FOR IMMEDIATE RELEASE
Adam McGibbon, adam.mcgibbon [at] priceofoil.org
Sweden restricts international oil and gas finance to deliver on climate commitment
At the COP26 United Nations Climate Conference in Glasgow, 39 countries and institutions signed up to the Glasgow Statement, committing themselves to ending “new direct public support for the international unabated fossil fuel energy sector by the end of 2022, except in limited and clearly defined circumstances that are consistent with a 1.5°C warming limit and the goals of the Paris Agreement.” The initiative has the potential to shift $39 billion a year out of fossil fuel projects and into clean energy if countries keep their promises.
As the deadline for implementing the Statement looms, the Swedish export credit agencies, SEK and EKN, have released an updated policy. A previously-released policy aligned Swedfund – the Swedish development finance institution – with the Glasgow Statement.
SEK and EKN’s new policy ends almost all support to fossil fuels by 31st December 2022, with some limited exemptions:
- Gas-fired power plants, new oil or gas extraction and oil refineries will still be supported if the project / company “has documented and realistic transition plans in line with the Paris Agreement’s 1.5-degree target, e.g. equipped with carbon capture and storage (CCS) or equivalent emissions reduction technologies” OR if “The transaction refers to substantial environmental or safety improvement measures while no expansion of the oil or gas operation.”
- Until 31st December 2022, gas-fired power plants can be supported in “countries with large development needs or in countries where the exporter or buyer can show that the project is part of reconstruction after war or conflict.”
Essentially, this means that the Swedish policy, although an improvement, does not rule out support for oil exploration and extraction as clearly as the best-practice UK and Denmark policies. However, in practice, if Sweden’s requirement for a 1.5°C transition plan is implemented with integrity and good faith, this should mean that no new guarantees can be issued for such projects. According to the International Energy Agency, to maintain a 50% chance of limiting global warming to 1.5°C, there can be no investments in new coal, oil or gas fields. Other research shows that on top of ending investments in new fossil fuel supply, 40% of already developed oil and gas reserves need to be left unextracted. A similar rationale applies to new gas-fired power plants: both the production and use of gas needs to be rapidly reduced to limit global heating to 1.5°C and the committed emissions from existing energy infrastructure (including power infrastructure) already jeopardize the 1.5°C target. The good news is that clean and affordable alternatives to gas-fired power exist and can better deliver on energy access needs. In 2020, the UN Sustainable Energy for All initiative recommended that “financing of fossil fuel projects as a means of closing the energy access gap should be terminated,” noting that they are no longer the most effective means of providing electricity access.
Whether these projects will actually be ruled out depends on how EKN and SEK evaluate 1.5°C transition plans, which leaves some uncertainty in the Swedish position.
It is concerning that EKN is considering providing export finance support to CTT Mozambique, a project to build a gas-fired power plant in the east African nation. If EKN intends to act as a climate leader and listen to the science, this project cannot be supported.
Amid all this, a hopeful sign is that EKN and SEK’s ‘Scientific Climate Council’ have made public statements that should provide the Swedish export credit agencies with ample reason to not exploit the loopholes in the policy. The advisory council noted that “the price today for coal, oil and gas makes new fossil-based investments hard to justify based on a strict financial calculation,” that “natural gas should not be seen as a transition fuel” and that “In most cases, it is not possible to justify new investments in fossil-based electricity and energy production. These are long investment cycles which result in lock-in effects, which in turn undermine the possibilities to reach the 1.5-degree target and also risks the investment becoming a “stranded asset”.
As a member of the Export Finance for Future (E3F) initiative, Sweden must use its diplomatic capital to ensure that all other E3F members implement the Glasgow Statement and present their updated policies at the upcoming E3F Summit. This way E3F members can build momentum towards COP27, ensure other Glasgow Statement signatories follow suit and meet their agreed end of 2022 deadline. [This leadership is vital to mitigating the climate crisis as of all public finance institutions ECAs are still the worst performers when it comes to Paris Alignment. The G20 ECAs provide 11 times as much export support to fossil fuel projects (USD 40.1 bn/yr) as for clean energy (USD 3.5 bn.yr)].
Although E3F was designed to “harness public export finance as a key driver in the fight against climate change” and all members signed onto the Glasgow Statement, the coalition is not yet on track. The majority of its members have not yet updated their policies in line with the Glasgow Statement, and E3F itself has not yet made ending international public finance for fossil fuels a prerequisite for joining the initiative. Sweden must use its E3F membership to raise the bar, urging all other E3F members to implement the Glasgow Statement by the E3F Summit in order to build momentum to COP27, and make fossil-free ECAs policies a requirement for new members to join the initiative going forward.