UK aid for combating climate change Contents

5Policy coherence on climate change across government

Cross-departmental working on International Climate Finance

106.Three Government Departments are involved in spending International Climate Finance (ICF): the Department for International Development (DFID), the Department for Business, Energy and Industrial Strategy (BEIS) and the Department for Environment, Food and Rural Affairs (Defra). The Government’s written evidence to the Committee outlines how the Government seeks to use the “comparative advantages” of the three ICF spending departments:

BEIS primary focus is on low carbon development in countries with high or growing emissions, with a focus on accelerating decarbonisation, making markets work and halting deforestation.
DFID focuses on helping countries anticipate and cope with climate change, as well as supporting lower carbon development choices. This includes climate resilient food and water supplies, infrastructure and delivery of essential services, as well as supporting sustainable economic growth.
Defra focuses on mitigation and adaptation through sustainable natural resource management, food security, and protection of biodiversity with a strong focus on forestry, including mangroves.190

107.When asked about the challenges to cross departmental working on ICF, the Ministers stressed that there is significant knowledge-sharing across departments.191 Minister Coffey also pointed to the ICF management and strategy boards that “meet several times a year” and enable cross-departmental collaboration.192

108.However, we heard that more could be done to integrate expertise, particularly on areas that cut across the established remits of departments. For example, IIED’s written submission suggested that BEIS’s focus on low carbon development in high emitting countries, with DFID’s focus on adaptation in the least developed countries, seems to be creating a gap around low carbon development in the least developed countries.193 The recent Independent Commission for Aid Impact (ICAI) performance review of UK aid for low carbon development found that the “emerging specialism between the departments” is potentially leaving “low-carbon development in low-income countries de-emphasised in the bilateral portfolio, other than in the renewable energy sector”, where DFID has a governing policy framework.194

109.We also heard that changes to the management and governance structure of the ICF have contributed to a reduction in collaboration across departments. The recent ICAI report sets out clearly the changes that have taken place:

In the period from 2011 to 2016, the UK’s climate finance was disbursed through a cross-government fund, the International Climate Fund. During this period, the three spending departments worked under joint ministerial oversight with a joint board and a secretariat chaired by DFID. Since April 2016, the responsibility for managing spending targets and programmes has been devolved to the three departments, although the portfolio continues to be branded internationally as ‘UK International Climate Finance’. It retains a cross-government strategy board, which approves the strategy and oversees coherence with UK government policy, and a management board, which monitors expenditure, delivery and risk.195

Clare Shakya, the Climate Change Group Director at IIED, and formerly a senior climate change adviser at DFID, told us that the old process whereby each department was required to sign off on all ICF spending “was clunky and time-consuming”, and so it is no longer required under the new governance structures. However, according to Clare Shakya this has had a significant impact on collaboration. She therefore suggests returning to a system that requires departments to “actually look at each other’s spend and give advice to each other” but that this should be achieved through “a more streamlined collaborative process”.196 Nick Mabey, Chief Executive of E3G, told us he was concerned that initial efforts to develop a whole-of-Government approach on climate change had been abandoned “because of the first teething troubles with the first approach”.197 He said that the Government could learn from “the work on stability and security about trying to blend together a political understanding, an economic understanding and a development understanding into a whole of-Government approach around priority for UK engagement”.198

110.There is room to improve cross-departmental collaboration on International Climate Finance. Whilst there are formal, high-level mechanisms in place for cross-departmental decision-making, and whilst there is an apparent level of informal information sharing between officials, it seems that structural changes to how ICF is administered have had the effect of reducing joint working between departments. This is especially concerning in light of our conclusions on the importance of integrating mitigation and adaptation strategies, with mitigation and adaptation having become the emergent specialisms of BEIS and DFID respectively. The management structures that govern the ICF should be reformed to encourage deeper collaboration and ensure that departments benefit from each other’s expertise. The Government should develop a system that involves each department giving more comprehensive consideration to the other departments’ ICF spend, to enable greater collaboration and knowledge sharing.

Coherence of wider government policy and spending with ICF

111.In Chapter 4, we considered the evidence that climate programmes do not necessarily contribute to poverty alleviation, and we concluded that climate finance spending should have poverty alleviation as a central pillar, in order to maximise synergies and avoid trade-offs with poverty reduction. During our inquiry, we also heard that efforts to alleviate poverty can have negative impacts on climate change. For example, WWF told us that pursuing the SDGs which relate to industry, infrastructure and innovation require “integrated thinking” as interventions in these areas could have potentially negative impacts on climate change if they are not climate sensitive.199 The Grantham Research Institute outlined why high-carbon development strategies, whilst they have short-term benefits, will ultimately be damaging:

While projects of this nature [fossil fuel-based electricity generation] will have developmental benefits in terms of energy security and job creation, they run the risk of locking in long-term unsustainable growth paths. These are also growth paths that have higher greenhouse gas emissions, which could expose these countries or regions to greater climate change impacts in future.

