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Development Aid and Oil Extraction

Volume 472: debated on Wednesday 20 February 2008

I welcome this opportunity to raise important issues about development programmes being used for oil extraction and the need for an alternative approach that prioritises poverty reduction and combating climate change.

The matter was originally drawn to my attention by the “Ditch Dirty Development” campaign led by People and Planet. With its national headquarters in my constituency, and engaging many university and school students throughout the country, People and Planet is one of the principal agencies through which young people are engaging with environmental and development issues. It is to be commended for helping to build wider active involvement and commitment, which is essential in sustaining pressure to carry forward the drive to combat global poverty and its causes, on which Labour in government has a good record but on which we always want to do more. I am grateful to People and Planet and to Oxfam, which I am happy to say is also based in my constituency, for their helpful briefings for the debate.

The “Ditch Dirty Development” campaign has engaged some 20,000 mainly young people across the country in 32 university, college and school groups, collected thousands of signatures on petitions, met MPs and put points to the Government. I was pleased that last month, my hon. Friend the Minister’s ministerial colleague, the Under-Secretary of State for International Development, my hon. Friend the Member for Harrow, West (Mr. Thomas), visited Oxford directly to discuss with local school and university students the issues raised in the campaign. I know that that was not the first such meeting that he has held. There is a helpful dialogue in which young people engage with Government on some of the most vital issues affecting the planet.

It is right that those issues are also brought here to Parliament. The case that the campaign has been pressing is that because of climate change and the adverse impact that fossil fuel extraction projects often have on local people and the environment, the presumption should be against aid for such projects. At the very least, a stringent assessment should be undertaken of such projects’ impact on poverty reduction, economic development and carbon emissions, including the extent to which they increase dependence on fossil fuels.

My purpose today is not to knock the oil industry. Getting the stuff out of the ground all round the world and into cars and boilers on demand is a formidable economic and logistic achievement, which is often hazardous. As we now know, however, it is not sustainable for the future. Oil companies examining alternative renewable and environmentally sustainable energy sources is greatly to be welcomed, but we must remember that whatever ethical and environmental responsibilities they acknowledge or are forced to acknowledge, their core purpose is to maximise shareholder value by running profitable businesses and not to reduce poverty or to develop sustainable energy sources to meet local need.

More than 80 per cent. of the extraction projects funded by the World Bank provide fuel for markets in industrialised and developed countries. Although there are, of course, some local jobs and export earnings, the overall economic, social and environmental impact on poor countries is often negative. Investigations into the west African pipeline and the Baku-Ceyhan pipeline show the sort of social and environmental damage that is often inflicted. The recent debacle about the Chad-Cameroon pipeline just what a fraught area of World Bank investment such projects are. That makes it crucial that the framework for assessing aid or other support for such projects is robust and focused on poverty reduction and that it takes full account of the opportunity cost of alternative support for renewable energy, energy efficiency and energy conservation.

In its published response to the “Ditch Dirty Development” campaign, I was pleased to see the Department for International Development agree with the overall purpose of the campaign—the need for faster progress on tackling climate change and its impact on the world’s poorest people. I was also pleased to see the emphasis on working with developing countries to invest in renewable energy and higher energy efficiency. However, I have questions about the shape and pace of the initiatives to carry forward that commitment.

As the Minister will be aware, the World Bank and regional development banks’ clean energy investment framework has come under fire from international and environmental non-governmental organisations, which have questioned its effectiveness in tackling climate change and improving poor people’s access to energy. A report by the Bretton Woods Project and others last September stated that the World Bank framework includes raising $10 billion for conventional energy technologies and investing in coal-fired, nuclear and large hydroelectric schemes, while not doing nearly enough for renewable and smaller-scale projects. The report criticised the fact that as much as 77 per cent. of the World Bank’s greatly expanded energy commitments are going on oil, gas and power sector projects, while only 5 per cent. are earmarked for so-called new renewables. Will the Minister say how far the Government share those concerns and what they are doing, through the World Bank and in other ways, to shift priorities to much more attention being given to renewables and energy conservation?

