Guidance for companies transitioning out of fossil fuel exports: Applying for an Export Development Guarantee

Question 1

1. The application process

Accepted Answer

The UK government has a policy on aligning UK international support for the clean energy transition (the “Policy”) whereby in most cases it will no longer provide support for the fossil fuel energy sector overseas.

Accordingly, the eligibility of companies engaged in certain activities involving fossil fuels for an Export Development Guarantee (EDG) will be assessed by reference to a revenue threshold test.

1.1 Definition of Fossil Fuels

For the purpose of this Policy, fossil fuels is defined as the extraction, production, transportation, refining and marketing of crude oil, natural gas or thermal coal, as well as any fossil-fuel fired power plants, but generally excluding:

technical assistance and capital support
the decommissioning of existing fossil fuel energy assets
gas fired power generation and directly related infrastructure in limited circumstances
stand-alone generators and Liquid Petroleum Gas for cooking and heating in limited circumstances
Carbon Capture and Storage (CCS) or Carbon Capture Usage and Storage (CCUS) projects in the gas power sector

Further details of exemptions, ie where fossil fuel production is required and so government support will continue are in Annex A. Annex B sets out areas and sectors that are outside of this Policy.

1.2 Deciding whether support can be provided

Companies will fall into one of three categories:

“out of scope” of the Policy whereby applicants may apply for a standard Export Development Guarantee
“in scope” of the Policy but below certain revenue threshold test levels whereby applicants may apply for a standard Export Development Guarantee but must demonstrate certain climate transition commitments
“in scope” of the Policy but above certain revenue threshold test thresholds whereby applicants who have a credible Climate Transition Plan may be eligible for a Transition Export Development Guarantee

The categories are calculated according to revenue, with the thresholds changing between financial year 2021/22 and financial year 2024/25 as shown in the table below. For example, if an application is made in September 2022 (financial year 2022/23) then to be in category 1, in scope revenue should be less than 8% of total revenue.

Category	FY 2021/22	FY 2022/23	FY 2023/24	FY 2024 onwards	How the policy applies to EDGs
1	< 10%	< 8%	< 5%	< 5%	The Exporter is out of scope of the Policy – no climate transition commitments need to be made to access an EDG
2	10-25%	8-20%	5-15%	5-10%	The Exporter is in scope of the Policy – it must demonstrate certain climate transition commitments to access an EDG
3	> 25%	> 20%	> 15%	>10%	The Exporter is in scope of the Policy – support cannot be provided other than via a Transition Export Development Guarantee^{[footnote 1]}

Note: Financial year is defined as starting on 1 April and ending on 31 March.

1.3 Application of the revenue threshold test

In order to calculate which category an Exporter is in, the following method should be used.

Step A - determine total revenue from overseas from ‘in-scope’ activities^{[footnote 2]}

‘In-scope’ activities are defined as all fossil fuel activities overseas (i.e. extraction, production, transportation, refining and marketing of crude oil, natural gas or thermal coal, as well as any fossil-fuel fired power plants) unless covered by an exemption^{[footnote 3]} OR which are deemed out of scope^{[footnote 4]}
Fuller details of exemptions are in Annex A of this guide and Annex B gives examples of out of scope sectors, industries, and activities
Please use the most recent set of audited company accounts

Step B - determine total revenue

Please use the most recent set of audited company accounts.

Step C - take the figure from Step A and divide by the figure from Step B

UKEF will want to see the full calculations and result.

Step D - decide which category your company is in based on the thresholds in the preceding table

The Exporter is out of scope of the Policy – no climate transition commitments need to be made to access an EDG
The Exporter is in scope of the Policy – it must demonstrate certain climate transition commitments to access an EDG
The Exporter is in scope of the Policy – support cannot be provided other than via a Transition Export Development Guarantee

Step E - consider what information you will need to provide

Companies in category 2 who demonstrate certain climate transition commitments may be eligible for a standard EDG
Companies in category 3 who demonstrate certain climate transition commitments and have a credible ambitious Climate Transition Plan may be eligible for a Transition EDG
If the company is in categories 2 or 3, section 7(ii) of the application form must be completed

Question 2

2. Climate transition commitments

Accepted Answer

A standard EDG may or may not require certain climate transition commitments, depending on which category the company is in (ie category 1 or category 2).

