A government agency that recently had its budget doubled by Chancellor Phillip Hammond spent hundreds of millions supporting foreign fossil fuel extraction and petrochemical projects last year. That included large lines of credit to a Brazilian company embroiled in a corruption scandal, and support for a petrochemical plant run by India's richest man.
The investments were part of £1.8bn worth of loans and export credit guarantees that a small government department and credit agency, UK Export Finance (UKEF), gave to British companies to help them export their goods and services abroad. The oil, gas and petrochemical sector accounted for the UKEF's second largest investment, after the aerospace sector.
Government data shows that, in total, UKEF gave more than £427 million to carbon intensive projects during the 2015-16 financial year. Depsite the UK's claim to be a low carbon leader, only £6m was invested to support equivalent clean energy projects.
David Powell, environment lead for the New Economics Foundation described the investments as “hypocrisy”. He told DeSmog UK:
“The UK is effectively subsidising, making it cheaper and improving the market conditions for fossil fuel operations around the world.
After we signed the Paris Agreement to radically reduce our carbon emissions to 1.5C we should be leaving fossil fuel in the ground and certainly not dig it up.”
Supporting Petrobras Oil and Gas
Among the many deals UKEF brokered, more than £245 million of credit was lent to Brazil’s fossil fuel giant Petrobras to carry out oil and gas exploration.
This was part of a £500 million line of credit issued by the UKEF to the oil giant, which came to supplement a previous $1 billion credit pot started between the UK government and the company in 2012.
Upon making the investment, UKEF noted Petrobras’ offshore exploration and production of oil and gas are expected to produce an estimated 22 to 24 million tonnes of carbon dioxide per year— the equivalent emissions of more than five million cars driven for a year.
In 2014, the state-controlled company became embroiled in a major corruption scandal. Police investigations revealed construction companies were conspiring with top Petrobras officials in exchange of bribes and kickbacks, which were funnelled to parties and politicians.
Despite the allegations, money continued to flow between the UK government and the company. In 2013-14, the UKEF provided more than £382 million of financial support to the company.
The following year, after the corruption involving the company was exposed, the UKEF said in its annual report: “Reinsurance was provided to support the UK element of two large pipe laying vessels, being built by IHC, to be chartered initially to Petrobras to assist the development of oil production. The value of the UK element was £115 million. Further business involving Petrobras is under consideration.”
Supporting Petrochemicals in India
Throughout 2015-16, the UKEF also gave £146 million worth of support to help seven UK companies expand the Jamnagar petrochemical complex in Gujarat, India, which is run by Reliance Industries.
UKEF categorised the project as ‘high-risk’ in terms of environmental pollution, working conditions, and health and safety.
Reliance Industries, which has the capacity to produce 1.24 million barrels of oil a day, runs the world’s largest oil refinery covering more than 7,500 acres, or a third of the size of London or Mumbai.
Built in under three years, the refinery’s expansion has turned India from an importer of petroleum products to an exporter to the United States and Europe.
The UK government’s support to Reliance Industries was part of $300m line of credit opened by the UKEF in 2013 for the expansion of its petrochemical activities.
In 2015-16, Reliance Industries reported emissions of 28 million tonnes of carbon dioxide at its manufacturing sites — the equivalent of nearly 30 billion pounds of coal burned.
In January, Greenpeace published a report showing India was experiencing “a public health crisis due to high air quality pollution”. The study shows there is not one city in northern India where air quality complies with standards from the World Health Organisation and the National Ambient Air Quality Standards.
The city of Jamnagar recorded pollution particles nearly twice above the standards and in 2014-15, the concentration of a particular pollutant (PM10) was nearly 50 percent higher than the maximum recommended.
As the UK government was opening a line of credit with Reliance Industries, the Norwegian state’s council of ethics recommended its government divest its pension fund from Reliance Industries because it believed the company’s oil exploration efforts in a part of the Peruvian Amazon “would constitute an unacceptable risk” of the companies “contributing to serious and systematic human rights violations”.
The recommendations were made between 2010 and 2014 after Reliance Industries embarked in a joint venture with Spanish oil company Repsol SA to explore an oil resource area known as Block 39, in an part of the forest where indigenous people were believed to be living in voluntary isolation.
Calls for divestment were lifted in 2014, when Repsol SA put an end to the joint venture and said that no activities were being carried out in the block.
Today, Reliance Industries, whose managing director is Mukesh Ambani, India’s richest man, continues to report rising profit and a turnover reaching $44 billion over the last financial year.
Mr Ambani was also ranked the 36th largest fortune in the world on the Forbes’ billionaire list 2016 with a net worth value of $19.3 billion.
With available financial support worth £1.8 billion, the UKEF has helped support a host of other high carbon projects.