Professor Messner also stressed in his oral evidence that there may be a temptation to pursue high carbon strategies for poverty reduction in the short-term, but that ultimately this would be counter-productive in the long-term as the resulting climate change will raise levels of poverty.200

112.We concluded in Chapter 2 that it is not enough for the UK to be spending only International Climate Finance on combating climate change: all aid should have climate change as a priority, due to the fact that climate change affects all other sustainable development goals. The fact that some poverty reduction strategies can also contribute to climate change suggests that there is further need to ensure that all aid spending, both within and outside of DFID, is coherent with the objective of a low carbon, climate resilient future. Christian Aid set out in written evidence the extent to which climate change should be a consideration in all aid spending. They told us that achieving consistency on climate change will require:

consideration in each program, of inputs (for example whether materials used, and energy inputs required are capable of being sustainably sourced and impacts in building), and outputs (for example does the output itself emit greenhouse gases, such as a fossil power station). Each program should be considered holistically on its own merits, and its aggregate impacts with other existing and planned infrastructure. In general, each program should be looking to support achieving global net zero emissions by 2050 at the latest.201

113.We have already identified concerns about the extent to which the Economic Development Strategy in particular, integrates climate change as a strategic priority. As part of the inquiry, we took evidence from the CDC and the Prosperity Fund to examine how coherent the work of these ODA spending bodies is with the work of the ICF, and to what extent climate risks and benefits were being taken into account in their funding decisions.

114.Joelle Jenny, Director of the Government’s Joint Funds Unit, where the Prosperity Fund sits, stressed on several occasions in the evidence session that the primary objective of the Fund is not addressing climate change, but sustainable economic development.202 This was presented as a reason why the Prosperity Fund does not track or measure climate impact:

We do not currently measure direct climate-related action, because this is not the primary objective of the Fund. But where appropriate, for example in any programme that has to do with infrastructure, there is a component where we are very adamant that both the design and the implementation have to take account of transition to low-carbon objectives, being mindful of not having a detrimental impact on the environment. [ … ] The short answer is that we do not exactly measure the climate impact, but it is a subset of delivering what the Fund’s objectives are.203

115.The Prosperity Fund outlined some positive outcomes of their investments for both mitigation and adaptation to climate change, but their emphasis was on these as welcome co-benefits of investments for sustainable growth, or individual climate related investments, rather than a result of climate change being integrated into decision-making on all investments.204

116.The Fund does not currently have any concrete plans to integrate climate considerations across its decision-making processes more comprehensively. It has discussed measuring low carbon targets more closely, but references to this in the evidence session were non-committal:

We had a discussion at the level of the Prosperity Fund board at the end of last year, where we were reflecting upon this. Is there in the energy sector, which is the most relevant to climate action in the portfolio, a way for us to more systematically measure and track low-carbon targets? This discussion is ongoing.205

117.The CDC has adopted a different approach to considering and measuring climate impact. In the CDC’s latest strategy, launched in 2017, climate change is listed as one of its four key commitment areas, alongside women’s economic empowerment, job quality, skills and leadership.206 We were struck by the difference in the answers from the CDC, compared to the Prosperity Fund, in response to the Committee’s questions about the climate impact of their ODA spend. When asked what proportion of spend supports the use of fossil fuels, the Prosperity Fund replied:

Joelle Jenny: We do not have a proportion of spend.

Chris Law: You do not know how much you spend on fossil fuel projects.

Joelle Jenny: No, it is very small. I do not have a proportion.

Chris Law: Could you possibly submit that in writing later on?

Joelle Jenny: I do not believe that we can provide those numbers, for the precise reason that the portfolio is still being designed. I could not tell you now that we have agreed the portfolios as a whole. Many of the activities, particularly for the global programmes, are still in the design phase.207

By contrast, when the CDC were asked if they could provide the percentage of spend that supports the use of fossil fuels, they responded:

Colin Buckley: Yes. Our commitment to fossil fuels under the 2017–18 strategy was 4.2%, which compares to 13% in 2016, the year before we adopted the climate change strategic initiative.208

When both organisations were asked whether any assessment had been made of the carbon footprint and potential climate impact of their spend, the Prosperity Fund responded:

Joelle Jenny: Of carbon footprint specifically, no. Every programme that is active in the energy sector is being assessed for its environmental impact, but specifically for carbon footprint I would need to check whether we have that. I do not.

