Tuesday

3rd Oct 2023

Opinion

EU export credits insure decades of fossil-fuel in Mozambique

  • Gas developments in Mozambique are sparking violent conflict, displacement and lost livelihoods within local communities (Photo: Farah Nabil)
Listen to article

European governments are phasing out fossil fuels at home, but continuing their financial support for fossil mega-projects abroad. This is despite the EU agreeing last year to decarbonise export credits — insurance on risky non-EU projects provided with public money by an export credit agency (ECA).

EU member states have so far failed to translate this into policy, leaving the door open to finance polluting projects in the Global South. With this work still to be done, it is now up to the upcoming Spanish EU presidency, starting in July, to finish the job.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

The presidency will need to act fast.

In 2011 and 2012, Africa's largest natural gas deposits were discovered off the coast of Mozambique. Three massive on and offshore liquefied natural gas (LNG) projects have since been developed by international oil companies such as TotalEnergies, Eni and ExxonMobil — supported by governments in Europe as well as the United States through their ECAs.

A multi-million export credit insurance for the last of these three projects, Rovuma LNG, is currently under consideration by Italy's export credit agency SACE, despite gas developments in Mozambique sparking violent conflict, displacement and lost livelihoods within local communities.

Rovuma will further undermine Mozambique's transition to renewable sources of energy and lock the country in a fossil system from which it does not benefit.

Insuring projects like this is a blatant contradiction of Europe's climate ambitions and its promises to decarbonise ECAs. European governments should be the first to redirect public finance towards renewables, instead of continuing support for fossil-fuel projects abroad.

Export credits are an important international trade policy tool, used to support European enterprises doing business abroad. They are issued by governmental institutions and provide insurance against risks of non-payment for large or risky projects. Without this support, many large infrastructure projects such as those in Mozambique would not go ahead. Until recently, it was mostly fossil-fuel energy projects that benefited from this support.

Between 2015 and 2020, support for fossil fuel projects by the ten largest European export credit agencies amounted to €30bn — including those by oil giants such as Italy's Eni and France's TotalEnergies.

The world's richest economies provided seven times more export credit support for fossil-fuel projects than for clean energy in 2019-2021. This stands in stark contrast to the recommendation by the IPCC and IEA that financial support for new fossil fuel projects must end immediately to keep the 1.5°C climate target within reach.

Following a breakthrough pledge at the COP26 climate summit in Glasgow, in March 2022 under leadership of the French EU presidency member states acknowledged the necessity of decarbonising export credits. They recognised that this also meant phasing out public support for fossil fuel projects. To do this, they agreed to come up with what they claimed to be 'science-based' deadlines for ending export credit support for fossil fuel energy projects by the end of 2023.

Stalling, and silence

Sadly, they are not yet on track. As SACE's potential support for LNG projects in Mozambique shows, European countries' climate commitments are sliding down an oily slope. Some EU member states have presented their phase-out plans — of varying quality — such as France, Spain and the Nordic countries. But Germany and Italy are trying to stall and frustrate the process while central and eastern European countries remain silent.

What emerges is an uneven playing field within the EU, where some countries and businesses have made the leap forward towards a green and sustainable European future, while others lag behind. This creates unfair competition, an unpredictable and patchy regulatory environment for businesses and forces more ambitious countries to slow down their transition as well.

This is an opportunity for the upcoming Spanish presidency of the European Council. The presidency should remind member states of their commitments and make sure they develop and publish fossil fuel phase-out policies for their export credit agencies before the 2023 deadline. These policies should be demonstrably in line with scenarios projecting a 1.5°C rise in global temperatures and not be based on false solutions and unproven fossil-based technologies.

Failing to follow through with these promises not only endangers EU Green Deal climate objectives, but is bad economics too.

In the face of global net zero competition, the EU is just slowly overcoming its long-standing state aid aversion as a response to the US' Inflation Reduction Act. So while the EU is pouring public funds into the European clean tech industry and critical raw materials to secure a global market lead, it continues to waste the same resources on fossil fuel projects.

