European governments are phasing out fossil fuels at home, but continuing their financial support for fossil mega-projects abroad. This is despite the EU agreeing last year to decarbonise export credits — insurance on risky non-EU projects provided with public money by an export credit agency (ECA).
EU member states have so far failed to translate this into policy, leaving the door open to finance polluting projects in the Global South. With this work still to be done, it is now up to the upcoming Spanish EU presidency, starting in July, to finish the job.
The presidency will need to act fast.
In 2011 and 2012, Africa’s largest natural gas deposits were discovered off the coast of Mozambique. Three massive on and offshore liquefied natural gas (LNG) projects have since been developed by international oil companies such as TotalEnergies, Eni and ExxonMobil — supported by governments in Europe as well as the United States through their ECAs.
A multi-million export credit insurance for the last of these three projects, Rovuma LNG, is currently under consideration by Italy’s export credit agency SACE, despite gas developments in Mozambique sparking violent conflict, displacement and lost livelihoods within local communities.
Rovuma will further undermine Mozambique’s transition to renewable sources of energy and lock the country in a fossil system from which it does not benefit.
Insuring projects like this is a blatant contradiction of Europe’s climate ambitions and its promises to decarbonise ECAs. European governments should be the first to redirect public finance towards renewables, instead of continuing support for fossil-fuel projects abroad.
Export credits are an important international trade policy tool, used to support European enterprises doing business abroad. They are issued by governmental institutions and provide insurance against risks of non-payment for large or risky projects. Without this support, many large infrastructure projects such as those in Mozambique would not go ahead. Until recently, it was mostly fossil-fuel energy projects that benefited from this support.
Between 2015 and 2020, support for fossil fuel projects by the ten largest European export credit agencies amounted to €30bn — including those by oil giants such as Italy’s Eni and France’s TotalEnergies.
The world’s richest economies provided seven times more export credit support for fossil-fuel projects than for clean energy in 2019-2021. This stands in stark contrast to the recommendation by the IPCC and IEA that financial support for new fossil fuel projects must end immediately to keep the 1.5°C climate target within reach.
Following a breakthrough pledge at the COP26 climate summit in Glasgow, in March 2022 under leadership of the French EU presidency member states acknowledged the necessity of decarbonising export credits. They recognised that this also meant phasing out public support for fossil fuel projects. To do this, they agreed to come up with what they claimed to be ‘science-based’ deadlines for ending export credit support for fossil fuel energy projects by the end of 2023.
Stalling, and silence
Sadly, they are not yet on track. As SACE’s potential support for LNG projects in Mozambique shows, European countries’ climate commitments are sliding down an oily slope. Some EU member states have presented their phase-out plans — of varying quality — such as France, Spain and the Nordic countries. But Germany and Italy are trying to stall and frustrate the process while central and eastern European countries remain silent.
What emerges is an uneven playing field within the EU, where some countries and businesses have made the leap forward towards a green and sustainable European future, while others lag behind. This creates unfair competition, an unpredictable and patchy regulatory environment for businesses and forces more ambitious countries to slow down their transition as well.
This is an opportunity for the upcoming Spanish presidency of the European Council. The presidency should remind member states of their commitments and make sure they develop and publish fossil fuel phase-out policies for their export credit agencies before the 2023 deadline. These policies should be demonstrably in line with scenarios projecting a 1.5°C rise in global temperatures and not be based on false solutions and unproven fossil-based technologies.
Failing to follow through with these promises not only endangers EU Green Deal climate objectives, but is bad economics too.