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Clean Energy Transition Guidance

Volume 812: debated on Tuesday 8 June 2021


Asked by

To ask Her Majesty’s Government what assessment they have made of the impact their document Aligning UK international support for the clean energy transition guidance, published on 31 March, will have on international fossil fuel investment; and what discussions they have had with other Governments about implementing such guidance.

The Government are grateful for the positive response from international partners to this new world-leading UK policy position. We have held productive discussions with like-minded countries on this agenda, including through our G7 presidency and broader initiatives, such as the E3F export finance coalition. It is encouraging to see an increasing number of similar commitments from key partners, such as the United States, in aligning their support towards clean energy.

My Lords, I very much welcome the Government’s new policy ending support for overseas fossil fuel projects, but the CDC is able to make investments in financial institutions, which, in turn, will continue to make investments in fossil fuels. How are the Government going to stop public money supporting fossil fuels in this way?

The noble Baroness will understand that the CDC has an independent board, but its policy is fully aligned with the Government’s by excluding fossil fuel investments, except under certain tightly limited circumstances. As such, the policy excludes future investment in the vast majority of fossil fuel subsectors, including coal, oil and upstream gas exploration and production. It has invested over $1 billion of climate finance in the past three years and set a target for 30% of all new commitments, in 2021, to be on climate finance.

The Government’s guidance states:

“Support for unabated gas fired power generation is conditional on: a country having a credible NDC”—

nationally determined contribution—

“and long-term decarbonisation pathway to net zero by 2050 in line with the Paris Agreement”.

There are other conditions. How do the UK Government reach this determination? Is this made known to companies and published before any applications for export finance support are made? Will the Government have a traffic light system for this?

As I said, the guidance document was very tightly worded and there is a set of tightly defined criteria that must be met before any support for unabated gas power is approved. This judgment as to whether the criteria are met will be based on all available evidence sought from the relevant project sponsor, the financing institution, the partner Government and the advice of experts in the relevant department or departments. Based on this evidence, and in borderline cases with the approval of relevant Ministers, proposals will be judged either to meet the tightly defined criteria and approved or not. I am afraid I have no knowledge of the intention to introduce a traffic light system.

Will the Government use the opportunity of the G7 meeting later this week and COP 26 at the end of the year to seek international support for reform of the capital requirement and Solvency II regulations, so that risk weightings relating to the funding of fossil fuel exploration and exploitation adequately reflect the macroprudential risk that such activities pose to the international financial system and the global economy as a whole, not to mention the future of the planet?

I thank the noble Lord for his question and might write to him on some of the detail. I can say that the UK is a leader in ambitious climate action, both domestically, with the most ambitious emissions-reduction target in the group, and internationally, doubling our international climate finance to £11.6 billion from 2021 to 2025. This policy decision and its swift implementation demonstrate our commitment and, over the coming months, we will work closely with like-minded partners to see similar principles adopted elsewhere. When the Prime Minister launched the UK’s presidency of COP 26 in February last year, he pledged our ambition for COP 26 to be the point where the world comes together,

“with the courage and the technological ambition to solve man-made climate change”.

We want to see our policy act as a catalyst for others, while still providing finance for the right projects in countries that desperately need power.

My Lords, if, as we are told, power from renewables is cheaper than power from fossil fuels, would this measure not be unnecessary, since no developing country would want to build fossil fuel power stations? If, however, that assertion about the cheapness of renewables is a fib, and our policy is to reduce the supply of cheap fossil fuel power and to force countries to rely on more expensive renewables, how will this help poor countries to develop?

Solar and wind are indeed now cheaper than existing coal and gas power plants in most of the world. Investments in fossil fuels will become increasingly risky, including for developing countries. Shifting away from fossil fuels is compelling, from both a climate and an economic perspective. The priority for the UK is to support renewable energy as the default choice, enabling us to continue to support developing countries to meet their growing energy needs and increase access to electricity, in line with both the sustainable development goals and the Paris Agreement. The UK has launched the Energy Transition Council to bring together political, financial and technical leaders, but one still has to remember that 600 million of the population of Africa have no access to any electricity.

My Lords, I am delighted to support this policy and welcome its emphasis on renewables. Will my noble friend take this opportunity to confirm that there will be a moratorium on fracking activities, either in this country or abroad, which the Government might be tempted to support? While I support helping countries urgently in need of power, it seems odd that UK Export Finance provided £47.6 million of support to build two of the largest solar plants in Spain. Will my noble friend confirm that there were no worthy projects in this country that were perhaps deprived of support from UKEF, as a result?

I can confirm to my noble friend that there is already a moratorium on fracking in the UK. I have been told that the UK also does not support international fracking. The moratorium came in following events during fracking operations at the end of 2019, and the Government confirm that we will take a presumption against issuing any further hydraulic fracking consents. This sends a clear message to the sector and to local communities that, on current evidence, fracking will not be taken forward in England. I am not sure of the exact details of the solar project in Spain, but I can confirm that export finance is given to projects where there is a significant benefit to the UK supply chain. If I have got that wrong, I will write and correct.

My Lords, in announcing the ending of support for fossil fuel projects abroad, there was mention of exceptions for some projects. I wonder whether the Minister could give a list of these or, if more appropriate, just mention a few now and write to me with a complete list.

There are a number of exemptions from this, one of which is providing support and promoting exports that improve the efficiency, health and safety, and environmental standards of existing assets. We will also support projects that assist with the decommissioning of existing fossil fuel assets and support gas power where it is part of a credible emissions-reduction plan, in line with the Paris Agreement. This goes back to the question from the noble Lord, Lord Grantchester, on how we will evaluate these projects. The investment must not delay or diminish the transition of that country to renewables and there must be no risk of it becoming a stranded asset due to climate change factors.

Is it not slightly hypocritical of our Government to pontificate on this issue when they are funding, through the British taxpayer, a fossil fuel plant project in Mozambique?

The Mozambique project is one of huge controversy. It was supported by UK Export Finance in July 2020 under previous policies and would not be approved today. It has now contractually committed to that support. UKEF will continue to monitor that situation closely. All support provided by UKEF has been in line with the scope of the new policy since March, which ends new direct financial or promotional support for the fossil fuel energy sector, other than in the limited circumstances I have outlined. It aligns support with clean energy.

My Lords, one of the many exemptions to the policy is for countries that do not have a reliable or complete electricity grid—for example, Nigeria, where the UK recently invested in a gas and diesel power company. Do the Government intend to put an end date on this exemption or will we continue to support fossil fuel-generated power indefinitely?

I know that there are agreements in the policy to review it at certain intervals and I suspect that we will allow these exemptions until the next policy review. But, as I said, there are 600 million people in Africa with no access to electricity, and we cannot hold back development where we can assist by providing some form of grid or power system in the interim.