During a speech that Gordon Brown gave in October 2006, he said every
government department must become green.
“In the 20th century,” he said, “our national economic ambitions were the twin
objectives of achieving stable economic growth and full employment. Now, in
the 21st century, our new objectives… will be threefold: growth, full
employment and environmental care.” And he added: “For government, it means
environmental policy is economic policy, and that finance ministries, and
indeed all ministries, must be environmental ministries.”
Of course, if the government is doing its bit, so must we. In the budget,
Brown’s chancellor, Alistair Darling, imposed huge increases in road tax on
even modest family cars, all in the name of cutting greenhouse-gas
emissions. Also, we’ve got to stop using plastic bags and sitting under
patio heaters; we must cycle and, indeed, recycle; we have to “shop around”
for the greenest possible energy, we must have windmills, solar panels and
we must pay green taxes. It’s tough, but it’s the big one. Save the planet –
we’re all in this together. “…Today I set a new ambition for Britain in
future years,” said Brown, “to lead the world in creating a stable and
sustainable economy founded on low carbon – a Britain that is pro-growth and
pro-green.”
But sadly, Prime Minister, it’s not easy being green. And your government is
about as green as a dirty coal-fired power station warmed by patio heaters
and driving a Porsche Cayenne with a bootful of Tesco’s finest plastic bags.
Put it this way, in recent years you’ve backed two huge schemes – the
Baku-Tbilisi-Ceyhan (BTC) pipeline and the Bonny Island
liquefied-natural-gas plant in Nigeria – that will result in the emission of
660m tonnes of carbon dioxide, more than the entire annual output from the
whole of the UK. You’ve also backed the Dabhol-Enron power plant in India,
which has been mired in financial chaos, polluted water supplies and violent
harassment of environmental campaigners. And then there’s the Lesotho
Highlands Water Project, displacing 27,000 people, destroying farmlands and
damaging wildlife habitants. In fairness, you’re only as bad as every other
government in the developed world. But you said we must lead the way and
you’re very good at making the British people pay the price. So isn’t it
time you reconsidered the role of an obscure government department of 245
people whose policies appear to make a mockery of all your green rhetoric?
At Canary Wharf, far away from excitable Westminster, lives a strange
organisation called the Export Credits Guarantee Department (ECGD). It
answers to John Hutton, the trade secretary, and Malcolm Wicks, energy
minister. Alistair Darling’s Treasury also takes an interest because the
ECGD is losing money – about £150m a year – and it’s not supposed to. Some
Treasury wonks wish the ECGD would “wither on the vine”. But most of the
time, nobody cares very much about what goes on at Canary Wharf and, most of
the time, nobody knows.
Almost every developed country has an export credit agency, but ours was the
first. It was founded in 1919 to help re-establish British trade after the
first world war. The idea caught on, and now export credit guarantees have
become the normal business of government. The ECGD is a government insurance
company. British companies doing business overseas run the risk of not being
paid. They apply to the department, which then assesses the risk. If it
looks reasonable, it insures payment and charges the company an insurance
premium. Since the insurance is government-backed, the credit rating of the
deal becomes triple-A – the highest possible – and the company can borrow
money at the best rates. The deal also attracts British diplomatic support.
ECGD-backing amounts to a UK government seal of approval. So the government
cannot hide behind the argument that this is just a neutral financial
facilitator.
It serves British interests, but, unfortunately, those British interests, as
far as the ECGD is concerned, mainly involve oil, gas and aircraft – the
biggest sources of carbon emissions. Take, for example, the BTC pipeline. It
runs for over 1,000 miles from the Caspian Sea through Azerbaijan and
Georgia to the Mediterranean coast of Turkey. It cost $3.9 billion and
delivers 1m barrels of oil a day. BP owns a 30.1% stake. The ECGD underwrote
£82m of the cost – not much, maybe, but an official UK seal of approval
nonetheless. It underwrote £127m worth of Bonny Island, a gigantic gas
plant. Both these schemes are not just huge creators of carbon emissions,
they have been environmental catastrophes for the areas in which they have
been constructed, involving human-rights abuses – and fighting such abuses,
especially in Africa, has been another area in which Brown has said Britain
must be a world leader. Nothing like these schemes could ever happen in
Britain, but Nigeria, Azerbaijan and Georgia are poor, so they don’t matter
as much. In 2006-7 the ECGD also helped finance 58 Airbus aircraft. Indeed,
aircraft account for almost a third of its business.
According to the World Wildlife Fund (WWF), this agency is responsible for the
most extraordinary subversion of stated government policies. “That a central
government department such as the ECGD,” says the WWF, “is so demonstrably
operating at odds with the wider government position on climate change
deeply undermines the credibility and efficacy of this government’s efforts
to tackle the issue.”
