Decarbonising Aid: Why We Must Stop UK Financing for Fossil Fuels Overseas Table 1: CDC’S Direct Investments in Fossil Fuel Infrastructure

Photo: decoalonize.org CC: BY-NC-SA 2.0

In 2 , including diesel and heavy fuel oil. countries including projects Ghana, are CDC’s also systems, energy of privatisation the to contributing with considerable costs the to public sector. pandemic,After the the Covid-19 only way ensureto a green recovery and a just energy transition is listen to our to allies in the global south who see an end UK to financingfossilof fuels step as on a key the climate road to justice. the government’s national commitments on on commitments national government’s the emissions Since the reductions. Paris Agreement signed,was approximately £568 million of UK aid has been in invested fossil fuel projects overseas. includeIf we export credits UK provided Export by Finance (UKEF) for fossil fuels, that number rises to billion. £3.9 Despite claims be supporting to a transition to million CDC of has active £213 energy, cleaner investments in projects using the most polluting fuels These investments are only one part UK of public financingforfossil fuelsoverseas which undermine • • • • • •

1 . C – the the set by target Paris Agreement in O

UK aid is legally required be spent to on poverty fossilreduction. Yet fuel investments have often been made on the basis what of makes a good shows analysis our example, For investors. for return that development the UK’s bank CDC Group has £520directly over invested million of aid money in fossil fuel projects in the past decade The world has years ten decarbonise to the global economy and limit global temperature rises to 1.5

2015. This is an2015. absolutely crucial demand for communitiesfrontline whose lands and livelihoods will be destroyed climate by breakdown. The UK government argues that investing in oil and gas is a good medium-term alternative coal to forpower countries in the global south. However, this argument has been thoroughly debunked as it will create fossil fuel dependency and lock in high carbon emissions for generationscome. to • • • Why aid for fossil fuels must end must fuels fossil for aid Why Environmental activists are determined in Kenya to show that coal has no place in the country’s energy future. May 2020 May for fossil fuels overseas Why we must stop UKfinancing must stop we Why Campaign briefing aid Decarbonising • • • Photo: DFID/Michael Hughes CC: BY 2.0

Prime Minister Boris Johnson speaking at the opening of the UK-Africa Investment Summit, London, 20 January 2020.

Context This trend looks set to accelerate as the government continues to align its development policy with trade In 2021, the UK government is set to host the strategy, with a merger of DfID with the Foreign postponed COP26 climate talks in Glasgow. Office likely to happen in the coming months. This This process is designed to encourage greater continues a trend in which DfID has slowly lost commitments from participant countries to tackle control of aid policy for several years – almost 30% climate change by setting ambitious national of the aid budget is now spent by other departments. emissions reduction targets and providing increased finance for the transition from fossil fuels This has resulted in more aid money being given to renewable energy, at home and internationally. to countries where the UK government wants to establish new trading relationships and in sectors In the run up to the COP, the government is likely to (e.g. energy, infrastructure, financial services) make announcements on how it is using taxpayers’ where British businesses have particular expertise. money to reduce emissions and combat climate Development policy is increasingly being driven crisis. For example, in January 2020, Boris Johnson by the UK’s economic interests and the pursuit of announced at the UK-Africa Investment Summit that private profit. the government would stop using the aid budget As the total amount of ODA (Official Development or UKEF credits to support thermal coal mining and Assistance] being spent directly by DfID decreases, coal power plants overseas (it later emerged that the aid budget is being redirected towards the UK’s the Department for International Development development finance institution, CDC.3 In 2017, the [DfID] had stopped supporting coal power in 2012). government passed a bill which raised the limit But while the government is stepping up climate on the amount of money CDC could receive from finance in some areas, it continues to use taxpayers’ government from £1.5 billion to £6 billion, with an money to fund a vast range of polluting projects option to rise further to £12 billion without further in the global south. At the summit, which was put primary legislation.4 on using £15.5 million from the government’s aid budget, 90% of the commercial energy deals announced were for fossil fuel projects.