A Transition EDG is for companies that are not eligible for a standard EDG (ie companies in category 3) and may be made available to companies to assist in their transition away from fossil fuels.

2.1 Category 2 applicants

Exporters under this category may apply for a standard EDG but should demonstrate:

a commitment to increase revenue in sectors out of scope of this Policy
that it is actively transitioning away from fossil fuels
that is has a clear commitment to align future activities with the Paris Agreement

2.2 Category 3 applicants

Exporters falling into this category must have a credible Climate Transition Plan which is deemed credible by an Independent Consultant. There is no established format for the Climate Transition Plan but a company applying for a Transition Export Development Guarantee must produce a plan which is credible, ambitious, detailed, and quantitative.

This would take the form of a strategic plan which includes clearly defined targets and/or milestones, setting out how the Exporter intends to achieve its climate change transition in line with the Paris Agreement. This plan must include a mechanism to allow for audit and verification of progress by an Independent Consultant against defined goals (Key Performance Indicators) to be achieved within the tenor of UKEF support.

It must also demonstrate that the Exporter is actively transitioning away from fossil fuels. The plan may also include a commitment to increase revenue in sectors out of scope of the Policy; and a clear commitment to align future activities and reduce absolute Greenhouse Gas “GHG” emissions in line with the ambitions of the Paris Agreement.

Question 3

3. Transition EDG – product details

Accepted Answer

A Transition EDG will have the following aspects:

The loan interest rate will be linked to achieving goals set out in the company’s Climate Transition Plan. Where the agreed goals are not met or in certain other circumstances, the interest rate will be increased. If the company exceeds the goals in the transition plan, then the loan may allow for an interest rate reduction. There will also be mechanisms for the rate to return to its “normal” level following an increase due to goals not having been met previously
The availability period will not be longer than 1 year
The repayment period will not be longer than 4 years
Monitoring, audit, and verification will be required to assess progress against goals in the transition plan

Question 4

4. Annex A: Policy Exemptions – sectors where support may be provided

Accepted Answer

4.1 Technical assistance and capital support

Providing technical or regulatory assistance that supports energy or emissions efficiency, health, safety, social and environmental standards.

Examples of allowable activities include advice from the Health and Safety Executive to an oil company on how to improve the health and safety of their operations, Oil and Gas Authority (OGA) or UK government engagement on financial transparency and governance.

Technical assistance support for CCS/CCUS is exempt with reference to conditions in A5.

Providing capital support for exports that improve energy or emissions efficiency, health, safety, social and environmental standards in the operation of existing assets on the condition that the investments can be demonstrated to not increase the economic operational life of an asset that would otherwise be retired.

Increasing emissions efficiency, health, safety, social and environmental standards has obvious immediate benefits to reduce emissions and reduce social and environmental impacts.

Allowed: Capital investment, maintenance expenditure, other goods on case-by-case basis.

Allowable technologies might include:

technologies that increase safety standards by removing/minimising the need for human presence in hazardous situations. For example, Remotely Operated underwater Vehicle/Autonomous Underwater Vehicle (ROVs/AUVs); Other remote/driverless operations equipment and solutions
fire protection systems
hazardous area protection equipment
CO2 abatement technologies including CCUS, with reference to conditions in A5

This list is not exhaustive and other technologies may be considered. The relevant department will make a judgement on a case-by-case basis in line with the intention of the policy.

Technical or regulatory assistance to countries on energy market reform

Engagement with countries to help them accelerate their low carbon transition, deliver a more ambitious Paris aligned Nationally Determined Contributions (NDCs) and better integrate climate considerations into core energy markets planning, including an assessment of long-term financial viability (e.g. exposure to stranded assets and/or price risks).

Here, the presumption should always be against support for unabated fossil fuel projects unless there is no cost-effective low carbon alternative at both project and system level. Advice on the role of gas as a transition fuel may only be considered where this is considered appropriate in the specific national context, for example, where coal to gas switching might be needed to support rapid decarbonisation, with reference to exemption A3a for gas power.

4.2 Support for decommissioning of existing fossil fuel energy assets

Support for the planning and implementation of decommissioning of fossil fuel energy assets, or their conversion into use for non-fossil fuel energy infrastructure.

Not Allowed: Support for the conversion of an existing fossil fuel asset (e.g. a gas storage site) into another fossil fuel asset (eg a Liquefied Natural Gas (LNG) import terminal).

