UK support for energy in developing countries

Transcription

1 UK support for energy in developing countries Renewables 22% Fossil fuels 46% $9.73 billion ( 6.13 billion) Unspecified/ Mixed 29% Efficiency 2% Nuclear 1% Source: Estimate from OECD aid statistics & UK support for energy in developing countries ( )

2 There is an urgent need to develop policies so that, in the next few years, the emission of carbon dioxide and other highly polluting gases can be drastically reduced, for example, substituting for fossil fuels and developing sources of renewable energy. Worldwide there is minimal access to clean and renewable energy. Pope Francis, Laudato Si - On Care for our Common Home Context: UK support for action on climate change and energy poverty In 2016, CAFOD and ODI published an analysis of UK support for energy in developing countries for the period The research looked at all funding channels (bilateral and multilateral) including UK Export Finance (UKEF). The aim was to understand how much UK public finance was flowing to energy investments in developing countries; what types of energy and stages of delivery the UK is supporting and through which channels; which countries and regions support is flowing to; and the proportion going to energy access. This baseline is crucial for understanding whether UK support for energy in developing countries is consistent with the UK s international climate, development and poverty reduction commitments. Alongside its progressive domestic climate change commitments, the UK is a key supporter of international climate change action and a signatory to the 2015 Paris Climate Agreement, in which governments committed to pursue efforts to limit global warming to 1.5 C, which will require reaching zero net emissions globally in the second half of this century. Another overarching objective of the Paris Agreement is making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development 1. There is a growing consensus that continued public financing of high carbon-emitting projects is incompatible with the 2050 zero net emissions goal. In addition, the UK has pledged to support poorer countries implement the new Agenda 2030 for Sustainable Development and its 17 goals (SDGs). SDG7 aims to ensure affordable, reliable, sustainable and modern energy for all by 2030, and the UK recognises the importance of this goal for both poverty eradiation and addressing climate change. The UK was a strong supporter of the precursor to SDG7, the Sustainable Energy for All (now SEforAll) initiative, and a key performance indicator of both its International Climate Fund and its 2017 Economic Development Strategy is the number of women, men or firms with new and/or improved access to energy and clean energy 2. The UK has also shown climate and development leadership to date by providing international climate finance to build resilience in poorer countries, and enshrining in law allocation of 0.7% of GNI to overseas development assistance (ODA). This puts the UK in a prime position to ensure its support for energy in poorer countries is fully aligned with the goal of building low carbon and socially inclusive development that leaves no-one behind. This means prioritising assistance to help poorer countries shift or leapfrog to efficient energy systems powered by renewables, with services that are affordable, reliable and safe for all citizens including the poorest. Phasing-out all forms of public support for coal is particularly urgent to ensure the limits of the remaining global carbon budget are respected 3. According to recent analysis, this requires the EU and OECD to end coal use by 2030, China by 2040 and rest of world by The life time CO 2 emissions from unabated coal plants built going forward are incompatible with the Paris objectives, and can only be reduced through reduced operations and early closure (which would result in stranded assets). Many international financial institutions and governments, have already introduced restrictions on, or excluded, coal financing. The World Bank and the European Investment Bank have adopted stringent limitations on public financing for coal plants 5, and similar initiatives are also being taken by countries such as China, Germany, France, Netherlands, Finland, Iceland, Norway, and Sweden 6. Along with its domestic commitment to phase out coal by 2025, the UK has similarly committed to end support for public financing of new coalfired power plants overseas, except in rare circumstances and to secure the support of other countries and Multilateral Development Banks (MDBs) to adopt similar policies 7. One key barrier to achieving SDG7 on universal energy access is the lack of funding flowing to the distributed energy solutions needed by most energy poor people. Most of the 1.06 billion electricity-poor households and communities globally 8 live in remote rural areas, far from the grid. Distributed stand-alone and mini-grid 2 UK support for energy in developing countries

