UK to end support for oil and gas projects overseas to tackle climate change

The UK government will end direct support for the fossil fuels energy sector overseas as it works to support the sector’s transition to low-carbon energy in a push to curb the effects of climate change. However, the decision has faced criticism from the African oil and gas sector.

The UK Prime Minister Boris Johnson announced this decision as he opened the Climate Ambition Summit on Saturday, 12 December 2020 co-hosted by the United Nations, the UK, and France.

The summit brought together 75 world leaders as well as businesses and civil society to make strong new commitments to tackle climate change ahead of COP26.

The summit was open to leaders ready to showcase ambitious new commitments, including Nationally Determined Contributions (NDCs) to reduce greenhouse gas emissions, strategies to reach Net Zero, climate finance pledges and innovative plans to adapt and build resilience to climate change.

The policy will see the UK end export finance, aid funding and trade promotion for new crude oil, natural gas or thermal coal projects, with very limited exceptions.

The decision is a significant change when compared to the last four years when the government supported £21 billion ($27.6B) of UK oil and gas exports through trade promotion and export finance.

The government said that the policy will be implemented after a short period of consultation and is intended to come into force as soon as possible and before COP26 next November in Glasgow.

The announcement will expedite the shift to supporting green technology and renewable energy, creating jobs across the UK and driving international growth in the industry.

The government also said it will work with the UK’s oil and gas sector to support the move to low carbon energy sources through the North Sea Transition Deal, ensuring areas like Teesside and Aberdeen can become global hubs for wind energy, carbon capture and other clean technologies of the future.

Prime Minister Boris Johnson said ahead of the Summit: “Climate change is one of the great global challenges of our age, and it is already costing lives and livelihoods the world over. Our actions as leaders must be driven not by timidity or caution, but by ambition on a truly grand scale.

“That is why the UK recently led the way with a bold new commitment to reduce emissions by at least 68 per cent by 2030, and why I’m pleased to say today that the UK will end taxpayer support for fossil fuel projects overseas as soon as possible”.

Earlier this month, the Prime Minister announced a new NDC, committing the UK to reduce greenhouse gas emissions by at least 68 per cent by the end of the decade compared to 1990 levels.

The ambitious target is supported by the Ten Point Plan for a green industrial revolution, which will create and support up to 250,000 British jobs by 2030 and make significant strides in cutting emissions across energy, transport and buildings.

The UK has also pledged £11.6 billion in International Climate Finance over the next five years and on Saturday announced a new £10m commitment to a multilateral Green Recovery Initiative, which will support developing countries to build back better by integrating their climate commitments into economic efforts to recover from the pandemic.

Also on Saturday, a government consultation was launched with industry and other stakeholders on the implementation and impact of the new policy on ending support for fossil fuels, to inform the North Sea Transition Deal.

The consultation is expected to conclude by 8 February 2021.

UK Export Finance (UKEF) will continue to consider applications for support in the oil and gas sector whilst the consultation is ongoing and has already scaled up its support for the renewable energy sector.

Stephanie Pfeifer, CEO of the Institutional Investors Group on Climate Change (IIGCC), said: “IIGCC welcomes the UK Government’s announcement to end direct taxpayer support for fossil fuel projects overseas. The global economic transition to net-zero will be secured through both the private and public sectors committing to real action.

“The UK Government’s announcement follows the significant milestone for the financial community as 30 leading global asset managers representing assets under management of over $9 trillion today committed to the goal of net-zero by 2050. We hope to see more commitments from international policymakers signalling progressive action in support of the Paris Agreement in the coming months as we look ahead to COP26”.

It is also worth reminding that Denmark has recently announced it will cancel all future licensing rounds for new oil and gas exploration and production permits in the Danish part of the North Sea and end existing production by 2050.

As a major oil-producing country in the EU, Denmark’s announcement is a landmark decision towards phasing-out fossil fuels in Europe.

Oil and Gas UK, the representative body for the UK offshore oil and gas industry, on Saturday commented to the government’s decision, recognizing that in addition to tackling emission at home, the UK also needs to address this abroad.

Commenting on the announcement, OGUK’s chief executive, Deirdre Michie, said: “The UK is taking a global leading role in how to tackle emissions at home, and we recognise we should do the same abroad. Our industry and its world-class supply chain built on the back of pioneering work done over decades in the North Sea have a key role to play in delivering the Prime Minister’s ten-point plan”.

“We are also in advanced discussion with the government on a North Sea Transition Deal that can provide a model for how an industry can transform in a fair way which creates jobs, boosts the economy, and delivers on the essential policy goal of net-zero emissions. In the coming years, with support from the Government, our homegrown energy supply chain has the potential to benefit hugely from exporting the expertise it is developing in carbon capture, in hydrogen and in decarbonising operations”.

“We need to be careful to maintain our supply chain’s competitiveness that has built up over decades of North Sea experience, through a period of rapid change. If we are successful, the UK’s domestic leadership can reach around the world, with our industry at the heart of it.

“However, given the current fragility of our supply chain, this all needs to move quickly if we are to protect and sustain it as world-class”.

Reacting to the announcement by the UK government, the African Energy Chamber – a chamber of networks, transactions, and partnerships at the forefront of Africa’s growing energy industries – said the decision to halt funding for new oil & gas projects is ill-founded and counterproductive.

According to the AEC, the decision follows, among others, opposition to the recently announced support of the UKEF for Total’s 12.88 mtpa Mozambique LNG export terminal in Cabo Delgado.

The chamber said: “It is troubling that an aggressive foreign-funded anti-African energy campaign continues to undermine the potential of making Mozambique an oasis for gas monetization and meeting our increasing energy demands”.

The AEC also added: “The UK’s decision is poorly informed and highly hypocritical. 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”.