2 I Decarbonising aid: Why we must stop UK financing for fossil fuels overseas Table 1: CDC’s direct investments in fossil fuel infrastructure

Company Sector Fuel Location Date Value of investment

Actis Energy Power generation Gas Cameroon June 14 $10,100,000 Cameroon (Eneo)

Africa Power Platform Heavy fuel oil Power generation Kenya Feb 17 $68,500,000 (Tsavo) / diesel

Amandi Energy Power generation Gas / crude oil Ghana Dec 16 $82,900,000

ARM Cement Manufacturing Coal Kenya Sep 16 $144,000,000

Azura Power Power generation Gas / diesel Nigeria Dec 15 $30,000,000

Liquefied Bangla Offshore LNG Distribution Bangladesh Feb 18 $25,000,000 natural gas

Grindrod Distribution Coal South Africa May 14 $16,600,000

Indorama Eleme Manufacturing Gas Nigeria April 13 $140,000,000 Fertilizer Chemicals Ltd

Sirajganj 4 Power generation Gas / diesel Bangladesh Aug 17 $103,000,000

Summit Meghnaghat Power generation Gas / diesel Bangladesh July 14 $17,500,000

Heavy fuel oil Tè Power Power generation Guinea Mar 18 $39,000,000 / diesel

TOTAL $676,600,000

TOTAL £520,500,000

Since 2010 alone, we have found that CDC has •• Because CDC and other investment funds make made over half a billion pounds’ worth of direct their investments in dollars, we have converted investments in fossil fuel projects in Africa and Asia. some figures into sterling for easier comparison, But that is not all. This is only the minimum amount, at the rate of 1.3 USD = 1 GBP. because CDC does not report publicly on how much •• The above analysis of CDC’s direct investments it invests via private equity funds. The majority of the since 2010 shows that it has invested £520.5 million fossil fuel projects supported by CDC are funded by into fossil fuel-based power generation, intermediated investments, so the actual amount manufacturing and distribution. will be much higher. •• £355.7 million of these investments occurred after In February 2020, CDC appointed Dr. Amal-Lee Amin the Paris Agreement was signed. as Climate Change Director in order to “lead and promote CDC’s contribution to the success of the •• As noted above, this does not account for all of upcoming COP26 conference on climate change”.5 CDC’s investments in fossil fuels in this period, as With CDC planning to launch a new climate CDC does not report on the individual amounts change strategy to align its approach more closely of investments it makes via private equity funds. with the Paris Agreement, there is now a unique Recent analysis by Greenpeace demonstrates opportunity for CDC to change path by committing that CDC has invested $785 million (£604 million) to end all of its overseas fossil fuel financing. into funds which have invested in fossil fuel projects.6 From that, $45 million (£34.6 million) was invested post-Paris.