But it’s not just the WWF that is baffled by the activities of this strangely
dislocated department. “It’s nonsensical for decisions of this kind to be
taken without reference to government policy,” says Peter Ainsworth, Tory
shadow environment secretary. “… they do seem to be a small group of people
who don’t appear to be accountable to any government department, who seem
blindly unaware of stated government-policy objectives, and I think is in
urgent need of reform.”
Ainsworth was so concerned about the activities of the ECGD that a few years
ago, as chairman of the parliamentary environmental audit committee, he
launched an investigation. He was particularly intrigued by a statement on
the ECGD website saying it would not back schemes involving child labour
other than in “exceptional circumstances”. Confronted by the suits from
Canary Wharf, he asked them what sort of circumstances would make it
acceptable for the British government to underwrite the exploitation of
children. “They blanched, looked at each other and didn’t have a proper
response. They changed the policy the following week and it disappeared from
their website.”
This bland, blinkered acceptance of the unacceptable seems to be an ECGD
theme.
I showed Ainsworth a letter sent by John Snowdon of the ECGD to the WWF. It
was in reply to a demand that ECGD should not support projects that had not
been subjected to an environmental-impact assessment to ensure they met
international standards. It contains the following extraordinary paragraph:
“ECGD thus considers that a breach of international standards does not, of
itself, prohibit or act as a bar to the lawful consideration of an
application for support or the lawful provision of support. ECGD’s own
policy… gives ECGD discretion to provide support even where a breach of
international standards has been identified.”
We may have officially stopped supporting child exploitation, but, it seems,
we can still officially ignore international standards. Ainsworth explodes:
“Well, that’s just wrong!” He argues that we should come clean about the way
our trade implicates us in environmental damage. “Tony Blair was fond of
going around saying the UK was responsible for only 2% of global emissions.
That’s bollocks. If you take the whole of the investment network that
passes at some point through the City of London and involves British
multinationals, we are talking about 15% – that 2% is only our domestic
stuff.”
Another Tory MP, Nick Hurd, a member of the environment audit committee, has
been pressing for a further inquiry into the ECGD. This will now go ahead in
July following a private briefing on the department from the National Audit
Office.
So there is this government department seemingly oblivious to national
sentiment and government policy and, apparently, immune to reform. What is
going on? The first problem is the sheer obscurity of the ECGD. When I
called Ainsworth’s office, neither his staff nor the person they called at
Tory central office knew, at first, what I was talking about. As far as the
young bloods at Westminster are concerned, the ECGD doesn’t exist. The ECGD
itself seems to like this state of affairs. It is, to say the least,
secretive. This is, in part, because around 40% of its business is defence.
This has got it into trouble in the past, because of the likelihood that its
guarantees underwrite corruption – bribery and defence contracts go together
like Saudi Arabia and oil. Susan Hawley of the Corner House, the
environmental and human-rights pressure group, conducted a study of the ECGD
and corruption. “Our two-year investigation,” she wrote in 2003, “has found
that the ECGD has been pervaded by an institutional culture of negligence
when it comes to corruption.”
But secrecy seems to be about more than just defence. The evidence is that the
department doesn’t want us to know what it’s thinking. A copy of a
restricted report of December 2003 by the department’s Business Principles
Unit on the BTC pipeline, obtained by the WWF through a Freedom of
Information request, has all the assessments – the only points of real
importance – redacted. This is extraordinary: as the business principles
involved are ethical outlines, they cannot be concealed as commercially
sensitive.
In addition, in a letter dated May 10, 2004, the environment minister Elliot
Morley said about Sakhalin II, a pipeline project off the Pacific coast of
Russia the ECGD was considering backing with £600m worth of underwriting:
“the government is still considering the project”. But a week earlier, the
ECGD had written to the Sakhalin Energy Investment Company: “We are pleased
to confirm… that ECGD is able to support the contracts…” There were
conditions attached, but Morley didn’t seem to know about the confirmation
of support. And, incredibly, the ECGD told the WWF that the confirmation of
support was binding, apparently rendering its own conditions meaningless. In
fact, the ECGD is now off the hook on this one. Sakhalin Energy has
withdrawn its request of backing.
The ECGD has for years been fighting off attempts by Friends of the Earth and
the WWF to give information about the human-rights and environmental impacts
of the Sakhalin project. A first refusal was upheld by the information
commissioner, but this was overturned by the Information Tribunal, which
said there was a clear public interest in disclosing the information. The
mystery was why they were even considering the backing when all the main
contracts at Sakhalin had been completed.
“It’s because,” says James Leaton, a WWF policy adviser, “the ECGD is
incapable of saying no.” They make promises of underwriting, he argues,
without proper consultation – hence no project is ever turned down on
environmental grounds.