Chris Law: Do you have any measures of the potential impact on climate or any other measures that you use?

Joelle Jenny: Each of the programmes active in the energy sectors will be making an assessment of its impact on sustainable growth, but we do not have at the moment specific indicators on carbon footprint.209

The CDC replied:

Colin Buckley: We assess the carbon footprint of all our power and carbon-intensive assets. Then that forms part of our due diligence and we monitor that footprint through the life of the investment. For investments that are not power or carbon intensive, we find it more efficient and effective to instead focus on the quantum of energy savings that we can have.210

118.The Prosperity Fund later clarified that they did not see it as practical to measure carbon footprint, on the basis that “most of what the fund does has to do with the regulatory environment”:

We know that there will not be sustainable growth that is environmentally friendly unless you change the incentive for financing in order to make it attractive to have capital investment in technologies that will be environmentally sustainable. That is the primary focus. That is most of the delivery. I cannot easily measure the carbon footprint impact of changing the regulatory environment in India, China or Brazil. We cannot easily find the kind of indicators that would satisfy this particular box, but that would not be true to what the fund is designed to deliver, which is primarily sustainable, inclusive growth.211

119.Whilst the CDC’s efforts to monitor climate impact appear to be comparatively more robust, we also received written evidence that indicated there is more the CDC could be doing to integrate climate considerations in its spending. For example, the Grantham Research Institute argued:

due to the scale of ODA resource committed to the CDC over the next five years, that institution should be encouraged to develop a more integrated climate change strategy that goes beyond current commitments.212

The Institute suggested that the CDC could better meet its commitment on climate change “through developing holistic climate change screening and evaluation processes and policies for all projects in which it invests”.213

120.A robust system of climate screening, in various forms, is mentioned on numerous occasions in the evidence base as something that the Government should adopt and make applicable to all UK aid, to ensure that all spending is aligned with climate change objectives. In addition to the evidence from the Grantham Research Institute, Dr Ayesha Siddiqi from Royal Holloway University of London and Dr Amiera Sawas from ActionAid UK, jointly proposed that the UK Government can learn from Sweden, which has identified climate change, gender and security as cross-cutting issues in its ‘Strategy for Sweden’s global development cooperation in sustainable social development 2018–2022’.214 The strategy states that an environmental and climate perspective, alongside gender equality and conflict perspectives, must be “systematically integrated into Sweden’s development cooperation”.215 IIED proposed that the UK’s Gender Equality Act could act as a model for integrating climate more comprehensively across aid spending:

We need to consider climate in same ways as the Gender Equality Act ensures we consider gender. Every business case and annual report must be clear on what the contribution is. The minimum contribution is doing no harm, but regular reporting incentivises decisions [to] consider how to deliver the transformative systemic change called for by [the IPCC] 1.5 report.216

WWF’s submission similarly stressed that climate screening is necessary across aid spending, and that aid should be screened for positive contributions as well as the avoidance of harmful impacts:

For all DFID and all ODA investments key questions are:

Is this investment compatible with a 1.5 degree level of warming?
Does it help us to adapt to climate change impacts and/or build resilience to climate change impacts?
How does this investment impact on the natural world and the environmental systems, goods and services that people depend on?217

121.When we put to the Government the proposal of adopting a system of climate screening applicable to all aid spending, Minister Baldwin accepted that “as far as CDC investments are concerned, we have tasked it to do some further work in terms of its investment guidelines”.218 However, the idea of screening across all aid spending was not welcomed. Minister Coffey said:

Instinctively [ … ] I would not do that myself. I appreciate this may not be Government policy; we have not discussed this. Making a judgment call on what you are doing about Ebola has nothing to do with climate. There are things you can do from a holistic approach, but having to do another exercise for every single thing I just think is over the top.219

Minister Perry agreed:

I am with Thérèse in terms of looking at the outcome rather than trying to measure the targets along the way. The outcome being the most important thing does work best.220

122.The difference in approaches between the CDC, which considers climate change to be a strategic priority, and the Prosperity Fund, which does not, is reflected in the level of consideration that climate change is given in their respective spending decisions. We are convinced by the arguments that in order to ensure coherence on climate change, all UK aid spending, regardless of which department or fund administers it, should be screened to ensure it is pursuing low carbon, climate resilient, sustainable development.