Decarbonising aid: Why we must stop UK financing for fossil fuels overseas I 3 How else is UK public funding and £6,000 in 2018”.8 However, this is something supporting fossil fuels overseas? of a red herring as direct bilateral ODA has never accounted for a large proportion of ODA spend on a) A total figure? energy, which is mainly accounted for via multilateral or “indirect” spend via CDC and other funds. CAFOD has estimated that, between 2010 and 2017, the UK government “provided support for c) Prosperity Fund energy in the global south with a total value of Between 2016 and 2018, the Cross-Government £7.8 billion. Of that 60 per cent – or £4.6 billion – Prosperity Fund (which is funded with ODA but is went to outdated fossil fuels”. Furthermore, of this managed by the Foreign Office) financed 16 fossil £4.6 billion, £600 million (a little over 13 per cent) fuel projects, including expanding oil and gas was aid money which has a legal requirement sector capacity in Brazil, Mexico, China, Myanmar, to be spent on poverty reduction.7 and India. These projects represent approximately To work out the amount of UK aid invested 29.2 per cent (£1.93 million) of the Prosperity Fund’s since the Paris Agreement was signed, we must overall energy spend.9 add together CDC’s direct investments, CDC’s estimated intermediated investments, and the fossil d) Private Infrastructure Development fuel commitments made via other funds which are Group supported through UK ODA (broken down further The Private Infrastructure Development Group below). This tells us that up to £568 million of UK aid (PIDG) has received over $1 billion from the UK has been invested in fossil fuel-related activity since aid budget since 2002. PIDG has committed $750 April 2016. If we include UKEF funding in that figure, it million (£576.9 million) to support fossil fuel projects, rises to £3.875 billion of UK public financing invested using some of the world’s most polluting fuels.10 That in fossil fuels since the Paris Agreement was signed. includes $228.1 million (£175.46 million) since the Paris Agreement was signed. b) DfID bilateral spend In response to several parliamentary questions in e) UK Export Finance recent months, government ministers have given Although not funded through the development the impression that UK aid spending on fossil fuels budget and managed instead by the Department has dramatically decreased. The figure often cited for International Trade, it is also worth highlighting is the “UK direct bilateral ODA classified as being here the scale of overseas fossil fuel finance for oil and gas extraction” which amounted to provided by UKEF. UKEF has invested £3.307 billion “£102,000 in the last five years for which data is in fossil fuel projects since the Paris Agreement was available (2014-2018). This includes £96,000 in 2016 signed (with £1.732 billion in oil projects).11

Table 2: UK Export Finance investments in fossil fuels 2015-19

UKEF fossil fuel finance 2015/1612 2016/17 2017/18 2018/19

Oil £556m £355m £17m £1360m

Gas £25m £375m £277m £635m

Oil & gas mix £16m £287m £0.7m 0

Total £597m £1017m £295m £1995m

4 I Decarbonising aid: Why we must stop UK financing for fossil fuels overseas What is the alternative? global south.14 It is necessary to give CDC a new mandate as a Green Investment Bank •• An immediate end to all UK investments in fossil fuels which invests for the benefit of people and With the COP26 now likely to take place in planet rather than for private profit. As a Green Glasgow in 2021, and CDC about to announce Investment Bank, CDC could support the rapid its new climate change strategy, now is a unique development of public renewable energy opportunity for the UK government to make a systems in Africa and Asia. It would create good statement and accelerate its efforts to tackle quality, well paid jobs the global south and could climate change. Keeping fossil fuels in the ground facilitate a move away from the private sector and ending any public investment in fossil fuel by investing in public sector, municipal and co- infrastructure related to exploration, extraction, operative energy enterprises. power generation, storage, distribution and manufacturing is a crucial step on the path to •• Towards a Global Green New Deal? a zero-carbon world. With this in mind, the UK Of course, converting CDC into a Green government should commit to ending all ODA Investment Bank would only account for a and UKEF investments in fossil fuels. proportion of the global investment in fossil fuels. It is also necessary for the UK government to use •• Rapid disinvestment from any fossil fuel projects its advocacy role on the international stage to currently supported by UK aid. Where there redirect international institutions and multilateral would be a risk of high job losses or high financial investors towards fossil fuel divestment and a new penalty from this disinvestment, the costs should era of support for publicly-controlled renewable be borne by the UK government in recognition of energy. With co-ordinated international its historic responsibility for climate change. action, these measures would complement A ban on new investments alone won’t go other actions taken by international institutions far enough. Given the amount of money that under the banner of a Global Green New Deal the UK government has invested in fossil fuels designed to tackle global inequalities and the through CDC, PIDG and UKEF in recent years, climate emergency simultaneously. it must also divest as quickly as possible from its existing investments. In some cases there will be a financial penalty charged by private Who else wants to end UK aid funds for exiting these investments early; given support for fossil fuels? the urgency of the climate emergency this There is growing cross-party support for this cost should be borne by the UK government. in parliament. In the Labour Party, all three There is also a real risk that rapid divestment candidates for the recent Leadership election could lead to job losses and a severe economic discussed the importance of stepping up climate impact on countries in the global south. This can finance for renewable technologies overseas; using only be avoided by significantly stepping up the development budget to invest in renewable climate finance for a just transition to renewable energy instead of fossil fuels; and ending UK energy systems, based on the principles for a Export Finance support for fossil fuels.15 In a just transition set out by the International Labour Westminster Hall debate on 4 February 2020, MPs Organisation.13 As discussed below, the cost from four opposition parties (Labour, SNP, Liberal for this should (in part) also be borne by the UK Democrats, Green Party) spoke of the need for government in recognition of Britain’s historic an internationalist and just approach to tackling responsibility for climate change. climate change, including the need to end UK •• Establish an international Green Investment Bank government financing for fossil fuel projects in the As Global Justice Now has argued previously, global south.16 The conservative think tank Onward, there is an urgent need to reform CDC to not established by the Conservative MP Neil O’Brien, only reduce its negative impact on the world, also calls for the UK to “end support for fossil fuel but to also facilitate a just transition to publicly projects overseas through Overseas Development controlled renewable energy systems in the Aid and Export Finance”.17