Support for unabated gas fired power generation is conditional on:

a country having a credible NDC and long-term decarbonisation pathway to net zero by 2050 in line with the Paris Agreement
that support does not delay or diminish the transition to renewables
that the risk of the asset being stranded has been assessed and managed
that the project intends to follow best practice in environmental and social standards, including measures to minimise methane leakage

Exceptional support will only be allowed if all of these conditions are demonstrated.

If the role of gas is not established in an NDC and long-term decarbonisation pathway to net zero by 2050, it will need to be demonstrated that: the project cannot viably be replaced by renewable energy sources; that it contributes to domestic energy security; and that it is consistent with a realistic transition pathway to net zero by 2050 at the latest, including demonstrating that mitigation measures have been considered, preferably at asset level.

Allowed (example): Support for gas power where this supports decommissioning of coal, alongside a rapid increase in renewables, and where renewables cannot meet total demand immediately. This would help a country onto a science-based net zero pathway.

Not Allowed: Support for gas production, distribution and power generation into the global market.

Limited support for unabated gas transportation, gas transmission, gas storage and gas distribution infrastructure, only in cases needed to support unabated gas fired power generation as specified in the above exemption (A3a).

Not Allowed: Unabated gas production and gas distribution infrastructure to the global market. Therefore, feedstock infrastructure needs to be directly tied to use of gas in a domestic power plant as specified in the above exemption, not tied to LNG terminals for export.

For clarity, support for all fossil fuel related transportation, transmission, storage and distribution infrastructure, unless this exemption is met, is not allowed. Wider multipurpose transportation infrastructure (such as ports, roads), whose primary use is fossil fuel related, is not allowed. To meet out of scope criteria, the primary use must not be intended for fossil fuels (with reference to out of scope entry Cg).

4.4 Support for stand-alone generators and Liquid Petroleum Gas for cooking and heating

Support for stand-alone diesel or gas generators

The following has to be demonstrated for this exemption to apply:

For diesel or gas generators, both when used as the main source of power or as a back-up source, demonstrating that the option of using a renewables-powered generator or mini-grid is not technically or commercially feasible
For hybrid (renewables/fossil fuels) mini-grids, a renewable-only grid has been proven not to offer sufficient reliability or cost feasibility in the context of the proposed application, and the cleanest feasible fossil fuel option has been used
For hybrid mini-grids, the risk of ramping up the use of the non-renewable part to respond to increased demand is being managed

Stand-alone generators can be the only means of providing power in areas where no mains grid connection is available or where grid power is unreliable, especially in humanitarian contexts. Mini-grids are the best alternative but are much slower to implement, have high capital costs, and the skills required for operation might act as a barrier.

Allowed: (example) Diesel generators in emergency response settings, for example, Sierra Leone for Ebola health support, where renewables are not viable.

Not Allowed: Stand-alone coal generators, oil power plants; gas power plants (Ref: exemption A3a).

Support for Liquid Petroleum Gas (LPG) for cooking and heating

LPG has a key role to play in providing access to clean cooking and heating, given its time saving and health advantages and relatively low emissions when compared with solid biomass, coal and oil, until the transition to renewable fuels is feasible.

4.5 Support for Carbon Capture and Storage (CCS) or Carbon Capture Usage and Storage (CCUS) projects in the gas power sector

Support will only be allowed for Carbon Capture and Storage (CCS) or Carbon Capture Usage and Storage (CCUS) projects in the gas power sector, and only where projects will significantly reduce emissions over the lifetime of the asset and support transition pathways to clean energy.

CCUS with enhanced oil recovery (EOR), enhanced gas recovery (EGR), coal bed methane (CBM) or equivalent technology will not be allowed.

Question 5

5. Annex B: areas out of scope of this policy

Accepted Answer

Below are areas that are out of scope of this policy, and for which the UK government’s international support is not affected.

This list of “out of scope” activities is not comprehensive. There are many activities that involve fossil fuels – for example, supporting any car or air travel from A to B - that are clearly not in scope. This list is therefore indicative, but we have aimed to include activities that are considered more likely to create doubts.

5.1 Electricity (power) or heat (ie hot air or water) transmission and distribution networks, regardless of the fuel used for their generation

Electricity and heat grid infrastructure networks are fundamental to attracting a greater proportion of renewable energy generation.

