Westminster’s £2.5 billion backing for offshore oil and gas projects in Brazil and Ghana risks undermining UK efforts to cut climate pollution, according to an expert analysis.

The financial think tank, Carbon Tracker, has warned that the projects are “likely to fail” as the world moves away from fossil fuels. This could destroy their value and create “long term financial risks”, it said.

The UK government agency, UK Export Finance (UKEF), is facing fresh criticism for funding global warming. Campaigners described its actions as “unforgivable”, while the Scottish National Party said they were “baffling”.

UKEF’s support for the fossil fuel industry abroad was examined by the Westminster’s Environmental Audit Committee in 2019. In January 2020 a joint investigation by Greenpeace’s research unit, Unearthed, and BBC Newsnight, concluded that projects supported by UKEF could end up emitting 69 million tonnes of carbon a year.

The North Sea oil industry’s £6.8 billion plan to breach climate targets

Carbon Tracker has now analysed two major oil and gas projects in Brazil and Ghana given loans and credit by UKEF. It has assessed their economic competitiveness, assuming that countries meet the targets to reduce carbon emissions agreed in Paris in 2015.

One project is the exploration and production of the Campos, Santos and Espirito Santos basins off Brazil run by the state oil company, Petrobras. Three UKEF credit deals since 2011-12 have amounted to £2.2 billion.

The other project is Offshore Cape Three Points in Ghana, led by the Italian oil multinational, Eni. UKEF approved a direct loan and loan guarantee in 2017 with a liability of up to £300 million.

The two projects “are likely to fail to be competitive on economic grounds in a Paris-compliant world,” said Carbon Tracker’s report. They could become “stranded assets” meaning that their value would collapse, it suggested.

The report warned that backing the oil and gas industry “contributes to long-term financial risks and strengthens the case for reducing or ending export finance for fossil fuel projects.”

Carbon Tracker accused the UK of a “lack of leadership” on the issue. “Greater disclosure also needs to be matched with systematic behaviour change,” its report said.

“Although the Covid-19 crisis is understandably front and centre for policymakers at the moment, climate change remains high on the agenda and will receive fresh, and perhaps increased, attention as we emerge from the pandemic.”

The report pointed out that the UK had pledged to reach net zero emissions by 2050 and would be hosting the global climate summit in Glasgow in 2021. “Failure to adjust UKEF’s mandate accordingly would thus create policy inconsistencies that risk undermining the government’s wider strategy on climate change,” it concluded.

Funding oil projects overseas ‘beggars belief’

Carbon Tracker’s head of oil and gas, Andrew Grant, criticised UKEF’s support for fossil fuel growth. “It may create the perception that the right hand doesn’t know what the left is doing,” he said.

“At a pivotal time in setting the decarbonisation pathway for the coming decades, those looking to the UK for leadership will want to see a joined-up approach.”

Friends of the Earth Scotland argued that the UK needed credibility when it chaired the Glasgow climate talks in 2021. “Yet UKEF is funding fossil fuel projects overseas that will lock poorer countries into high climate emissions for years to come,” said the environmental group’s director, Dr Richard Dixon.

“As we are beginning to wean ourselves off our fossil fuel addiction at home, it is unforgivable that we are foisting it on to other countries.”

The SNP environment spokesperson, John McNally MP, called for “big answers” from UKEF. “It’s baffling why UKEF is considering and continuing to invest in these industries,” he said.

“Ethical investment, and importantly moral money, are acting with the interests of both the short-term and long-term future of both economic, and sustainability of the well-being of our planet.”

The Green MP and member of the Environmental Audit Committee, Caroline Lucas, said: “How the prime minister can continue to claim climate leadership when his government is using public money to fund fossil fuel projects overseas just beggars belief.”

UK Export Finance pointed out that its experts monitored risks and that it had recently allocated £2 billion to renewable energy projects. “Managing risk is at the heart of our business model,” said a UKEF spokesperson.

“It enables us to operate at no net cost to the taxpayer over time and ensure no viable UK export fails for lack of finance or insurance.”

This story was edited at 17. 35 on 12 June 2020 to add a comment from UK Export Finance. Photo thanks to iStock/fotoember.

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