Decarbonising aid: Why we must stop UK financing for fossil fuels overseas I 5 The UN Special Rapporteur on Human Rights “The lights would go out in Africa” and the Environment recommends that states, Similarly, the transition to power generation from international financial institutions and banks should renewable energy must be accelerated. That being “eliminate financing for fossil fuel projects (with said, we believe that the burden of this must fall on 18 the exception of clean cookstove programmes)”. countries with the greatest historic responsibility for Former Secretary General of the United Nations climate change and that those in the global south Ban Ki-moon has also called for the UK to stop have a right to develop, including a right to use 19 financing fossil fuels overseas. Some institutions have fossil fuels for longer to transition. However, there can already taken similar steps such as the European be no justification for countries and corporations Investment Bank (which has committed to end all in the global north to profit from these projects or to fossil fuel support within two years) and the Canadian use public funds for anything other than bringing export credit agency (which will set targets to the desperately needed transition a step closer. To 20 reduce the carbon intensity of its overall portfolio). ensure that access to power can be maintained and extended across the global south, climate Why would we not do this? finance from countries with a high historic carbon Three myths debt must be rapidly scaled up and public ownership of utilities in the global south must be supported. “There would be too many job losses” As CAFOD argues, due to the falling costs There is a risk that a ban and rapid divestment on associated with renewable energy, shifting from ODA and UKEF fossil fuel investments would lead fossil fuel sources to climate-friendly alternatives to job losses in the global south. However, this will not hinder development but will assist efforts to 23 could be avoided by developing a co-ordinated tackle energy poverty in the global south. exit strategy and just transition plan to retrain “We can’t end support for fossil fuels elsewhere workers and employ them in renewable energy whilst supporting them at home.” industries. A “just transition” is described by the It would appear hypocritical, even neo-colonial, International Trade Union Confederation as a to attempt to end fossil fuel dependency in the strategy that “provides and guarantees better global south without campaigning for the same and decent jobs, social protection, more training outcomes in the global north. However, some high- opportunities and greater job security for all income economies are making progress towards workers affected by global warming and climate a renewables-based electricity system, if not fast change policies”.21 This could, in part, be financed enough. Economies in the global south have a by CDC and the UK government but should also be right to develop and use fossil fuels for longer than supported by multilateral development banks and those in the global north, but equally we cannot development finance institutions. The key factor, ignore the impact that UK investments in the global however, is ensuring the genuine engagement south are having in prolonging and exacerbating and involvement of affected workers and the climate emergency. We must also consider the communities, civil society and trade unions as part other consequences of the projects supported by of the transition planning process. As the Institute CDC, PIDG and UKEF, such as water contamination, for Public Policy Research has argued, existing air pollution and the environmental damage models for a just transition “commission” (such as associated with the vast infrastructure required to that adopted by the Scottish Government) can extract, store and transport fossil fuels. Decisions be adapted to involve these groups and to ensure on when and how to transition shouldn’t be made ongoing social and environmental protections, by financiers from the global north looking to good quality and well paid work, and long-term job profit from fossil fuels while they still can; instead, security for all.22 communities in the global south should be free to choose how they run their energy systems. Our allies and communities across the global south are calling on the UK government to end its support for fossil fuels overseas. We can no longer ignore them.