This further risks locking European exporters, as well as developing countries, into a highly polluting fossil-based system. This will hurt European competitiveness, as other economies develop the skills and capabilities to build a truly sustainable and green economy as Europe stands still.

At the same time, like many countries in the Global South, Mozambique has huge potential for renewable energy — that would address local affordable energy needs — but continued fossil-fuel investment has prevented it from being developed. Meanwhile, two in three people in Mozambique do not have access to energy while profits are channelled abroad.

Without ambitious action now, European international trade will remain a driver of climate collapse, locking the world into outdated, overpriced energy systems and an uninhabitable future.

Author bio

Marius Troost is senior policy advisor on public finance for Dutch environmental and human rights NGO Both ENDS. Alexandra Gerasimcikova is policy and advocacy officer at European public finance watchdog Counter Balance.

Disclaimer

The views expressed in this opinion piece are the author's, not those of EUobserver.

Three problems with the EU's 'Global Gateway' to Africa

The EU's investment package for development, the so-called 'Global Gateway', which Ursula von der Leyen described as the "future of the EU's development cooperation", seems fixated on boosting private sector investments in energy, infrastructure and climate-smart solutions in Africa.

Column

Northern Europe — the new Nato/Russia frontline

The world has changed, not least in northern Europe, which is rapidly becoming one of the new frontlines between Nato and Russia. It is sometimes said that even the largest avalanche is caused by something small. Watch Northern Europe

The EU-Kenya free trade deal shows a waning 'Brussels effect'

EU trade commissioner Valdis Dombrovskis popped a bottle of champagne in early June 2023. After the failed ratification of an Economic Partnership Agreement with the East African Community in 2016, he finally could declare success. However, there's little to celebrate.

Column

Northern Europe — the new Nato/Russia frontline

The world has changed, not least in northern Europe, which is rapidly becoming one of the new frontlines between Nato and Russia. It is sometimes said that even the largest avalanche is caused by something small. Watch Northern Europe

Latest News

  1. Northern Europe — the new Nato/Russia frontline
  2. The EU-Kenya free trade deal shows a waning 'Brussels effect'
  3. Hoekstra pledges to phase-out fossil fuel subsidies
  4. 10 years on from the Lampedusa shipwreck — what's changed?
  5. EU ministers go to Kyiv to downplay fears on US, Slovak aid
  6. Hoekstra faces tough questioning to be EU Green chief
  7. Frontex shared personal data of NGO staff with Europol six times
  8. Why EU Commission dumped Google's favourite consultant

Stakeholders' Highlights

  1. Nordic Council of MinistersThe Nordic Region is stepping up its efforts to reduce food waste
  2. International Medical Devices Regulators Forum (IMDRF)Join regulators, industry & healthcare experts at the 24th IMDRF session, September 25-26, Berlin. Register by 20 Sept to join in person or online.
  3. UNOPSUNOPS begins works under EU-funded project to repair schools in Ukraine
  4. Georgia Ministry of Foreign AffairsGeorgia effectively prevents sanctions evasion against Russia – confirm EU, UK, USA
  5. International Medical Devices Regulators Forum (IMDRF)Join regulators & industry experts at the 24th IMDRF session- Berlin September 25-26. Register early for discounted hotel rates
  6. Nordic Council of MinistersGlobal interest in the new Nordic Nutrition Recommendations – here are the speakers for the launch

Stakeholders' Highlights

  1. Nordic Council of Ministers20 June: Launch of the new Nordic Nutrition Recommendations
  2. International Sustainable Finance CentreJoin CEE Sustainable Finance Summit, 15 – 19 May 2023, high-level event for finance & business
  3. ICLEISeven actionable measures to make food procurement in Europe more sustainable
  4. World BankWorld Bank Report Highlights Role of Human Development for a Successful Green Transition in Europe
  5. Nordic Council of MinistersNordic summit to step up the fight against food loss and waste
  6. Nordic Council of MinistersThink-tank: Strengthen co-operation around tech giants’ influence in the Nordics

Join EUobserver

Support quality EU news

Join us