As the Minister will be aware, there are also real and valid concerns about what happens to the oil revenues that are remitted to producer countries and their Governments. Nigeria’s oil revenues have increased tenfold in value since 1965, but the country’s per capita real gross domestic product has not increased at all. One must ask where all that money has gone. In too many cases, it has gone to military spending or padding the offshore accounts of the oligarchs, rather than helping the poor.

I know that DFID supports the extractive industries transparency initiative, which seeks greater openness and accountability about revenues to Governments from extraction in resource-rich countries. Such greater openness would, of course, be a good thing. The Department has already spent £6.9 million in support of EITI work. A parliamentary answer to me on 24 January stated that the initiative’s impact had so far been measured by the number of countries signing up to it. It also stated:

“Evidence of EITI’s success is currently anecdotal.”

I think that that means that there is precious little hard evidence as yet. It continued:

“The new independent EITI Secretariat will conduct impact reviews and qualitative evaluation work as part of their annual review. These will be presented at the next EITI Conference which will take place in the autumn.”—[Official Report, 24 January 2008; Vol. 470, c. 2211W.]

Will my hon. Friend the Minister assure me that her Department will give close and proactive scrutiny to those reviews and that we will get not only qualitative impressions, but some meaningful numbers?

The initiative has a long way to go to deliver results. If the Minister looks on the EITI website, she will see under the heading “Implementing Countries” the number of compliant countries listed as “None”. I do not wish to belittle the progress that the initiative may be making—if it can really deliver, it will be an important step forward—but let us remember that transparency is only the first step.

We need revenues to be spent on reducing poverty and on providing health care, clean water, housing, education and basic infrastructure. We must ask why the international community is putting so much into fossil fuel extraction, when there is so little evidence of poor people benefiting at the other end and when the imperative of tackling climate change points in other directions altogether.

An important and welcome part of the UK’s response is the international element of the environmental transformation fund. Over the next three years, the fund will commit £800 million to projects that support development and poverty reduction through environmental protection, as well as helping poor countries to tackle climate change. Will the Minister give an update on how plans for the use of that money are progressing? Will she also give an update on what governance and accountability arrangements are in place, particularly the criteria that must be met to gain support for clean energy and energy efficiency projects? The criteria must include climate change impact, and I should like to know how that will be assessed.

Will the Minister also say what progress is being made on assessing the carbon footprint of all DFID’s programmes and related areas of Government responsibility, such as export credit guarantees? That is an essential element of having proper evaluation, transparency and accountability in the formulation and implementation of policy. Comprehensive carbon auditing, along with poverty reduction, could provide the basis of a framework against which all multilateral and bilateral aid and programmes could be assessed, making explicit the environmental, social and economic impact of projects and the trade-offs between those elements. That would gear programmes and aid more effectively towards meeting our social and environmental responsibilities and would, indeed, ditch dirty development.

I congratulate my right hon. Friend on securing this debate on an issue that is important across the world, including in his constituency. I am sure that organisations such as People and Planet and Oxfam have every reason to be grateful to him for bringing their key concerns to the heart of Parliament today.

It might help if I outline the Government’s position on development aid and oil extraction and what we are doing to address some of the challenges that my right hon. Friend has rightly brought to the attention of the House, including promoting energy efficiency and the use of renewable energy. This area is of great interest to the Government, developing countries, industry, affected communities, non-governmental organisations, donors and others. I agree that there is tremendous potential for oil to contribute towards development. Unfortunately, however, in developing countries it is often associated with poverty, conflict and corruption, which is not what any of us want.

My right hon. Friend made it absolutely clear that oil use contributes to one of the greatest challenges we face: climate change. This issue is particularly topical given that world oil and mineral prices are at an all-time high and that major oil companies are reporting ever greater profits. However, there have been great changes in the past 10 years: oil, gas and mining companies and the extractive industries are all better placed to support development. My right hon. Friend has outlined the problems that remain, and I agree that more must be done. It is helpful to focus on the damage that may be done to the environment. This is a particular challenge as exploration moves to ever remoter parts of the world, which are often pristine and home to minority indigenous people.

