New policy could stop UK financial support to foreign fossil fuel projects

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A new set of rules could bar the UK government’s chief foreign lender from offering financial support to foreign fossil fuel projects.

The new policy, which could come as soon as this week, will rule out future loans and financial guarantees for polluting projects overseas through the UK’s export credit agency, UK Export Finance, just weeks after it agreed to a £1bn financial package to support work on a gas project in Mozambique.

Under the new rules no support may be offered to fossil fuel extraction or oil refining projects from 2021, apart from limited funding for gas-fired power plants ‘in exceptional circumstances’.

The policy paper was handed to the prime minister’s office earlier this week, and may receive the green light from No 10 within days, according to the Guardian

The move to curtail financial support for foreign fossil fuel projects comes after UKEF continued to grant loan guarantees, and direct funding, to British companies bidding for work on fossil fuel projects worth more than £3.5bn since the UK signed up to the Paris climate agreement.

It will offer loans worth $300m (£230m) to British companies working on the gas project and will also guarantee loans from commercial banks worth up to $850m.

The funding plan raised hackles within the prime minister’s office earlier this summer, according to the Guardian, because aides were told that Africa’s biggest ever financing deal was too far advanced for UKEF to abandon.

The prime minister’s aides then called for an urgent review of the UK’s fossil fuel funding record.

According to the Guardian, green groups are privately concerned that the new policy might still allow the funding of high emissions projects to move ahead overseas if it includes too many exemptions, or does not take effect soon enough.

There is also concern that the new rules for UKEF should also extend to the government’s official overseas aid budget.

A government spokesperson told the Guardian: “The government keeps its support for the fossil fuels industry under review to ensure the UK reaches its net-zero target by 2050.”

Earlier this month, UK Export Finance published guidance on applying for a share of the £2 billion that has been allocated to support clean growth projects.