The UK government intends to halt funding for hydrocarbon projects overseas on the five-year anniversary of the Paris Agreement.
The UK plans to end support for new oil, gas and coal projects, it said. The government will provide “very limited” exceptions for some gas power plants. It aims to execute this shift as soon as possible.
The Paris Agreement aims to keep temperature rises below 2 degrees Celsius and aim for a 1.5 degree rise.
“Climate change is one of the great global challenges of our age and it is already costing lives and livelihoods the world over,” said UK Prime Minister Boris Johnson.
“Our actions as leaders must be driven not by timidity or caution, but by ambition on a truly grand scale.” By taking action today, he continued, “we will create the jobs of the future, drive the recovery from coronavirus and protect our beautiful planet for generations to come”.
Energy impact
The UK has launched a consultation today. This will be held with industry and various stakeholders on the new policy, “to inform the North Sea Transition Deal”. The consultation should conclude by February 8, 2021.
While the consultation is under way, UK Export Finance (UKEF) can continue to consider oil and gas applications. The agency has already scaled up its support for the renewable energy sector, the statement said.
In the budget from earlier this year, the UK government allocated £2 billion for UKEF’s direct lending facility. This was intended to “accelerate its support for clean growth and renewable energy projects”.
Johnson was reported to have been unhappy at UKEF’s support for Mozambique LNG. Friends of the Earth issued a legal challenge to the decision to support the Mozambique project.
UKEF agreed to provide $300 million through direct loans, with $850mn in guarantees for commercial banks. The agency noted the impact on UK businesses, saying this lending would help sustain more than 2,000 jobs.
The UK has been linked with potential support for the East Africa Crude Oil Pipeline (EACOP). This will be the longest heated oil pipeline in the world. It will run from Uganda’s Lake Albert oilfields to the Tanzanian port of Tanga. Total, which is leading the development, has come under fire for its part in the EACOP and Tilenga development.
Johnson has taken steps to shift the UK to a more environmental policy. The prime minister set out his 10-point green industrial revolution plan in November.
Hypocrisy
The African Energy Chamber’s chairman NJ Ayuk described the UK’s decision as a “setback” and “highly hypocritical”. The advocacy group will “continue to be unwavering in our commitment to stand up for Africa’s energy sector, its workers, energy poverty and those free-market values that will make our continent attractive to committed energy investors”.
Ayuk went on to express the movement to halt funding as “an aggressive foreign-funded anti-African energy campaign” that is undermining Mozambique’s potential to produce energy.
“I will personally return to Mozambique next week and will engage with the country’s leadership and the energy industry. Dropping investments for LNG projects in Mozambique after pressure from uninformed extremist groups in the UK and claiming it’s for climate change is a publicity stunt by the Johnson administration and not factual.
“This highly hypocritical decision comes at a time when western governments should, in fact, be increasing their investment in Mozambique and Africa rather than focus on failed foreign aid and handouts.”
Ayuk said gas developments could help diversify African economies and improve the lives of those living in the continent.
At the same time, oil and gas companies in Africa “need to do a better job when it comes to communicating their efforts to reduce carbon emissions, energy poverty” and in creating “opportunities for local businesses, moving people out of poverty and putting countries on a path to a better future, to prevent the continued exodus of large funds from the sector and Africa.”
Immediate harm
“The UK government’s net zero carbon emissions ambition is welcome; however, its proposal to withdraw financing for hydrocarbons, in so far as it relates to emerging markets in particular, should be carefully calibrated,” said co-leader of Fasken’s Global Energy Group Abayomi Akinjide.
“The UK government should avoid a situation where one man’s medicine becomes another man’s poison. The consultation exercise should be used to listen carefully.”
The EIC’s CEO Stuart Broadley said the group wholly supported the government’s net zero ambitions. However, he expressed concern “that this rapid removal of support to the UK oil and gas supply chain will harm immediate business prospects disproportionately.
“The EIC therefore commits to work with government and industry as a matter of urgency to design a structured supply chain transition, to ensure British businesses are fully supported and are best able to continue to export successfully around the globe.”
Changing times
Greenpeace welcomed the news. Greenpeace UK’s policy director Dr Doug Parr said the government could not “seriously claim the mantle of climate leadership whilst financing climate wrecking projects across the world. So calling time on financing overseas fossil fuel projects really is a welcome move and an important show of times changing.”
Parr went on to say that, combined with this decision to end financing for oil and gas projects overseas, the UK must take steps to help countries switch to renewable energy.
“And in ending support to fossil fuel extraction abroad, the government must now build on its commitments to take further global leadership by beginning a managed transition away from oil and gas production in the UK and North Sea, whilst supporting workers affected to make the switch to good green jobs,” he said.
The Rapid Transition Alliance, commenting before the government announcement, linked the ending of support for fossil fuels with hosting COP26. The UK government will host these environmental discussions in Glasgow in 2021.
It said UKEF projects already approved would lead to the emission of 69 million tonnes per year of greenhouse gases.
Updated on December 12 at 2:25 pm with detail on UKEF and the consultation process, and comment from African Energy Chambers’ Ayuk, and comment from EIC’s Broadley.
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