There is a less localised environmental issue: some have called for a moratorium on fossil fuel extraction. My right hon. Friend talked about the very active “Ditch Dirty Development” campaign by People and Planet in his constituency, which calls for an end to support for fossil fuel projects by international financial institutions such as the World Bank. We do not support that campaign’s position, but we very much welcome the debate that it raises and the fact that concerns are being expressed. I am happy to continue to consider closely the points that it raises. Fossil fuels have played an important role in our development and it would not be right or fair to deny that opportunity to developing nations. If we went down that road, those countries would be denied the opportunity to support their own development.

Does my hon. Friend agree that there are important questions to be asked about whether support and subsidies from the international community, particularly the World Bank, for fossil fuel extraction projects, are a better use of money to alleviate poverty than alternative methods? Does she agree that it would make sense to have searching criteria against which both multilateral and bilateral support for projects should be assessed? Even if she will not accept an immediate moratorium, does she agree that we should set targets for the reduction of support for fossil fuel extraction?

I certainly accept that those searching questions need to be asked and answered. My right hon. Friend asked earlier why the international community is putting so much effort into fossil fuel extraction. It is important to step back and consider that fuel extraction is funded mainly by private sector finance, especially in the case of oil and gas. As a result, developing countries, which need energy to develop, also benefit. Access to electricity in developing countries is low—less than 25 per cent. in Africa—so we do need to ask questions about the issue.

I agree that we need to do more with institutions such as the World Bank. More should and will be done to press it to raise its ambitions by focusing more on renewables. That is something that my right hon. Friend seeks.

I am glad that the Minister raises the question of renewables. Returning to the important point about access for the world’s poor to electricity, does she accept that it would be better to invest public money, bilaterally and multilaterally, in projects that actually get electricity to the poorest people in the poorest countries? Investment in oil extraction and pipelines is a rather convoluted way of generating export earnings, which might end up being used for electricity projects, if not spent on weaponry or sent to some offshore account. Why not target the aid where it can have the most impact in transforming the life chances of the poor?

As always, my right hon. Friend makes a robust argument and important points. I put it back to him that those are the questions. The answers depend on the countries, on the resources available and on the challenges. This is where I part company with the campaign: I feel that it is important to view extraction as part of the contribution to developing countries. The debate is not just about aid, as my right hon. Friend understands, but about developing countries moving out of that world and into the developed world. They must be able to grow in a way that is sustainable, and that deals with the many challenges of poverty and, obviously, of being a developing country.

Perhaps I can give my right hon. Friend another assurance. Much of the work of the Department for International Development on behalf of the UK Government is directed at the promotion of renewable energy and improved energy use efficiency. Even in the work that we do directly, we are conscious of the important points that he makes. If I had to summarise my answer, I would say that there is no either/or: the aim is to support the country to grow in the interests of its people.

I put to my right hon. Friend that it is quite possible to view oil as a blessing to developing countries. The challenge for us is how to make it a real blessing and not a curse, as it has been portrayed. Oil, gas and mineral resources are major natural benefits for any developing country. In many cases, they are the major natural asset. It is not surprising that developing countries want to exploit commercially viable deposits to help support their economic growth and to encourage poverty reduction.

High prices in oil, gas and mineral commodities have been driving Africa’s higher growth rates since 2000. Three countries have growth rates above 7 per cent., largely fuelled by extractives exploitation. Seven per cent. per annum growth is, of course, what is required for sub-Saharan Africa to achieve the millennium development goal of halving the number of people who live on $1 a day or less.