3 Quite frankly, there is no answer to climate change without substantially, dramatically, increasing the amount of renewable energy in the global energy system. Christiana Figueres, Executive Secretary of the UN Framework Convention on Climate Change, systems powered by renewables such as wind and solar PV can be deployed more quickly and are usually the most viable and affordable option for connecting such communities. According to the International Energy Agency (IEA), two thirds of the investment needed to reach the goal of universal access by 2030 should flow to these distributed solutions 9. In the case of electricity-poor communities living close to the central grid, technical barriers as well as costs and governance issues often prevent connection. Adding generation capacity will not necessarily overcome these barriers just as it will not address the even greater lack of access to clean and efficient cooking solutions (3.04 billion people globally still cook with polluting solid fuels, with devastating health impacts 10 ). In recognition of the need for greater investment in distributed solutions for energy access, DFID launched its Energy Africa initiative in 2015, aimed at supporting development of the household solar market in 14 countries. However, despite such initiatives, analysis shows that only a small share of public energy support globally goes to access for poor people. In the case of important development funders such as the regional Multilateral Development Banks (MDBs) and the World Bank Group (WBG), only a small proportion of their total energy support goes to access under 10% - with most of this going to power generation. An even smaller amount goes to the distributed electricity and clean cooking solutions needed by most energy-poor people 11. UK support for energy in developing countries: the big picture Unfortunately, our previous analysis of UK support for energy for the period showed that it was not flowing in a way consistent with strong support for climate change action and poverty reduction. More UK support went to fossil fuels than to renewable energies, and under 10% of overall support went to providing energy access for poor groups. In addition, the research found that UK support was concentrated in upper middle-income countries, and focused on exploration and extraction of fossil fuels and on electricity generation. UKEF - the key channel for non-oda support - overwhelmingly supported fossil fuel development. Finally, understanding the extent of UK support for energy was hampered by several reporting issues, including inconsistency and errors in energy project reporting against the OECD s Creditor Reporting System and the lack of use of a specific and consistent definition of energy access across the UK s energy portfolio. The research has now been updated to analyse UK energy support in developing countries for the period , to see if there have been any significant changes. While it is not possible over this timeframe to determine more longer-term, strategic trends in UK support for energy, we intend to review the data again in 2018 and in 2020 to determine whether and to what extent UK energy support is consistent with its international climate change and poverty reduction goals. We hope that this ongoing research project will stimulate discussion in the UK - and more widely - on public finance support for the low carbon energy shift and SDG7. UK support for energy in developing countries The key findings of the updated research are summarised below. The full analysis, methodology and the data set can be found at: cafod.org.uk. The sources for the data are the same as for the research. However, some of the classifications used to analyse the two sets of data differ slightly. For this reason, we have not combined the data for the two periods and there are separate source data tables for each. We have also separated out ODA and non-oda support to highlight where there appear to be differences, for instance in terms of the share of support going to renewable energies versus fossil fuels and to energy access. UK support for energy in developing countries 3

4 Key findings 1. The UK gave twice as much support to fossil fuels than to renewable energy. Renewables $ ( ) 22% Fossil fuels $ ( ) 46% Efficiency $ ( ) 2% Nuclear $ ( ) 1% Mixed/ Unclear $ ( ) 29% The source data is in US$. The GBP figure is based on an average exchange rate for Almost half of the total support for energy (46%) went to fossil fuels, more than double the amount spent on renewables (22%) no change over Only a tiny amount appears to have gone to energy efficiency (2%). It should also be noted that more than a quarter of the support went to investments which either used both renewables and fossil fuels, or where the energy sources could not be identified (29%). Almost all (99.4%) of UKEF support for energy went to fossil fuels, with only 0.3% going to nuclear and 0.27% mixed or unspecified. The UK disbursed $9.73 billion ( 6.13 billion) for energy in developing countries, between 2010 and This is an average of US$2.43 billion ( 1.53 billion) per year and an increase of over US$1.5 billion ( 0.95 billion or almost 1 billion) over the amount disbursed in Almost half of the total support for energy (46%) went to fossil fuels, more than double the amount spent on renewables (22%) no change in the overall share of support over More ODA went to renewable energy than to fossil fuels. Renewables $ ( ) 32% Fossil fuels $ ( ) 22% Efficiency $ ( ) 3% Nuclear $68.84 ( ) 1% Mixed/ Unclear $ ( ) 42% The source data is in US$. The GBP figure is based on an average exchange rate for 32% of ODA goes to support renewable energy, more than the amount spent on fossil fuels (22%). Only 3% goes to energy efficiency. However, it should be noted that over 40% of support went to investments which either used both renewables and fossil fuels, or where the energy sources could not be identified. 32% of ODA support went to renewable energy, while 22% went to fossil fuels. However, over 40% of support went to investments which either used both renewables and fossil fuels, or where the energy sources could not be identified. 4 UK support for energy in developing countries