Peter Ainsworth asks: “Why are we underwriting President Putin’s ambitions to
exploit fossil fuel?” Yet, in recent years, the business of all these
agencies, including the ECGD, has been in decline. The boom in financial
markets has made it easier to find credit insurance in the open market. The
credit crunch is likely to reverse this, as financial institutions are less
willing to take on risk.
But whatever happens in the markets, for the moment there is no prospect of
countries abandoning these agencies. The reason is competition. For example,
the big two plane-building companies – Airbus and Boeing – both get backing
from their government agencies. If one side were to withdraw, the other
would gain a huge competitive advantage. Governments, therefore, have little
choice but to persist with export credit guarantees. The question is: should
they allow them to be used for projects that directly conflict with
government policy?
We are a nation built on world trade, and our prosperity and our job market
depend on dealing routinely with risky propositions. Once you step outside
the developed world, legal, political and moral uncertainties proliferate.
Historically we have taken the view that, within reason, the pursuit of
national interest through trade justifies a degree of moral flexibility.
This is easy to condemn, but, short of withdrawing from global trade, it is
hard to imagine how Britain could do otherwise. “The ECGD has a
fantastically difficult job,” said one former minister. “You can’t blame
them for everything you might find distasteful about a contract.”
Furthermore, we have, like every other nation, a carbon-burning economy and
our biggest industries – aerospace, defence, oil – are also the biggest
carbon-burners. Defenders of the ECGD point out that criticising the
department for backing such businesses is wrong-headed.
Unfortunately for the ECGD, that essentially passive posture is no longer a
viable defence. For a start, there seems to be something very odd about the
department’s portfolio. In 2006-7, 42% of its business was defence-related,
29% went on aerospace – all but 2% going to Airbus and the remainder to
civil works that include projects like the oil and gas pipelines. The ECGD
has been accused of acting as a private bank for aerospace and oil. The
department can take the line that it only responds to applications, but
nobody finds this credible.
“Why do Airbus and Rolls-Royce get their feet in the door first at the ECGD?”
asks Nick Hildyard of the Corner House. “The ECGD is demand-led in the sense
that it responds to applications, but it could take the initiative and
screen out certain projects. It could say, ‘You’ve had 50 years of subsidies
and there’s no reason why the taxpayer should go on with that.’ They could
just make a policy decision not to support things because we don’t consider
them in the long-term interests of sustainable development.” If the ECGD did
what Brown has said the whole of government must do, then it should be doing
exactly what Hildyard says. But it isn’t.
The second reason the department’s defence is so feeble is the world outside
Canary Wharf has changed beyond recognition. The poverty, environment and
biodiversity are global issues that lie beyond the competence and
self-interest of any one government. More importantly for the ECGD, they are
issues with real political weight. Ask the people whether we should be
endangering the last few members of an animal species, forcibly moving
entire populations and producing billions more tonnes of atmospheric CO2,
and they will say no. Other national credit agencies have responded to this.
“The UK government regularly claims to be a leader on climate change, yet in
this case it has been beaten by the US administration,” says the WWF.
The ECGD does say that it monitors environmental impacts, but it seems to have
no targets, and its years-long obstinacy over Sakhalin suggests that its
officials find transparency an alien concept. In a letter to Nick Hurd,
Malcolm Wicks says the “ECGD is playing its part in the government’s drive
to reduce greenhouse gas emissions”, but adds the getout phrase: “within the
terms of its statutory purpose”. Later in the same letter, Wicks responds to
Hurd’s question: “Do I support the idea that ECGD should be
required to disclose the direct and indirect emissions that result from
projects supported by ECGD?
“The answer is no,” writes Wicks, “the responsibility falls directly on
project owners, not those who have a less direct involvement, for example,
by way of providing finance or banking, insurance or legal services.”
This argument is out of date. I am only indirectly involved in the oil
business, but I am being taxed if I have a high-emission car. Globalisation
has made people accept the interconnectedness of all our decisions. The ECGD
cannot be allowed to opt out of this new political reality. It is true,
however, that in April 2003 the ECGD set up £50m worth of cover for the UK
renewable energy sector – wind, solar and so on. Five years on, not a penny
has been taken up. The ECGD says it’s because there were no applicants. But
again this defence is out of date. Brown has called for a proactive approach
to environmental matters. The department should be going out and selling its
renewables cover. “They’ll say there was no demand,” says Hildyard, “but
what did they do to generate demand?”
