In May, the department for international trade announced the UK’s new global tariff (UKGT). This will replace the EU’s common external tariff next year and determine the import taxes for all goods that come into the UK outside free trade agreements. It is one component of delivering perhaps the largest benefit of leaving the EU: being free to do more trade with the rest of the world. The decision to cut tariffs on over one hundred clean energy and energy-saving products was particularly exciting. The government should seize further opportunities to use our independent trade policy to safeguard the environment while increasing prosperity.
One such opportunity is reforming UK Export Finance (UKEF), which helps UK companies access loans, insurance policies and bank guarantees that enable international trade to take place, enabling us to export all manner of British products and services to other countries. If we were to shift its historic focus from underwriting increasingly uneconomical fossil fuel projects overseas towards supporting UK clean energy companies with the ability to export, we would boost global action on climate change, create jobs here in the UK and put Britain ahead of the game in the rapidly growing global low-carbon economy.
We have been making groundbreaking progress on tackling climate change at home and leading international efforts overseas, not least by using our international aid budget to help developing countries mitigate and adapt to climate change. UKEF’s support for fossil fuels relative to clean energy, however, is an anomaly. Indeed, a BBC investigation found that UKEF-backed projects contribute the equivalent annual greenhouse gas emissions as the whole of Portugal.
Between 2013/14 and 2017/18, UKEF provided £2.6bn of financing to the energy sector. The vast majority of this – £2.5bn – was to fossil fuel projects. UKEF’s largest energy deals in 2018 included £734m in support of an oil refinery project in Oman and £248m for oil exploration in Brazil. Over the same four year period, only £104m was used to support renewable energy. This is despite the fact that global renewable energy investment has been outpacing fossil fuels for years. For example, in 2018, renewable energy investment was over $272bn, compared to coal and gas’ combined $95bn.
Not only does the focus on fossil fuel projects undermine global climate action, but it is also wrong economically to tie developing countries into expensive fossil fuel dependency. Renewable energy is fast becoming cheaper than fossil fuels. According to the International Renewable Energy Agency, 77 per cent of onshore wind and 83 per cent of utility-scale solar projects due to be commissioned in 2020 will have lower prices than the cheapest new fossil-fired generation. Fossil fuel projects have the potential to become stranded assets due to climate policy forcing early closures or due to the increase in extreme weather and rising sea levels linked to climate change.
Supporting clean energy, by contrast, is the right move for British business as we move into a post-Covid-19 world. Our renewable energy sector is booming, supporting hundreds of thousands of jobs across the country, and is set to grow significantly in the coming years, with the government’s target for 40 gigawatts of offshore wind by 2030. These are the industries of the future, the benefits of which will be spread right across the country.
As the world looks to deliver a green economic recovery from Covid-19, we have a huge opportunity to create skilled and secure jobs both in the UK and abroad by boosting exports from our renewable energy sector. And as we look to host the rescheduled UN Climate Conference –COP26 – next year, we should be showcasing many of these businesses to give our exports a further boost as country delegates flock to Glasgow.
UKEF reform has already begun. Last year, the prime minister promised that the UK would no longer support coal overseas. And in March’s budget, the chancellor gave UKEF an additional £2bn to finance clean energy projects abroad, £230m of which went to supporting one of the largest wind farms in Asia. To complete the job of greening export finance, the government should now significantly increase its energy sector financing to renewable energy and even look at the possibility of phasing out support for new fossil fuel projects, in line with our commitments under the Paris Agreement. As we emerge from the coronavirus lockdown and look to get Britain back to business, we should focus on boosting the clean industries of the future.