Perhaps I can reassure my right hon. Friend and his constituents by saying that the role of the international community should be to help countries, as appropriate, to exploit their resources productively for the benefit of their people. The primary benefit would be the revenues that accrue to Governments through royalties, special petroleum taxes and so on. Wider sustainable economic benefits can accrue, including local procurement of materials and services by companies, and, perhaps, jobs and the establishment of businesses linked to the processing of crude oil into petrol and other products. Those in turn generate income and tax. Earlier this month, Ghana published a long list of benefits that it expects to derive from its recent oil discoveries. Companies can also contribute by building necessary new infrastructure and by providing benefits such as skills and productivity transfer.

What are the UK Government doing to help? The first thing to make clear is that the UK aid programme does not invest directly in the oil and gas industry, but we do work to help Governments maximise the value of oil and mineral deposits. A few examples of our work might be helpful.

First, the UK Government expect all companies to operate to appropriate social, economic and environmental standards in their work. We promote adherence to the OECD guidelines for multinational enterprises and the related risk awareness tool, which set standards for good corporate behaviour. The UK has a national contact point that involves three Departments—DFID, the Department for Business, Enterprise and Regulatory Reform and the Foreign and Commonwealth Office—through which complaints of poor conduct can be brought and investigated.

Secondly, the UK Government established and supports the extractive industries transparency initiative, to which my right hon. Friend referred. I was glad to hear that he agrees that it is of great importance. I believe that it represents a groundbreaking way of bringing business, Governments and civil society together to tackle some of the negative impacts of extractive industries.

The Minister is being very generous in accepting my interventions. Will she act on my suggestion that ahead of this autumn’s annual meeting the Government need to be proactive in getting real, clear evidence of progress on the reviews that the EITI is committed to completing?

I certainly agree with my right hon. Friend’s comments and concerns. Tangible evidence is indeed required—I hope that that will be an assurance. I can add that the EITI is driving the debate about how revenues are spent in Ghana, Nigeria, Côte d’Ivoire, Azerbaijan and other places. That, too, is an area of concern that my right hon. Friend rightly raised. Yes, we will be pushing for the more tangible evidence that he has requested.

However, the level of disclosure that exists now was unprecedented just five years ago. The EITI has achieved a change in the way that extractives revenues are viewed, and transparency is becoming an international norm. Furthermore, DFID works through country programmes to support Governments in respect of their oil exploitation. The Government of Ghana, for example, are committed to using their oil revenues productively, and DFID, along with several other donors, is supporting them in organising a major week-long series of events at the end of this month that will allow them to access international expertise on mineral wealth management. We work with other donors on such issues.

My right hon. Friend discussed the need to promote development, the use of renewable energy and improved energy efficiency. Perhaps I could briefly refer to some examples of what we are doing in that respect. He referred to the clean energy investment framework. As part of that framework and to take forward plans, the UK Government, through DFID, provide money to fund new posts in the World Bank.

Secondly, the UK Government have committed £800 million for the environmental transformation fund, and we are working with others—the G8, the World Bank and so on—on its development. On funding for renewable energy in low-income countries, we are pressing the World Bank and other financial institutions to step up their efforts, and we are funding the Global Village Energy Partnership to increase access to modern energy services in developing countries.

My right hon. Friend rightly referred to the tension between climate change and energy access. I very much share his concerns about that. The clean energy investment framework is one of the most important instruments for tackling the problem, and its focus will be on large countries such as China and India, which have high future emissions potential. Of course, all countries can take steps towards low-carbon energy development, including countries in Africa, where clean hydropower opportunities remain to be exploited.

This is an important issue, and one that we take seriously. We consider that the UK Government, through DFID, have a major role to play. It is true that poor management of oil, gas and mineral reserves can lead to poverty, conflict and corruption, and that oil consumption poses significant environmental challenges, but effective management of oil revenues, coupled with moves towards greater energy efficiency and the use of new technologies, must be the solution, rather than removing from developing countries the right to use their own natural resources. We will continue our work in this area, and I am grateful to my right hon. Friend for his interest.

Sitting suspended until half-past Two o’clock.