Development aid or oil industry subsidy?

Article 26 Jul 2005 admin

This report was first published in Platform’s Carbon web newletter, issue 1.


As the G8 meeting has brought Africa and climate change to the fore, a report by Platform Research reveals that British development aid is being spent on oil projects that exacerbate both climate change and poverty. ‘Pumping Poverty’ details how the government’s Department for International Development (DfID) supports oil projects, both through direct grants and through Britain’s contribution to multilateral development banks such as the World Bank and the European Bank for Reconstruction and Development (EBRD) – despite recognition that both climate change and the so-called resource curse impact primarily on the poor. Many DfID projects, especially those in the Former Soviet Union, have sought to change tax regimes and other regulations to favour foreign investment in the oil sector. While the poverty alleviation benefits of this are highly questionable, the benefits to British oil companies such as BP and Shell, who have been amongst the biggest investors in the region, are strikingly clear. For example, one DfID grant to Russia hired consultants to recommend that the Russian government slash its tax rates for foreign oil companies operating in Russia, thereby cutting the state’s access to revenue, while boosting company profits. Meanwhile, DfID has supported World Bank and EBRD loans to mega oil projects such as the Baku-Tbilisi-Ceyhan and Chad-Cameroon pipelines, projects which have failed to realise benefits to the poor. Over 80 per cent of World Bank lending for oil projects goes to projects that primarily export oil to industrialised countries, any claims that this lending supports much needed provision of energy to the poor are unfounded. The report clearly details how oil has become a curse rather than a blessing for many developing countries with oil resources. This affects these countries at four key levels.

Locally: oil production damages people’s livelihoods and health – through direct pollution, by threatening food production and water supplies, and through the spread of diseases related to the activities of migrant workers.

Nationally: there is a growing consensus among economists that the disruptive economic effects of oil investment drastically reduce growth and undermine the non-oil economy, as well as often leading to declining governance structures and a weakening of democracy.

Regionally: oil is frequently associated with greater militarization and conflict – through disputes over the control and ownership of resources, through the use of revenues to purchase arms, and through the targeting of oil infrastructure by terrorists and other armed groups.

Globally: burning oil is one of the primary causes of climate change, which threatens catastrophic damage including massive sea-level rise, increasing incidences of flood, drought and other extreme weather events, major water and food supply reductions, and the spread of disease. At all of these levels it is the poor who bare the greatest share of this burden. Given DfID’s main goals – the alleviation of poverty through sustainable development – it is difficult to see how continued support for oil development can be justified. In the World Bank’s own review of its lending to extractive industries, a recommendation was made to phase-out loans for oil, but the Bank, supported by DfID, rejected the recommendation outright. DfID appears to have no coherent programme for providing renewable, sustainable energy to the poor who need it. Instead ‘development money’ is funding industrialised nations’ thirst for oil and oil companies’ requirements to gain access to new reserves. This is not development aid but a way of ensuring energy security for the UK and US. The report has been welcomed by environment and development groups and has received a lot of interest from parliamentarians. Friends of the Earth, and Plan B, the partners in producing the report, worked with Michael Meacher, MP to table an Early Day Motion (EDM) a kind of parlimentary petition, to gauge support amongst MP’s for a phase-out of UK and multilateral development aid for oil. The EDM was cut short by the election but not before receiving the support of 116 MPs. The EDM is being re-tabled and we are confident that it will be more widely supported. As a result, we expect greater scrutiny on the use of development aid for oil projects, increasing support for a phase-out of such subsidys & a greater emphasis on supporting alternatives.

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