6 I Decarbonising aid: Why we must stop UK financing for fossil fuels overseas Photo: US Embassy Ghana / Public Domain / Public Ghana Embassy US Photo:

The US Ambassador to Ghana visiting the Amandi Energy Power Plant in Aboadze, October 2019.

Case studies Amandi Energy (Ghana) Indorama Fertiliser and Chemical Plant CDC has provided $82.9 million to Amandi and Gas Pipeline (Nigeria) Energy to construct a 203 megawatt gas CDC Group supported the development turbine in Western Ghana. Supplied with gas of a new fertiliser production facility near from Ghana’s offshore Sankofa gas field, the Port Harcourt, Nigeria, along with an 84km $552million project also attracted funding from pipeline to transport gas to the plant. CDC Power Africa and the US development bank contributed $140 million. The project also (the Overseas Private Investment Corporation received $35 million from the Emerging Africa or OPIC), of $250 million in financing and $210 Infrastructure Fund. The project has also been million in political risk insurance respectively. supported with $1 billion of debt financing In April 2020, it was reported that the Ghanaian from the International Finance Corporation government is facing a “$250 million bill for (part of the World Bank Group); however, unused gas in 2019 due to ‘take or pay’ clause” the World Bank’s Compliance Advisor in the Public-Private Partnership contract Ombudsman has recently opened an inquiry established for gas extraction at Sankofa.24 into working conditions at the plant.

Tsavo Power Project (Kenya) Tè Power Company (Guinea) The Tsavo Power Project is a heavy fuel As recently as March 2018, CDC provided oil-burning power plant in Mombasa which a $39 million loan to the Tè Power Company supplies electricity to the national grid and to construct a 50 megawatt power plant in sells electricity to the Kenya Power and Conakry, Guinea. As with the Tsavo project, the Lighting Company under a 20 year power Tè Power plant is designed to run on heavy purchase agreement. fuel oil and diesel fuel, two highly polluting substances which release dangerous CDC Group owns a 70% holding in Globeleq particulates into the atmosphere. Ltd which in turn holds a 30% interest in Tsavo. CDC has also invested $68.5 million in the The Tè Power project has also received Africa Power Platform which “houses” $50 million from OPIC and a $32 million the Tsavo project along with other projects investment from Endeavour Energy, which also in Uganda, Burundi and Rwanda. sponsors the Amandi Energy project in Ghana.

Decarbonising aid: Why we must stop UK financing for fossil fuels overseas I 7 http://www.ilo.org/wcmsp5/groups/public/---ed_emp/--- References emp_ent/documents/publication/wcms_432859.pdf. 1 Oil Change International, Burning The Gas ‘Bridge Fuel’ 14 Global Justice Now, Doing more harm than good: Why CDC Myth: Why Gas Is Not Clean, Cheap, Or Necessary (2019). must reform for people and planet (2020), p.8. Available Available at: http://priceofoil.org/content/uploads/2019/05/ at: https://www.globaljustice.org.uk/news/2020/feb/16/uk- gasBridgeMyth_web-FINAL.pdf. development-bank-doing-more-harm-good-after-failed- reforms-%E2%80%93-report. 2 James Duddridge MP, Written response to parliamentary question 33616, 31 March 2020. Available at: https://www. 15 Labour for a Green New Deal, ‘Leadership Candidates 2020’ parliament.uk/business/publications/written-questions-answers- (2020). 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