Cancelling the debt of poor countries has been adopted as a global campaign
for Tony Blair and Gordon Brown. For Britain, most of the cancelled debt has
been money owed to the ECGD. People assume that the debt has simply been
written off. And so it has. But it has been written off against the overseas
development aid (ODA) budget. This, of course, inflates that budget quite
substantially. And so the government gets a kudos double-hit – by relieving
debt and by increasing ODA. But it’s the same money. All that is happening
is ODA is picking up the tab for ECGD’s bad debts. “ECGD debt cancellation
shouldn’t come from the aid budget,” says David Milway of Jubilee Scotland,
which campaigns for debt relief. “Not only is this denying poor countries
more aid, at the same time it subsidises UK exporters for operations in the
developing world – not for reducing poverty.”
Milway also says that, since much of the debt owed to the ECGD involves arms
deals, in effect the ODA is being used to finance the arms, something it’s
not supposed to do. Responsibility for this cannot be laid at the ECGD’s
door. It is purely to do with government accounting. But once again it shows
that the department seems to be a place where things the government would
rather you didn’t see or understand are hidden.
National export credit agencies around the world are now coming under
increasing scrutiny. In the case of the ECGD, the WWF and others paint a
picture of an organisation whose acquired obligations – to certain sectors
and certain companies – have blinded it to the moral and political
implications of what it is doing, primarily in the area of climate change.
“Yet despite the prevalence,” says the WWF, “of aircraft and hydrocarbon
projects in its portfolio, the ECGD currently offers no clear recognition of
its indirect impacts on climate change, or a strategy for reducing them.
There is no active effort to discourage emissions, and worse than this, the
ECGD is offering a subsidy to carbon-intensive industries by reducing the
financial risks overseas operators would usually incur.”
This is an important point. We know the true cost of carbon emission is much
higher than the cost of emission. The economist Professor Lord Stern
estimated the true cost per tonne of CO2 to be £85. Many think this figure
is too high, but few deny that carbon emission should be made more expensive
on the basis that the polluter pays. But, as the WWF makes clear, the ECGD
is actively lowering the cost of carbon emission. The urgency of the issue
is becoming ever more evident. Tony Blair has just announced an initiative
to force a global deal on climate change. “The fact of the matter,” he said,
“is that if we do not take substantial action over the next two years, then
by 2020 we will be thinking seriously about adaptation rather than
prevention.”
The clock is ticking.
This is a story about the conflict between two world views. The ECGD world
view is stuck in an age when national commercial interest trumped all other
concerns. It was a world in which global issues were barely considered other
than in the light of competitive advantage.
But the contemporary world view is the one embraced – rhetorically, at least –
by Gordon Brown. In this view, national interest is trumped by global
concern. Poverty, biodiversity and especially climate change are not simply
obstacles to trade, to be pushed out of the way by bureaucrats in Canary
Wharf. They are issues towards which trade must be directed. Whatever the
ECGD or the companies involved may think, it is contemporary political
reality, and they are fools if they think otherwise. In the near future, it
will become politically impossible for governments to continue to subsidise
projects that offend the electorate. It is time for the ECGD to die or
change, and for Brown to show he means what he says. Otherwise, why
shouldn’t the rest of us go on a carbon-burning spree?
The ECGD talks back
Q: The ECGD portfolio is dominated by underwriting for large-scale
carbon emitters — the airline, oil and gas industries. In 2006 Gordon Brown
said: ‘…environmental policy is economic policy, and… all ministries must be
environmental ministries’. Are there plans to bring the ECGD into line with
this policy?
A: The ECGD is in line with government policy. It is not government
policy not to support the oil and gas industries or air transport. The
Energy Bill, now before parliament, sets out a policy of a mixture of energy
sources to ensure security of supply, alongside support for renewable
technologies.
Q: A few years ago the ECGD stated on its website that it would not
support schemes involving child labour other than in ‘exceptional
circumstances’. This was subsequently withdrawn.
Can you confirm that the ECGD has abandoned this policy?
A: The ECGD avoids supporting projects where child labour is involved.
Q: In April 2003 the ECGD put in place underwriting worth £50m for the
UK renewable energy sector. Five years later none of this has been taken up.
Isn’t it time for the ECGD to take a more active role in promoting low
carbon- emission technologies?
A: It is not the ECGD’s role to “promote” any sector. To make it so
would require a change to the ECGD’s Act, which is a matter for ministers
and parliament. The ECGD responds to applications for its support. So far no
applications from the renewable energy sector have been received.
Q: Has the ECGD ever turned down a project from its biggest customers
on purely environmental grounds?
A: No. The ECGD’s Case Impact Analysis Process (CIAP) sets out the
standards projects must meet in order to be acceptable from an environmental
point of view. The CIAP also explains the actions the ECGD would take if a
project did not meet these standards. That the ECGD has not needed to reject
any applications on environmental grounds is evidence of the success of the
ECGD’s approach of combining transparency with constructive engagement.
Bryan Appleyard was talking to a spokesman for ECGD