5.2 Industries that need high temperatures that can only be achieved through burning fossil fuels (eg cement, ceramics, steel, glass, paper)

There is currently no commercially viable alternative to using fossil fuels to reach the temperatures required by these industries, at the scale required and especially in a development context. It should be demonstrated that the cleanest and most efficient technology is being used, and that provisions for allowing future technological switch to lower-emission options are considered, such as fuel-switching and inclusion of CCUS.

5.3 Industries that use hydrocarbons as feedstock but that do not produce fuels (eg the steel, detergents, paint and petrochemical sector)

Hydrocarbons are the primary material used for production in these industries and cannot currently be replaced. However, renewable energy could be encouraged in the parts of the production chain where it is possible to do so e.g. to power the plant. For petrochemicals, there must be a clear separation between any investment in an oil refinery that would be in scope of the policy.

5.4 Support for economic activities outside of heavy industries

This could include support for commercial activities, manufacturing or farms that use fossil fuels as a source of energy (captive fossil fuel energy), whilst ensuring that they are encouraged to transition to renewables. Where the investment or support is associated with an increase in energy use, that additional use should be met by renewables unless it is shown that this would be technically or commercially unviable.

5.5 Use of CCUS to decarbonise industrial processing (non-fossil fuel energy sector uses)

There are instances in which we may want to support the use of CCUS or other equivalent abatement technologies to achieve deep decarbonisation in processing or production in the non-fossil fuel energy sector.

5.6 CCUS: CO2 transport and storage

Support for investment in CO2 transportation or storage projects that would provide abatement for a number of emission sources i.e. not specifically dedicated to fossil fuel power sources, including the re-use of oil and gas infrastructure.

5.7 Transport sector, including rail, ship, vehicle and aircraft manufacturing, fleets and supporting infrastructure

Transport that uses non-renewable forms of energy will continue to be essential for a number of years. Electric vehicles should be preferred where possible in terms of electricity availability, reliability, or access. This includes support for infrastructure investment in roads, airports and ports whose primary scope is non-fossil fuel transport but in which it may not be physically, legally or economically possible or viable to exclude any fossil fuel transportation using that infrastructure.

Activities that improve the energy efficiency and reduce the carbon-intensity of existing non-fossil fuel transport infrastructure are also out of scope.

General skills training not in scope. Also out of scope: projects which engage existing workforce within the fossil fuels sector – including working with oil & gas companies and trade unions – to deliver training and support to workers and communities to facilitate a secure transition to non-fossil fuel sectors.

5.9 Health and safety training

The promotion of safe working practices is out of scope.

5.10 Methane capture

Support for the production and use of materials and absorbents used to capture methane.

5.11 Methane detection

Satellite networks that monitor methane emissions of existing assets.

5.12 Support for blending of ethanol/biofuels in petroleum products

Where the production and use of ethanol provides incentives for the development of more climate friendly fuels or supports changes in a country’s policies on biofuels.

5.13 Defence

Support for defence/security sector applications. This might include air-to-air refuelling of aircraft and at-sea refuelling capabilities.

Not Allowed: projects that are exclusively within the energy production sector i.e. exploration of fossil fuels and development of upstream, midstream, downstream projects and captive power generation e.g. as part of a defence package.

5.14 Non-oil & gas specific products and services

There are many hydrocarbon-based products, services and technologies with non-fuel applications that can continue to be supported, including specialty products such as waxes, lubricants and white oils.

5.15 Direct use of hydrocarbons as climate friendly alternatives to hydrofluorocarbons (HFCs) that are being phased down under the Kigali Amendment to the Montreal Protocol

Support for equipment charged with hydrocarbons as alternatives to hydrofluorocarbons (HFCs), as refrigerant gases, foam blowing agents or other uses, where it significantly lowers the Global Warming Potential of the equipment and/or helps meet a country’s Montreal Protocol obligations.

For example, the use of propane refrigerants within air conditioning equipment or the use of cyclopentane as a foam blowing agent.

An EDG can be considered where the funds will not be used general purposes and where the loan proceeds can be ringfenced for purposes that are not related to fossil fuel activities ↩
Revenue from the UK (including the Isle of Man and the Channel Islands) is excluded from the calculation ↩
An example of an exemption is the provision of diesel generators in emergency response settings, eg Ebola health support, where renewables are not viable. Annex A has full details ↩
For example, using hydrocarbons as feedstock but not producing fuels is deemed out of scope. Annex B has full details ↩

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