A fund for climate chaos
RBS investment in tar sand exploitation is a highly irresponsible use of public bailout money
Kevin Watkins | guardian.co.uk | 4 March 2010
Do you feel comfortable about your money financing global warming and weakening government transparency in poor countries? If not, take a hard look at the Royal Bank of Scotland and ask yourself ask why a bank that depends on public funds is subverting national policies on climate change and international development.
Unlike banker bonuses, the lending practices of recapitalised banks have so far escaped scrutiny. When RBS issued its recent results statement media interest locked on to operating losses and pay awards. Few questions have been asked about what the bank has been doing with the government's 84% stake.
But next week, parliament's environmental audit committee will hold an inquiry on the mandate of UK Financial Investments (UKFI) – the body charged with looking after the taxpayer interest in RBS and other banks. It will ask whether that mandate is helping or hindering Britain's efforts to promote low-carbon economic growth.
With RBS this is an open and shut case. Since recapitalisation, it has been bankrolling some of the world's most ecologically destructive investments. RBS is a global leader in underwriting loans for companies such as Shell and Conoco Philips, exploiting oil tar sands in Canada's Alberta province. Detailed analysis by People and Planet, the environmental organisation, documents a tar sand portfolio that has grown by $2.7bn since the government bailout.
The damage inflicted by this lending is hard to overstate. When it comes to climate change, tar sand is a toxic asset. This is because the oil has to be released through high pressure steam pumping – producing a single barrel of oil from tar sands releases three times as much CO2 as a barrel of conventional oil. So why is a government working for an international agreement to cut carbon emissions allowing RBS to back investments that are driving up global warming?
Official answers to that question have lacked credibility. Lord Myners, the financial services secretary, maintains that UKFI has a duty to manage the taxpayer stake on "a commercial basis". Leaving aside Treasury rules requiring ministers to consider the environmental impacts of public spending, tar sand investment is only commercially viable if you resort to madhouse economics.
The profitability of these investments hinges critically on balance sheets that attach a low price to carbon emissions. If the price of the CO2emitted in tar sand production was set at a market rate consistent with an international agreement under which rich countries cut greenhouse gas emissions by 20% by 2020 – between $80 and $100 a tonne – RBS tar sand loans would have no attraction.
The RBS is taking a punt on loans that offer big corporate profits, subject to the petroleum industry avoiding the costs of long-term ecological damage. In effect, it is exploiting the market failures at the heart of the climate change problem, and gambling on governments failing to correct them.
Climate change is not the only problem. RBS is lending to oil companies operating in sub-Saharan Africa that are falling far short of best standard practices on transparency, profit sharing and environmental safeguards.
There is an alternative. Instead of using taxpayer's money to finance climate chaos, RBS could be gearing its lending towards support for a low carbon transition strategy for Britain. The public stake in banks brings with it responsibilities and opportunities. If the law governing the UKFI mandate allows taxpayer money to be used to inflict irreparable damage on our climate and sponsor irresponsible lending, then the law is an ass – and it's time to change it.
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