5 may 2021

Export Development Canada Could Face Legal Challenge for Fossil Industry Financial Support

Mitchell Beer, The Energy Mix, May 5, 2021

Export Development Canada (EDC) may face court action in the not-too-distant future, after a legal opinion commissioned by Oil Change International and several other organizations concluded that national export credit agencies have an international legal obligation to scale back their financing for fossil fuel-related activities.

The 99-page legal opinion concludes that export credit agencies (ECAs) share countries’ responsibility to scale back their fossil fuel financing, consistent with “scientific considerations and the temperature goals of the Paris Agreement,” wrote Oil Change, Above Ground, and Environmental Defence Canada, in a letter yesterday to International Trade Minister Mary Ng.

Oil Change says the opinion points to “five key actions” ECAs must take to uphold their international legal obligations with respect to the climate crisis:

• Not finance new fossil projects or activities, or increase financing for existing ones;

• Decrease existing fossil support “within a clear, scientifically-based time frame”;

• Avoid locking in fossil projects that might use up a significant part of the remaining global carbon budget;

• Adopt and proactively implement adequate procedures to assess the carbon footprint of potential projects;

• Implement performance guidelines to monitor their activities in the context of the climate emergency.

In a Q&A accompanying the opinion, Oil Change identifies Canada as one of four countries that accounted for 79% of fossil fuel support among G20 export credit agencies between 2016 and 2018. It pinpoints EDC as “the largest ECA supporter of fossil fuels, largely because of unusually high levels of domestic project finance.”

Past research has pointed to Canada as the second-largest provider of public financing to fossil fuels in the G20 between 2017 and 2019, and the largest per capita. In January, Oil Change and 52 other Canadian organizations said EDC’s average financial support for the fossil sector exceeded C$13 billion per year in the three years after the Paris Agreement was signed, between 2016 and 2019.

In a release, Oil Change Research Analyst Bronwen Tucker said the legal opinion “follows moves by the U.S., EU, and UK toward phasing out international public finance for fossil fuels. Canada, by contrast, has no plan to end the support it provides to fossil fuel companies” through EDC.

In the wake of the opinion, organizations are still at a “scoping” stage to decide whether to pursue legal action in Canada, Tucker told The Energy Mix yesterday. She declined to say whether the groups had engaged legal counsel.

“The application of different international law obligations and norms is slightly different in each country’s domestic law, so there’s research to be done around the specific implications of this opinion for Canada,” she explained. “But definitely, knowing that EDC is the worst offender for fossil fuel finance out of the G20, and likely every economy, there’s definitely a really outsized exposure for the size of our country.”

While the groups’ initial missive to Ng, two other cabinet ministers, and EDC President and CEO Mairead Lavery was technical and legalistic in tone, “there’s still time to be more pointed than we were in the letter today,” Tucker said.

“This legal opinion puts States and their export credit agencies on notice,” added Oil Change Senior Campaigner Laurie van der Burg. “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.”

Oil Change and its international partners commissioned the legal opinion from Cambridge University public international law specialist Jorge E. Viñuales and barrister Kate Cook, a specialist in public international law, climate change, and human rights law. “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,” they wrote.

“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 two lawyers added.

EDC External Communications Advisor Anil Handa said the agency operates at arm’s length from the government, based on policies that often “extend beyond” requirements set by the Organisation for Economic Co-operation and Development (OECD). The legal opinion points to 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,” Oil Change writes.

Handa said the EDC’s first carbon reduction target, released last year, calls for the agency to reduce the “exposure to carbon-intensive sectors in our lending portfolio” by 15% by December 31, 2023.

“We unequivocally understand the urgency in addressing climate change and are committed to doing our part,” he wrote in an email. “Conducting business in a responsible manner is integral to EDC,” and “supporting and enabling sustainable business are integral to EDC’s core values and strategy as an organization.”

Handa added that the EDC reduced its business support to the oil and gas sector to $8.1 billion in 2020, from $10.6 billion in 2019 and $12.5 billion in 2018, citing a sector-by-sector disclosure statement on the agency’s website. Between 2015 and 2020, he added, support for cleantech businesses grew from $917 million and 86 companies to $4.55 billion and 288 companies.

“It’s important to bear in mind that oil and gas companies are important partners for the cleantech sector as they help support the development and commercialization of cleantech solutions,” Handa said.

It wasn’t immediately clear whether any of the funding to sectors like mining, plastics, or financial institutions—more than $30 billion according to the disclosure statement—mapped back to fossil industry clients. Nor does the statement indicate whether the $4.55 billion to cleantech included funding for carbon capture or fossil industry emissions abatement that governments often announce as climate or cleantech investments, but are widely seen as efforts to extend the life of carbon-intensive fossil operations.

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