How IEA guidance created a fossil fuel financing ‘loophole’

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Perhaps no group of analysts in the world is as influential as the team that produces the International Energy Agency’s reports on the energy sector and its green transition. So even seemingly small changes in their language can have powerful ripple effects across the energy industry — and the financial services sector.

Today we look at new analysis of UK bank Barclays’ climate policy, which highlights how the IEA’s recent softening of language around fossil fuel investment could have serious financial implications.

Also today, we feature new data showing declining emissions last year across major EU economies — except one.

Thanks for reading.

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fossil fuel financing

Small semantic shift, big banking implications

Moral Money readers probably remember when, in 2021, the IEA issued a landmark report that drew huge attention by plainly stating: “There is no need for investment in new fossil fuel supply in our net zero pathway.”

In an updated edition last September, it changed its language to state that “no new conventional long-lead-time oil and gas projects are approved for development after 2023” under the IEA’s net zero scenario. IEA head Fatih Birol played down suggestions that it had softened its guidance, but the change is conspicuous. It clearly leaves open the possibility of projects that are not “conventional” or “long-lead-time” — and the IEA did not define either term in its report.

Enter Barclays, one of Europe’s biggest lenders to the oil and gas sector. When the bank published its new climate policy in February, it cited the IEA report as it announced it would restrict financing specifically for oil and gas companies that were investing heavily in “long-lead expansion”. Like the IEA, Barclays did not define “long-lead” in the policy, nor in response to my request for clarification.

By restricting financing only to companies pursuing “long-lead expansion”, the non-profit group ShareAction argues in a new analysis released today, Barclays has given itself a “loophole” to finance other sorts of expansion — notably fracking.

Fracking — hydraulic fracturing, which uses fluid to release oil and gas from underground rock formations — has driven a huge increase in US fossil fuel production over the past 20 years. ShareAction found that in 2022 — the latest year for which it had data — Barclays provided $902mn of financing to companies specialising in fracking. This figure accounted for 80 per cent of its financing for “pure play” oil and gas-focused companies.

In its February climate policy, Barclays promised that it would not finance fracking in the UK and EU — a rather painless sacrifice to make, since fracking is effectively banned in the UK and in much of the EU. Barclays’ contrasting stance in the US, where the rules are far more permissive, makes it the eighth-biggest bank financier of fracking, according to last year’s Banking on Climate Chaos report.

In fairness to Barclays, it has gone further on green policy than some other banks, notably most of its US counterparts. It has ruled out all project finance for upstream oil and gas expansion and related infrastructure. From the end of June, it will stop all financing for companies that are exploring, developing or extracting from oil deposits in the Amazon biome (in contrast with rivals such as Santander).

ShareAction wants it to go further, by ruling out all financing for companies with a clear focus on oil and gas. Barclays’ position seems to reflect a view that continued investment in projects that are relatively quick to develop — like fracking operations — will still be needed in order to avoid a disastrous near-term energy supply crisis.

This is a debate that needs to be had. Barclays can help move that conversation forward by spelling out its policy more clearly — in particular, giving a clear definition of which fossil fuel projects are considered “long-lead-time”. More importantly, the IEA should do the same.

Carbon emissions

What’s behind the EU’s falling emissions?

A bit of good news for the climate came from Europe on Friday, with the release of annual data on volumes in the EU Emissions Trading System.

Companies in sectors including power, heavy industry and domestic aviation are required to buy permits to cover their carbon emissions. While Friday’s data was preliminary and incomplete, Paris-based environmental analytics company Kayrros extrapolated from it to build a picture of emissions last year.

ETS emissions fell across the EU by 15.6 per cent, helped by rising renewable energy generation and a relatively mild winter. Another factor was falling industrial production in Germany, which had the biggest emissions decline among the 10 biggest EU economies.

Sweden was the only one of those countries to show a rise in ETS volumes, thanks to increased emissions from domestic aviation, according to Kayrros. So much for flygskam.

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