Boris Johnson has pledged to end Britain's support for global gas and oil projects. But will the government really make good on its promise?by Jennifer Johnson / September 10, 2020 / Leave a comment
Investors across the world are growing increasingly wary of financing fossil fuels—and for good reason. In an era of climate protest, carbon neutrality pledges and cheap renewable energy, oil refineries and gas fields look like risky bets. Over the last 10 years, divestment campaigners have successfully convinced a number of high-profile pension funds and university endowments to pull their money out of polluting industries. However, the movement hasn’t managed to fully shine its spotlight into every corner of the finance sector.
Until recently, export credit agencies (ECAs)—government-backed entities that fund domestic firms’ exports and overseas expansion—had sunk serious sums of money into fossil fuels without facing much backlash. Figures compiled by the research and advocacy group Oil Change International show that the world’s ECAs provided over $40bn annually to support fossil fuel projects between 2016 and 2018—compared to $2.9bn for clean energy.
UK Export Finance (UKEF), the country’s export credit institution, was no outlier among its peers. Last year, a report from Parliament’s Environmental Audit Committee revealed that 96 per cent (£2.5bn) of UKEF’s of energy investments between 2013 and 2017 went to polluting projects. Of this total, £2.4bn was funneled into fossil fuel projects in low and middle-income countries.
Cutting off support
With scrutiny increasing, Boris Johnson’s government has indicated that it will soon ban UKEF from offering loans and financial guarantees to polluting projects overseas. It’s a move that could encourage other lenders to clean up their acts and invest in the oncoming energy transition.
While an official announcement is still pending, the new rules reportedly stipulate that UKEF must stop offering financial support to fossil fuel extraction or oil refining projects from next year. This isn’t purely a symbolic decision designed to prove that the UK—the first major economy to commit to a net zero emissions target—is serious about climate action. If the legislation is free of loopholes, it will divert several billion pounds of public money away from extractive industries and, ideally, towards renewable alternatives. Most importantly, it will signal to the private sector that the end of the oil age is fast approaching.
Private finance remains the lifeblood of new exploration and production activities. Since…