At the start of the year, the UKEF announced an investment of $400 million in support for a General Electric Oil and Gas contract to develop oil and gas fields 60 kilometres off Ghana's coast. Gas production is expected to start in 2018 and supply the country for 20 years.
Last year, a £20.4 million direct loan was granted to Turkish company Kayali Enerji Uretim AS for a new gas power plant. Environmental pollution was identified as a risk and a report anticipated the project would produce 227,000 tonnes CO2 per year during its operation.
UK-based company Metalis Energy received support worth £645,098 from the UKEF to support activities for petroleum and natural gas extraction in China, Singapore and Vietnam and about £185m were granted to companies supporting infrastructure activities such as platform structures and piping for fossil fuel exploration, generation or production.
Not all of UKEF’s activities are yet transparent and some information is held back from publication because of commercial interests.
For example, in 2015-16 the UKEF supported “specialised design activities” in Nigeria, Qatar and Russia but information on the exporter and buyers were withheld.
The UKEF does not shy away from its financial support for fossil fuel industries. In its last annual report, it states the sectors it supports include aerospace, construction, oil and gas, mining and metals, petrochemicals, telecommunications, and transport.
UKEF does also provide some money for clean energy projects. In 2015-16, just over £6 million was given to support Dong Energy in Denmark and Siem Offshore Contractors in Germany, both of which invest heavily in offshore windfarms.
Both companies also run offshore oil and gas production operations, however, and it is not clear which branch of the businesses UKEF cash went to.
There were no other indications of projects supporting clean energy.
In a statement, the UKEF told DeSmog UK that the UK’s oil and gas supply chain is a significant contributor to the economy, employing hundreds of thousands of people and generating over £40 billion in revenue annually.
But the government’s support for high carbon projects goes beyond oil and gas operations.
In 2015-16, the government’s credit agency also provided nearly £500m for the delivery of 32 airbus to 12 different airlines, £3m for military defence vehicles in Australia and more than £5m for rubber production around the world.
In the last Autumn Statement, Chancellor Philip Hammond pledged to double the UKEF’s funds, taking its risk capacity to £5bn.
The announcement corresponds to government’s efforts to boost export value to £1 trillion by 2020 in line with Theresa May’s “truly global Britain” as the UK prepares itself to leave the European Union.
With the UK Government heavily supporting long-term fossil fuel investments abroad, there are concerns it is avoiding its global commitment to cut its emissions in line with the Paris Agreement.
In 2008, the UK Parliament overwhelmingly voted to adopt the Climate Change Act, which requires the Government to set legally binding targets - known as carbon budgets - to cap the amount of greenhouse gases emitted in the UK over a five-year period. But the government has repeatedly delayed the publication of a document outlining how it will catch up with its emission reduction plans and outline how it will hit its goals.
By providing companies with millions of pounds to support fossil fuel and petrochemical plants abroad, the UK Government is effectively exporting part of its carbon footprint.
Although the UK’s carbon budgets only include domestic greenhouse gas emissions, the government is nowhere near meeting its target of reducing its emissions by 57 percent by 2032.
In June, the Committee on Climate Change published a report anticipating the UK’s own target would be missed by 100 million tonnes of carbon dioxide or the equivalent of all the greenhouse gases currently produced by the industry sector.
In the past, efforts to curb the UKEF’s ability to support fossil fuel projects were rebuffed by the government.
In 2014, a consortium of environmental NGOs backed Green MP Caroline Lucas to present an amendment to the bill and include a prohibition list of particular industries such as coal-fired plant and fossil fuel energy operations that could not receive UKEF support.
The Government replied that the prohibition list would lead to “competitive disadvantages” from UK firms, with a risk of projects being taken over by credit agencies with lower environmental and ethical standards and that each case was considered “on its merit”.
In 2015, an investigation by EnergyDesk found the total support for fossil fuel industries during the coalition government between 2010 and 2014 amounted to £1.76bn-worth of export credit guarantees.
Although the UKEF has not supported a coal-fired power station since 2002, there are no legal guarantees to prevent it doing so in the future.
A spokesperson for UKEF told DeSmog UK that it is “actively seeking to support projects in renewables”, pointing to a recently signed memorandum of understanding with Kenya’s government.
They said UKEF also has a specialist environmental, social and human rights advisory team that reviews projects before it makes an investment decision. It has also adopted the Equator Principles — a global framework adopted by financial institutions to promote sustainable environment, social and human rights decision-making when financing projects — with the intention of giving exporters confidence that ethical considerations have been taken into account.
Updated 14/02/2017: The headline was corrected.
Main image credit: Fontela01 via Wikimedia Commons CC 2.0