G’s interactive public bank climate tracker matrix to find out how the most well-known public banks are mainstreaming climate change into their work.