5 3. Most fossil fuel support went to oil & gas, but there is still support for coal. Coal $ ( ) 9% Efficiency- fossil fuel $ ( ) 1% Fossil fuel- unspecified $ ( ) 3% Gas $ ( ) 18% Oil $ ( ) 10% Oil and gas $ ( ) 59% The source data is in US$. The GBP figure is based on an average exchange rate for Oil and gas combined still receives the vast majority of fossil fuel support 87%. Support was still provided for coal, though less than in (down from 16% to 9%). Oil and gas combined still receives the majority of fossil fuel support 87%. Support was still provided for coal, though less than in (down from 16% to 9%). 4. Almost half of UK energy support goes to upper middle-income countries. LICs $ ( ) 9% LMICs $ ( ) 34% UMICs $ ( ) 47% Multiple $ ( ) 10% * The source data is in US$. The GBP figure is based on an average exchange rate for Low-income countries received less than 10% of the total support for energy in developing countries or $848 billion ( 534 billion). Almost half of the total, 47%, went to upper middle-income countries (UMICs). This is almost the same as in but support for LICs has reduced (down from 12% to 9%). UK support for energy in developing countries 5

6 5. Just under a third of UK energy support was through UK Export Finance (UKEF). Over 99% of this was for fossil fuels. 46% Almost half of the total UK support went to fossil fuels, more than double the amount spent on renewables (22%) UKEF Over 99% of UKEF support went to fossil fuels. Source: Estimate from OECD aid statistics & UK Export Finance (UKEF) the Elephant in the Room? Two-thirds of the support for energy in developing countries was Official Development Assistance (ODA). UKEF provided 31.5% of the total in the form of loans and export credit guarantees for commercial investments. 6. 8% of total energy support & 12% of ODA went to energy access. Access $ ( ) 8% Other $ ( ) 92% The source data is in US$. The GBP figure is based on an average exchange rate for The amount of support for access to modern energy services for poor people as a proportion of total UK energy support from remained unchanged, at only 8% or US$821 million ( 517 million). Annually, the UK provided an average of $164 million ( 103 million) for access to energy. The annual average in was $146 million ( 92 million) but in 2014 the support disbursed for access increased significantly to $237 million ( 149 million). The increase in the support for energy access in 2014 is largely accounted for by increases bilaterally through DFID and multilaterally through IDA. Note: this figure may be an underestimate as energy access per se is not used as a reporting category in published aid statistics. UK support for energy access has thus been based on an assessment of individual projects. Only 8% or US$821 million ( 517 million) of total support went for energy access in , an average of $146 million ( 92 million) per year. However, in 2014 the support increased significantly to $237 million ( 149 million), largely due to increases bilaterally through DFID and multilaterally through IDA. More ODA went to support access to poor people as a proportion of overall ODA energy support (12%). 6 UK support for energy in developing countries

7 Conclusion To be consistent with the UK s climate change and poverty reduction goals, a rebalancing of UK support for energy in developing countries is required. There must be a strong presumption against supporting fossil fuel investments, with an urgent phase out of coal support, along with prioritisation of support for energy access, renewable energy and energy efficiency. This is crucial to enable poorer countries to shift or leapfrog to sustainable energy pathways, in line with a 1.5 C pathway and reaching net zero emissions globally by A whole portfolio approach is also needed, so that both ODA and non-oda support are consistent, to ensure policy coherence. Similar coherence with climate change and poverty reduction goals is needed in the case of individual energy investments, along with robust safeguards for mitigating climate, environmental and social risks. Business-as-usual support for already highly-subsidised fossil fuel technologies, including through UKEF, as well as support for large-scale hydro power investments which carry high environmental and social risks, is inconsistent with such an approach. Greater UK investment in energy access, and particularly in the distributed renewable electricity and clean cooking solutions needed to reach the poorest is also essential, in line with supporting the SDG7 goal of universal access to affordable, reliable, sustainable and modern energy by The presumption against fossil fuel support and in favour of low carbon energy and energy access should apply not only to the UK s direct support but also to indirect financing through financial intermediaries (FIs). The UK should recognise the specific risks inherent in lending through FIs - in particular, the difficulty in ensuring that environmental and social safeguards are applied to sub-projects and the lack of transparency around FI investments. The UK should also use its voice as a shareholder and Board member of the WBG and MDBs to champion an approach to energy support in line with the urgency of addressing climate change and ending energy poverty. Finally, there is also a need for more transparent and consistent reporting of UK energy investments, including more information on their poverty reducing and resilience building impacts. This will enable stakeholders, including civil society, to track UK support and enable the government to communicate clearly progress on the UK s climate change and poverty reduction goals. In particular, the UK along with other donor countries and national governments supporting SDG7 implementation must go beyond the current approach to energy access, where this is defined as a basic household electricity connection. A more meaningful set of metrics is needed that can evaluate whether poor groups can access the range of energy services (household, community and productive services) required to lift them out of poverty, and to assess the levels of service across a range of attributes such as their quality, affordability, reliability and safety. As a champion of SEforAll, the UK is already supporting such work under the auspices of the Global Tracking Framework. Further support could be given to explore how this kind of approach could be operationalised across the UK s energy access investments. Recommendations 1. Future UK support for energy in developing countries, both ODA and non-oda, should be aligned with the UK s commitments under the Paris Agreement and Agenda 2030 for Sustainable Development. The current energy portfolio should be rebalanced towards support for renewable energy and energy efficiency in all stages of energy delivery, as well universal access to affordable, reliable, safe and sustainable energy services. 2. The UK should urgently phase out all forms of public support for coal, and use its voice and vote at the WBG and the MDBs to champion this position. 3. The UK should significantly increase its support for energy access for poor groups, prioritising distributed renewable electricity and clean cooking solutions and use its voice and vote at the WBG and MDBs to ensure a scale-up of support. 4. The UK should develop more transparent and fit-for-purpose monitoring and reporting frameworks for its energy support, with indicators to track the resilience building and poverty reducing impacts. 5. The UK should support development of a more meaningful definition of energy access, and use this consistently to track progress across its energy access portfolio. UK support for energy in developing countries 7