123.The Government should make explicit that climate change is a strategic priority that is to be integrated into all aid spending. As a first step towards this, the Prosperity Fund should urgently develop an approach that indicates the climate relevance of their investments.

124.The Government should adopt the model of the International Development (Gender Equality) Act 2014 for climate change, to ensure that all development assistance promotes progress towards a climate resilient, low carbon world.

ODA and non-ODA support for fossil fuels

125.Research conducted jointly by CAFOD and ODI shows that, between 2010 and 2014, the UK disbursed around £6.13 billion for energy support in developing countries, including £4.201 billion of ODA. Of this ODA support, 22% went to fossil fuels.221 According to written evidence from Platform, the Prosperity Fund spent approximately £1.8 million on oil and gas projects between 2016–2018 (estimate based on Platform’s analysis of FCO data222). Platform’s submission also states that according to the Prosperity Fund’s Annual Report 2016–2017, the Fund financed 13 Oil and Gas projects out of a total of 395 projects.223

126.Some submissions to the inquiry, such as those from Platform, CAFOD and WWF, advocate strongly that all ODA support for fossil fuels should be stopped.224 Other witnesses, whilst in agreement that the UK should transition away from ODA support for fossil fuels, suggested that some limited support for gas may make sense as part of this transition. For example, Professor Messner explains:

If you look at the emissions of different fossil fuels, coal is worse, and gas is better, so for the transition period gas still plays a role. If we reflect upon and then develop, for each country, roadmaps towards decarbonisation, gas in this transition period towards decarbonisation is the better alternative compared to coal.225

In relation to whether it makes sense to continue investing in gas infrastructure, Professor Messner indicated that investments can play a role in transition, but only in transition:

The next generation of infrastructures in the energy field need to be linked with decarbonisation towards zero in 2050 and this implies that from country to country we need to think about how to make these transitions possible. Gas can play a role as a transition investment, but in 2050 it needs to be phased out then, if we would like to make it compatible with 1.5 to 2 degrees global warming.226

127.In oral evidence Government Ministers emphasised the role that gas can play as a means for transitioning away from more harmful fossil fuels such as coal. Minister Baldwin said:

Where I see a company in Ghana, for example, that is looking to bring in liquefied gas so that it can help move people off charcoal as a cooking medium, I think that is progress. We need to recognise that there may be examples like that and, therefore, we should look at it on a case-by-case basis.227

128.Colin Buckley, Chief Operating Officer of the CDC also reflected this approach, telling the Committee that the CDC “will only do a fossil fuel investment where it is consistent with the nationally determined contribution and represents a step forward to a low emissions future”.228 He insisted that any investments in the CDC portfolio that did not fit this mould had been made prior to 2012 and were in the process of being phased out: “We would expect all of those legacy investments to be out of our portfolio shortly”.229 Joelle Jenny, representing the Prosperity Fund, took a similar approach:

The only small programmes we have are in the spirit of supporting the transition towards less damaging sources of energy. This is being kept under continuous review by the portfolio management board, and we are open to seeing in future whether this is to continue or to be terminated.230

129.It is not evident from these responses how strongly the ultimate goal of net zero emissions by 2050 is driving this transitional fossil fuel support, and how far these strict time-frames are being integrated into investment decisions. Reflecting again on the Prosperity Fund’s inability to report how much of their overall ODA spend is going towards fossil fuel projects,231 the extent to which this support for fossil fuels is being delivered as part of a strategic approach towards net zero emissions is unclear. We expressed this concern to the Government Ministers and asked to what extent the Government was planning for the transition beyond gas, when making large gas infrastructure investments. Minister Perry responded:

I cannot answer that specifically, but I can say that obviously the projects are considered on their economic merits. We are really talking about export finance rather than our financial portfolios, which do not really invest in these large-scale infrastructure projects, and of course that risk of stranded assets must be baked into the economic analysis of those projects. [ … ]232

130.Dr Rebecca Nadin, Head of Risk and Resilience at the Overseas Development Institute (ODI) told us that having a clear strategy in place for transition was crucial, and this should be embedded into programmes.233

