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The government-backed export credit agencies (ECA) of the UK,
US, Japan, and other developed countries received a warning
recently about the legal consequences of continuing to back fossil
fuel projects elsewhere in the world.
A new legal opinion commissioned by
the nonprofit Oil Change International (OCI) concludes these
countries and their ECAs may find themselves in violation of
international obligations as a result of signing onto the 2015
Paris Agreement on climate change and as members of the
Organisation for Economic Co-operation and Development (OECD).
Crafted by University of Cambridge law professor Jorge Viñuales
and UK barrister Kate Cook of Matrix Chambers, the 4 May opinion
draws on customary international law, as well as international
climate change law, international human rights law, and relevant
parts of the OECD framework that oversee ECAs and their backing of
power generation projects.
ECAs provide government-backed loans, credits, insurance, and
guarantees, if needed, for the international operations of
corporations from their home country.
According to the OCI opinion, countries that continue to finance
fossil fuel projects that drive up CO2 emissions are in violation
of "making financial flows consistent with a pathway towards low
greenhouse gas emissions and climate-resilient development," per
Article 2(1)c of the Paris treaty.
Developed countries alerted
Citing this legal opinion, OCI, along with like-minded allies
among civil society groups, such as various chapters of Friends of
the Earth (FOE), cautioned Australia, Canada, Denmark, France,
Japan, the Netherlands, South Africa, Sweden, the US and their
ECAs.
"This legal opinion puts states and their export credit agencies
on notice. They need to stop financing fossil fuel projects or face
potential litigation risks. The opinion launched today puts serious
legal muscle behind what was already a compelling moral and
financial imperative: public money should not be used to prop up
dirty projects and aggravate the dire climate crisis that is
already affecting millions across the globe," Laurie van der Burg,
senior campaigner with OCI, said in a 4 May statement accompanying
the release.
Despite the Paris Agreement's explicit language, OCI data show
ECAs from G20 countries provided $40.1 billion annually to support
fossil fuel activities between 2016 and 2018, compared with only
$2.9 billion for clean energy.
"Given the substantial contribution of ECAs to enable the
emissions of greenhouse gases associated with existing and new
fossil fuel-related projects/activities, in principle, states
comply with their duty of due diligence only if they do their
utmost to reduce their contribution to the problem, rather than
extending it or increasing it," the opinion said.
Among the worst offenders were Canada, Japan, South Korea, and
China, OCI said.
Although the US and the UK weren't listed among the top backers
of fossil fuel projects, both countries have continued with support
via the Export-Import Bank of the United States (EXIM) and the UK
Export Finance (UKEF), respectively.
Using the OCI opinion as its armor, FOE England, Wales, and
Northern Ireland (EWNI) has been successful in persuading the
country's High Court to hear arguments against UKEF's ongoing
support for the $20 billion Mozambique LNG project under development by
TOTAL, despite a March policy blocking such financing activity.
"How can Boris Johnson expect the rest of the world to pull the
plug on fossil fuels when his government is giving such
enthusiastic support to a development that could have the same
climate impact as the entire EU aviation sector," Will Rundle, head
of legal at FOE EWNI, said in a 22 April statement after learning that
the High Court in the UK had agreed to a judicial review of UKEF
actions.
Across the pond so to speak, FOE United States warned EXIM in a
4 May letter about its $4.7
billion financing of the same LNG project, despite the security
risks that caused Total to withdraw from the project and EXIM to
reconsider its stance. The letter also criticized EXIM's financing
of nearly $1 billion for the Sasan coal-fired power plant and mine
in India.
"We are extremely concerned about EXIM's continued financing for
fossil fuels and we urge you to take steps towards adopting a
policy to exclude fossil fuels from EXIM's financing," Kate
DeAngelis, international climate finance manager for FOE United
States, wrote, citing the OCI legal opinion.
Bound by Biden's order?
DeAngelis reminded EXIM it was bound by President Joe Biden's 27
January executive order on tackling climate change at home and
abroad, as well as the international climate finance plan that
Biden released April 22 during the Leaders Summit on Climate.
The 27 January order directed
Secretary of State Anthony Blinken, Secretary of the Treasury Janet
Yellen, and Secretary of Energy Jennifer Granholm to work with
EXIM, the CEO of International Development Finance Corporation, and
heads of other agencies and partners to "identify steps through
which the United States can promote ending international financing
of carbon-intensive fossil fuel-based energy.
This same order was also responsible for the creation of a
first-ever US international climate finance
plan that called for steps to end financing of international
fossil fuel projects. The plan, however, did not lay out a timeline
for when EXIM would end fossil fuel project financing, and whether
it would apply to projects already in the pipeline or just those
backed in the future.
Rather, the 22 April plan said EXIM "will identify ways to
significantly increase, as per its mandate, support for
environmentally beneficial, renewable energy, energy efficiency,
and energy storage exports from the United States," and that
"agencies will seek to end international investments in and support
for carbon-intensive fossil fuel-based energy projects. However, in
limited circumstances, there may be a compelling development or
national security reason for US support for a project to
continue."
Not a mandate
Lawyers familiar with Biden's climate order said the language in
Biden's climate financing plan cannot be read as a mandate to
immediately end funding of fossil fuel projects. Rather these
directives should be as read as "general aspirational goals,"
Virginia Harper Ho, a University of Kansas School of Law professor
who specializes in climate finance from a comparative law
perspective, wrote in a 10 May email to IHS Markit.
"Directing EXIM Bank to develop plans or climate finance
strategies is very different from saying it has a binding legal
obligation to do so by a certain time. Similarly, a general
commitment to fund more 'climate-friendly' projects and end
financing of fossil fuel projects does not appear to create an
enforceable legal obligation," wrote Harper Ho, who also serves as
the law school's associate dean for international and comparative
law.
And even DeAngelis noted, the international climate financing
plan did not single out EXIM for its continued financing of fossil
fuel projects either.
EXIM confirmed receipt of FOE's letter in a 11 May email to IHS
Markit, adding that it is taking the climate crisis seriously. The
bank, however, did not comment on whether Biden's orders applied to
ongoing or prospective projects, or that it was under any sort of
international obligation.
Instead, EXIM said "we're already taking steps within our
existing agency charter to strengthen support for clean and
renewable energy projects around the world, and we will continue
that work in the months ahead. We're also coordinating across the
Biden-Harris Administration and working with external stakeholders
to operationalize the international climate finance plan."
Set the right tone
One of the key issues in any climate finance plan EXIM develops
in response to Biden's order is to decide "whether it will be
limited to new projects, which is the most likely, or if it also
has the ability to wind down EXIM Bank support for existing
projects ahead of current contract commitments," Harper Ho
said.
With the new commitment to end fossil fuel financing and
possibly a new policy to be put in place to reflect the executive
order and the international climate finance plan, "the US
government should review existing project commitments, and take
into consideration the immediate and long-term impact on society
and community if funding were to be continued," IHS Markit Global
Head of Strategic Governance Advisory and ESG Integration Christine
Chow wrote in a 10 May email.
Chow noted that there are responsibilities attached to contracts
that a sovereign state is expected to fulfill, and that negotiation
of financing withdrawal remains in the best interest of the
environment and the local population. "For new projects, a clear
end to fossil fuel financing sets the right tone," she added.
Posted 11 May 2021 by Amena Saiyid, Senior Climate and Energy Research Analyst
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