Export Credit Agencies and States Potentially at Risk of Climate Litigation Over Finance for Fossil Fuels

Export credit agencies (ECAs) - and the governments that oversee them - could be in violation of their international legal obligations if they do not take action to reduce their financing of fossil fuel-related activities imminently. That is the main conclusion of a new legal opinion published today, two days before ministers gather at the Petersberg Climate Dialogue. The opinion, which was commissioned by Oil Change International, for the first time lays out the international law obligations of ECAs that are responsible for tens of billions of dollars per year in support for fossil fuels.

Alongside the release of the legal opinion, civil society organizations, including Oil Change International, ActionAid Denmark, Above Ground, BothENDS, Center for International Environmental Law, Friends of the Earth United States, Milieudefensie, Jubilee Australia, Les Amis de la Terre, Swedwatch, Justica Ambiental and 350.org sent letters to relevant officials in Australia, Canada, Denmark, France, Japan, the Netherlands, South Africa, Sweden and the United States, urging them to "take this opportunity to develop a policy that puts an immediate halt to support for fossil fuel projects and associated infrastructure, consistent with international law obligations."

In March the UK introduced a new policy that is supposed to put an end to new public finance for fossil fuel projects overseas. It is the first major economy to do so. Yet, it is still providing USD 1 billion in export support to gas developments in Mozambique. Those developments uprooted formerly self-sustaining families from their homes, fishing areas and farmland, and are fuelling an insurgency that has led to violence, deaths and further displacement. Friends of the Earth UK has just received permission to take the UK government to court over this export support.

Referring to the best available climate science, the authors of the opinion, Professor Jorge E Vinuales from the University of Cambridge and Barrister Kate Cook of Matrix Chambers, state that: "if the extremely dangerous consequences of climate change are to be averted or, more modestly, their likelihood reduced, there is no room for additional fossil fuel capacity and existing capacity or its emissions must be reduced urgently and proactively."

The legal opinion considers the international law framework that applies to ECAs which act on behalf of States or are regulated by them when operating as separate entities. Drawing primarily on customary international law, as well as on human rights, climate change agreements and OECD instruments, it concludes: "given the substantial contribution of ECAs to enable the emissions of greenhouse gases associated with existing and new fossil fuel-related projects/activities, in principle, States comply with their duty of due diligence only if they do their utmost to reduce their contribution to the problem, rather than extending it or increasing it."

According to the expert authors, State sponsors of ECAs must pursue the following five key actions to meet their international law obligations in relation to climate change:

1. Not finance new fossil fuel-related projects/activities or increase the financing of existing ones;
2. Decrease existing support for fossil fuel-related projects and activities within a clear, scientifically-based time-frame;
3. Proactively avoid locking in fossil fuel projects and activities which may use up a significant part of the remaining carbon budget;
4. Adopt and proactively implement adequate procedures to assess the carbon footprint of potential projects; and
5. Implement performance guidelines to monitor ECA activities in the context of the climate emergency.

"This legal opinion puts States and their export credit agencies on notice. They need to stop financing fossil fuel projects or face potential litigation risks. The opinion launched today puts serious legal muscle behind what was already a compelling moral and financial imperative: public money should not be used to prop up dirty projects and aggravate the dire climate crisis that is already affecting millions across the globe," said Laurie van der Burg, Senior Campaigner with Oil Change International.

"Civil society groups looking to safeguard the climate are increasingly turning to legal tools to protect our common future, and this opinion makes it clear that export finance for oil, gas and coal might become the next target of climate litigation," said Karen Hamilton, Program Officer with the Canadian organization Above Ground.

The legal opinion also mentions the need to expand the OECD restrictions on export finance for coal-fired power to cover all fossil fuels and associated infrastructure, in line with the Paris Agreement goals. OECD members previously agreed to restrict export finance for coal-fired power plants in 2015, but progress on further restricting ECA finance for fossil fuels stalled during the Trump Administration. At the Biden Climate Summit, the US announced that it wants to "spearhead efforts to modify disciplines on official export financing provided by OECD export credit agencies (ECAs), to reorient financing away from carbon-intensive activities."

According to data from Oil Change International, ECAs from G20 countries provided USD 40.1 billion annually to support fossil fuel activities compared to only USD 2.9 billion for clean energy between 2016 and 2018. Their support for fossil fuels has not dropped since the adoption of the Paris Agreement.