8 Endnotes 1. UN, 2015, Adoption of the Paris Agreement, FCCC/CP/2015/L.9/Rev.1, Article 2 (c). 2. See DFID, Economic Development Strategy: prosperity, poverty and meeting global challenges. 3. According to the World Energy Outlook (WEO), between now and 2040 there is room for only 780 GW of unabated coal power generation for a 50% chance of keeping below 2 degrees Celsius of global warming. This means that even if all new coal plants were embargoed today, two-thirds of the world s current coal fleet would still need to be retired by 2040 for the global temperature to stay within 2 C. A Paris-compatible scenario of limiting warming to 1.5 degrees would imply more ambitious action still. IEA, World Energy Outlook. 4. Climate Analytics, Implications of the Paris Agreement for Coal Use in the Power Sector. 5. The WBG will only support coal projects in rare circumstances, where there are no feasible alternatives available to meet basic energy needs and other sources of financing are absent. Projects must undergo rigorous alternatives assessment and least cost analysis to demonstrate necessity. World Bank, Toward a Sustainable Energy Future for All: Directions for the World Bank Group s Energy Sector. EIB will only fund coal plants that meet an emission performance standard (EPS) of 550gCO2/kwh, which effectively requires the deployment of carbon capture and sequestration. Plants that exceed this standard can only be funded (a) where the plant would contribute to security of supply on isolated energy systems, and there is no economically viable alternative; or (b) in the poorest countries, where it can be demonstrated that the project will have a significant and material positive impact on poverty alleviation and economic development. EIB, Energy Lending Criteria. 6. Germany has ended support for coal plants through the development arm of the KfW bank and restricted the bank s export credit arm IPEX financing for new coal plants. France has ended support from both its development and export credit agencies for coal projects that do not use carbon capture and storage. The Netherlands has committed to end support for public financing of new coal-fired power plants abroad except in rare circumstances, including through bilateral and multilateral channels. Finland, Iceland, Norway, and Sweden have pledged to end public financing for new coal-fired power plants overseas, except in rare circumstances, and to work to secure the support of[ ] multilateral development banks to adopt similar policies. 7. The U.K has established strict requirements for its rare circumstances exception, including that the project must: (a) be located in an IDA-only eligible country; (b) prove it will reduce poverty; (c) have shown that low carbon alternatives are not feasible; and (d) be part of a credible low-carbon development pathway; and (e) use best available technology. 8. World Bank Group, Global Tracking Framework Progress Toward Sustainable Energy. 9. The IEA estimated the amount needed for distributed solutions to be US$23 billion per year. IEA, World Bank Group, Global Tracking Framework Progress Toward Sustainable Energy. 11. None of the MDBs nor the WBG dedicated more than 2% of their total energy portfolio to distributed energy solutions over the three-year period OCI & Sierra Club, Still Failing to Solve Energy Poverty: International Public Finance for Distributed Clean Energy Gets another F. Authors: Dr Sarah Wykes, Lead Analyst Climate and Energy, CAFOD Andrew Scott, Research Fellow, Climate and Environment Programme, ODI Updated July 2017 Acknowledgements We are grateful to the Charles Stewart Mott Foundation for supporting this research. cafod.org.uk Romero House, 55 Westminster Bridge Road, London, SE1 7JB, UK Tel: +44 (0) Registered Charity Company Limited by guarantee UK support for energy in developing countries