131.In addition to criticisms around ODA support for fossil fuels, we also received a number of submissions that highlighted the UK’s non-ODA support for fossil fuels in developing countries through UK Export Finance (UKEF). Global Witness argued that by facilitating fossil fuel extraction, UKEF is locking countries into high-carbon development, and undermining the work of DFID and the ICF.234 Using data from Unearthed and Private Eye, Global Witness pointed out that the £4.8 billion total UKEF support for fossil fuel projects from 2010–16235 is equal to the UK’s total spend on its International Climate Fund for a similar period, 2011–17, which came to £4.9 billion.236 They emphasised that this leads to a situation where “the UK government is providing climate aid with one hand, and exporting the UK’s fossil fuel pollution with the other, all the while undermining its climate action credentials”.237 The Overseas Development Institute, the Bond Development and Environment Group, and E3G all raised the issue of UK Export Finance support for fossil fuels in their written submissions.238 Notably, the former UN Secretary General, Ban Ki-moon, wrote in a comment piece in the Guardian newspaper in February 2019, that he was deeply concerned about UKEF’s support for fossil fuels, referencing the comparative figures with ICF spending, also brought to our attention by Global Witness. He said, “these figures and policies are hard to reconcile with the UK’s commitments under the Paris agreement”.239

132.When asked whether UK Export Finance support for upstream oil and gas in developing countries was undermining efforts by BEIS to promote low carbon development, Minister Perry did not respond directly on the issue of coherence, but emphasised the UK’s efforts to move away from support for coal. She highlighted that whilst support for fossil fuel exports has “dropped fourfold” between 2017 and 2018, “our support for exports for renewables has tripled”.240 Written evidence from UK Export Finance to the Environmental Audit Committee shows that much of these changes come from an overall decrease in support to the energy sector by UKEF and, within that, an increase in support for renewable projects in high-income countries. For low- and middle-income countries, notably, UK Export Finance’s figures show that in 2017/18, fossil fuels made up 99.4%, and renewables 0.6%, of UK Export Finance’s energy support (£178 million and £1 million respectively). This pattern is reflected over the longer term. Between 2013/14 and 2017/18, in low- and middle- income countries, UK Export Finance provided £2,360 million worth of support for exports in the fossil fuel energy sector, and less than £2 million worth of support for exports in the renewables sector.241

133.Global Witness recommended that UK Export Finance should phase out its current investments and support the transition away from fossil fuels to clean energy. They told us that the UK can learn from the French, German and Danish export credit agencies which all support “significant amounts of renewable energy” as well as the Swedish export credit agency which recently reported that it did not lend to any fossil fuel projects in 2015 or 2016.242

134.We welcome the inquiry currently being conducted by the Environmental Audit Committee into the scale and impact of UKEF’s financing of fossil fuels in low and middle-income countries, and we look forward to that Committee’s report and recommendations.

135.UK Export Finance was not the only area of non-aid spending that was questioned or criticised in the evidence, on the basis that domestic UK policies should support the aims and goals of international climate finance. For example, Dr Kate Schreckenberg argued for reviewing domestic policies in relation to forest protection and for “recognising the connections between consumption patterns in the Global North and impacts on people and the environment in the Global South”.243 Christian Aid warned that “the UK’s well-deserved international reputation as a climate leader is pinned on its continued domestic progress” on climate change. For both Christian Aid and Tearfund, this means adopting a legally binding target of net zero emissions in the UK by 2050.244 We note that the Committee on Climate Change will be providing new advice to the UK Government on the UK’s long-term climate change targets, to be published at the start of May 2019, although the nature of this advice is unknown at the time of writing.245

136.The only context in which it is acceptable for UK aid to be spent on fossil fuels is if this spend is ultimately in support of a transition away from fossil fuels and as part of a strategy to pursue net zero global emissions by 2050. In each case where ODA is supporting fossil fuels, the Government must be able to (i) demonstrate how that spend supports such a transition to zero emissions, and (ii) outline a plan for how that transition will be achieved and in what timeframe.

137.Any financial support for fossil fuels that does not meet these criteria - regardless of whether it is ODA or non-ODA - undermines the Government’s International Climate Finance spend. Currently, the support provided to the fossil fuel economy in developing countries by UK Export Finance is damaging the coherence of the Government’s approach to combating climate change and this needs to be urgently rectified.

190 Department for International Development; the Department for Business, Energy and Industrial Strategy; and the Department for Environment, Food & Rural Affairs (CCC0023)

191 Q203

192 Q203 [Dr Thérèse Coffey MP]

193 International Institute for Environment and Development (IIED) (CCC0026)

194 https://icai.independent.gov.uk/wp-content/uploads/International-Climate-Finance-ICAI-review.pdf

195 Ibid.

196 Q6

197 Q7

198 Ibid.

199 WWF-UK Annex A (CCC0028)

200 Q161

201 Christian Aid Annex A (CCC0029)

202 See, for example, Q107, Q108, Q112