Flying Low: The UK Export Credit Guarantee Department and Climate Change
WWF UK, Surrey, 9 November 2006, 17pp.
http://www.wwf.org.uk/news/n_0000003178.asp
Full report (PDF) available at
http://www.wwf.org.uk/filelibrary/pdf/ecgdcc.pdf
Executive Summary
The UK Export Credit Guarantee Department (ECGD) is a UK Government department which provides government-backed loans, guarantees, credits and insurance to private corporations from the UK to do business abroad, particularly in the financially and politically risky developing world. The remit of the ECGD is reactive in that it only supports business projects which approach the department for support.
The ECGD provided over £2 billion in financing last year, primarily to support the supply of aircraft and hydrocarbon extraction. The ECGD currently has no clear recognition of its impacts on climate change or a strategy for reducing them.
Over the last five years, the ECGD has provided £3.3 billion in finance for the supply of 294 aircraft. This is the equivalent of BA’s entire fleet (291 aircraft) being added to the global airline industry with the UK Government’s support every five years.
The ECGD has even stated that the high oil price and profits means that there is even greater opportunity to subsidise the sector. It is currently considering whether to increase its carbon footprint by supporting Shell’s $20 billion Sakhalin II project in Russia. The 1.6 billion tonnes of CO2 emissions from the lifetime oil and gas production of this development are equivalent to 3 years of UK national emissions.
The ECGD is obliged to take into account the UK Government’s international policies, yet climate change is not referenced in any of its strategies, risk assessments or finance decisions. The current organisation is not able to adequately take into account the UK Government’s public position on climate change.
It is clear that the ECGD’s position is not coherent with the policies of other Government departments which have recognised the impacts of climate change on the environment and on poverty alleviation objectives.
The ECGD is also lagging behind the corporate sector in addressing the issue. Shell and BP already report direct and indirect emissions, whilst Virgin has announced a fund to use travel sector profits to develop alternative fuels. The ECGD needs to expand the scope of its environmental assessments to consider the impact of the sectors it is supporting and the types of products they supply.
There is currently a lack of transparency with regard to the levels of greenhouse gas emissions the ECGD is responsible for. Limited details are provided for some projects, and the ECGD currently has no public reporting of the greenhouse gas emissions from all of its interests. As a result WWF has had to calculate contributions where possible.
WWF believes the ECGD should report clearly and publicly on the emissions it provides financial support for and the indirect emissions from the infrastructure and equipment it supports. Until the ECGD monitors its contribution, it cannot set targets or manage reduction.
The ECGD is not taking into account the social cost of its activities. The Stern Review estimates the social cost of 1 tonne of CO2 to be $85. The social cost of lifetime emissions from the 86 aircraft financed by the ECGD in 2005 is £3.8 billion; this is greater than the £1 billion of cover that the ECGD provided to the aviation sector in 2005. As a result the ECGD is having a negative contribution to society.
It is time for the ECGD to phase out support for fossil fuel projects which reduces the costs and risks of oil companies. Indeed, the Stern Review sets out the imperative to create a flow of investment to low carbon futures. If ECGD cannot respond to this challenge, then it needs to change urgently.
The ECGD is part of a larger group of export credit agencies, who provide more finance support each year than all the multilateral development banks put together. ECGD should set an example, and lead a shift towards low carbon finance, both for its peers and for commercial banks.
The Stern Review has concluded that ‘climate change is the greatest market failure ever seen’; WWF believes ECGD is part of that failure. The Stern Review has set out the challenges, with a key aspect being how to correct the carbon externalities through public finance structures. As long as ECGD sees the cash-rich oil sector as an opportunity, it will be part of the problem rather than part of the solution.
Recommendations
WWF, therefore, is calling on the Government and the Secretary of State for the ECGD to urgently review the mandate of the ECGD with regard to climate change. This review must be coherent with the policies in DEFRA and DFID on climate change. Both DEFRA and DFID must take a strong position on the reform of the ECGD to ensure that it is fully in line with Government policy.
Specifically:
• the ECGD should ensure clear, transparent and public reporting of the greenhouse gas emissions derived from the projects it supports; and
• the Government should amend the primary legislation that sets the remit of the ECGD and require it to phase out its support for carbon intensive sectors.
ECGD’s inability to consider climate change issues is an unacceptable situation. The department needs to take urgent action to rectify this. The ECGD is falling behind in terms of risk management, transparency and contributions to reducing greenhouse gas emissions. The ECGD is in direct contradiction of the UK Government position on climate change agreed across other departments. The Stern Review is a timely intervention which should result in fundamental changes in Government interactions with the financing of carbon intensive activities.
If the ECGD continues to support carbon intensive investments such as Sakhalin II, it will be consciously breaching its requirement to be in accord with UK Government objectives. The ECGD is currently an embarrassment to the UK because of its poor record on climate change, and must not be allowed to fly low beneath the radar of policies to reduce carbon emissions.