1. What does the legal opinion say?
The legal opinion says that in the context of the climate emergency, and the rapidly diminishing carbon budget, there is an “in principle” requirement on states under international law to stop financing new fossil fuel projects. They should also decrease the funding of existing fossil fuel projects under a timeline driven by science and the Paris agreement, while avoiding locking-in projects that take up significant amounts of the remaining carbon budget.
2. Does this opinion mean that it is possible to take ECAs to court for funding fossil fuel projects?
This opinion sets out the position in broad international law terms. In order to bring a case at the national level relating to the decision of any particular ECA, it would be necessary to consider how the national legal system incorporates and applies these points of international law in its domestic context, as well as the specifics of any particular decision made by that ECA about funding fossil fuel projects. However, the findings of this opinion do point to the risk of future litigation being brought related to such funding.
3. What do Governments need to do to meet their international law obligations according to this opinion?
In response to this opinion, Governments should make proactive efforts to decrease the risks of future litigation by decreasing their existing funding of fossil fuel projects, as well as not funding new ones. They should ensure that ECAs implement transparent carbon impact assessment procedures and performance guidelines to allow for adequate monitoring of ECA activities.
4. Which areas of law does the legal opinion cover?
The opinion covers customary international law, as well as international climate change law, international human rights law and relevant parts of the OECD framework.
5. How does ECA-related litigation fit into the wider climate litigation context?
Climate litigation is ongoing in countries all across the world, using both traditional as well as novel means of challenge. Human rights arguments often form part of the grounds of challenge; The Grantham institute at the London School of Economics has noted that human rights-related mitigation cases are being brought in jurisdictions from France to South Korea. It points out that “Arguments relied on by litigants in these cases often centre on the idea that reducing emissions with the highest possible level of ambition amounts to a due diligence standard for complying with human rights obligations.” Lawsuits are also being brought against high emitting companies on issues ranging from nuisance to fraud and disclosure-related issues.
In addition to cases filed against governments and companies, more recently a number of cases have been brought that concern the role of financial institutions in the climate crisis. One example is the case filed by a 25-year old pension fund member against one of Australia’s largest pension funds, which got settled at the end of last year. Another example is the case recently filed by ClientEarth against the Belgian national bank through which it hopes to “stop ‘quantitative easing’ from European central banks flowing to fossil fuel companies and polluting firms”.
6. How does the legal opinion relate to existing litigation on ECAs such as the case being brought in the UK against UKEF?
The opinion complements cases being brought or considered against ECAs at the domestic level, such as the legal action being brought by Friends of the Earth against UKEF. Focusing on the general approach of ECAs to the projects they support, rather than specific project decisions, it confirms that states and Export Credit Agencies face potential litigation risks if they continue to finance fossil fuel (ie. oil, gas and coal) projects.
7. What are Export Credit Agencies?
ECAs provide government-backed loans, credits, insurance and/or guarantees for the international operations of corporations from their home country. ECAs provide public financial backing for risky projects, including energy projects, that might otherwise never get off the ground. Most G20 countries have at least one ECA, which is usually an official or quasi-official branch of government. It is important to note that there is no uniform structure for public export financing across the G20; while many countries have single dedicated ECAs, some have multiple institutions that provide different kinds of export finance, and others have ECAs that function as one arm of a wider institution.
8. What countries/ECAs are the biggest backers of fossil fuel projects?
Four countries – Canada, Japan, China, and Korea – accounted for 79 percent of the G20’s ECA fossil fuel support from 2016 to 2018. Canada’s ECA, Export Development Canada (EDC), was the largest ECA supporter of fossil fuels, largely because of unusually high levels of domestic project finance. Japan’s ECAs, the Nippon Export and Investment Insurance (NEXI) and the Japan Bank for International Cooperation (JBIC) were second, growing their support for coal, though more than halving their support for oil and gas. China’s support for oil and gas projects through China Export Credit Insurance Corporation (SINOSURE, which provides export insurance) and the Export-Import Bank of China (CHEXIM, which provides other export financing), almost tripled in 2016 to 2018 compared to 2013 to 2015, nearly doubling their overall support for fossils. Export–Import Bank of the United States (U.S. EXIM), typically a significant supporter of fossil fuels, was not able to support any project over $10 million because it lacked board quorum from July 2015 until May 2019. Its support across all sectors dropped to almost nothing during this period from a peak of $12 billion in 2012 for fossil fuels, and it is extremely likely that it would have otherwise provided billions of dollars in fossil fuel financing. A case in point, almost immediately after achieving board quorum, U.S. EXIM approved $5 billion for an liquid natural gas (LNG) project in northern Mozambique, the largest transaction in its history. In 2019, U.S. EXIM also approved $18 million for oil and gas projects in Argentina and about $40 million for coal mining projects.
For more detailed information on ECA support for fossil fuels, please read our report Still Digging. OCI also maintains a database that keeps track of public finance for energy projects, including ECA finance for fossil fuels. We share data from this database with campaigners and journalists on a regular basis.
9. What countries are the largest recipients of export finance for fossil fuel projects?
The largest recipients of export finance for fossil fuels between 2013 and 2018 were the United States, Indonesia, and Russia. Across all forms of public finance (including export finance, and development finance), nine of the top fifteen recipients of fossil fuel finance between 2016 and 2016 were high or upper-middle income countries. Six were lower-middle income and only one low-income. This suggests that not low-income, but wealthier countries are the largest recipients of fossil fuel finance.
10. Are there any governments that have banned finance for fossil fuels?/That are acting in accordance with their international law obligations as laid out in the opinion?
A growing number of public finance institutions recognize that continued financing of not just coal, but also oil and gas is incompatible with limiting global warming to 1.5ºC. The European Investment Bank (EIB), Swedfund, as well as export credit agencies like the Swedish SEK and EKN, have either fully excluded oil and gas financing, or have introduced major exclusions. The UK introduced a new policy that is supposed to put an immediate halt to new financing (export finance and development finance) for virtually all fossil fuels projects overseas in March 2021. In January 2021, the new US Biden administration released an executive order stating that the US will seek to “promote ending international financing of carbon-intensive fossil fuel-based energy.” At the Biden Climate Summit, the US announced that it wants to “spearhead efforts to modify disciplines on official export financing provided by OECD export credit agencies (ECAs), to reorient financing away from carbon-intensive activities”.
A recent briefing from OCI and E3G includes a table that gives an overview of fossil fuel exclusion policies adopted at selected ECAs.