(Global Trade Review, London, 10 April 2024) Export credit agencies (ECAs) in the world’s largest economies are still pumping billions of dollars more annually into fossil fuels than clean energy projects, fresh data shows, spurring calls for reform within the OECD Arrangement. ECAs in the G20 group of nations provided US$96bn towards fossil fuel projects between 2020 and 2022, finds a report published this week by campaign groups Oil Change International and Friends of the Earth. The US$32bn per year supplied by these institutions represents a 20% drop compared to the US$40.1bn yearly average from 2018 and 2020, figures show, highlighting efforts to reduce fossil fuel exposures. Yet the volume of ECA financing directed towards fossil fuels is still six times larger than that allocated to clean energy, which averaged US$5bn annually during this same period.
OECD
EU ECA fossil fuel phase-out tracker reveals Member States are lagging commitment to Paris Agreement goals in export credit policies
(Both Ends, Utrecht, 4 April 2024) The EU ECA fossil fuel phase-out tracker sheds light on the concerning lack of harmony between EU Member States’ export credit climate policies. The report was updated on April 17th, following new responses by Member States on their respective policies. Despite increasing global efforts towards sustainability, export credit agencies (ECAs) play a key role in providing loans, guarantees and insurance backed by public budgets to companies from their countries, including polluting industries. At present, ECAs continue to be the world’s largest international public financiers of fossil fuels, sorely misaligned with climate goals. In March 2022, during the French Presidency of the Council of the EU, Member States made a crucial commitment to end public finance through ECAs for fossil fuel energy projects by the end of 2023. Recent findings reveal that half of the 23 EU member states with ECAs are fulfilling their commitments, while the others lag behind. Our findings show that only eight EU Member States, such as Denmark, France and the Netherlands, have fully implemented policies to phase out public support for fossil fuel projects. Conversely, five countries, including Bulgaria, Estonia, Lithuania, Poland and Portugal, have no formal policy but claim not to finance such projects. However, a worrying trend is emerging, with 10 Member States failing to honour their commitments. Some, such as Croatia, the Czech Republic and Greece, have yet to establish a policy to phase out export credit support for fossil fuels. Others, such as Austria and Italy, have published policies that are not in line with climate science and the mandatory 1.5°C pathway.
US & EU differ over the future of fossil fuel subsidies in OECD talks
(Financial Times, London, 26 March 2024) Second round of discussions ends without significant progress on export credit policies. The world’s richest countries are at odds over ending subsidies for oil and gas development as the US and EU differed over the extent of a ban, according to people familiar with the talks. OECD countries have held a second round of closed-door talks in Paris to debate proposals by the EU and UK to cut off most export credit agency loans and guarantees for oil, gas and coal mining projects, which are the biggest source of international public finance for the sector. This would follow an agreement in 2021 to stop providing such support for coal-fired power. A person familiar with the talks said the US was still assessing the EU’s proposals, with discussions scheduled to continue in June and November. The US Treasury declined to comment. The US, Canada, France, Germany and the UK were among countries that agreed around the UN COP26 climate summit in Glasgow in 2021 to align their public finance institutions with a Paris agreement goal to limit global warming to ideally 1.5C above pre-industrial levels. But this could affect the role of Exim, the US’s credit export agency, which will need to secure fresh funding from the US Congress in 2026, opening it to political scrutiny from Republican lawmakers who are resistant to cutting off finance for oil and gas, and progressive lawmakers critical of the bank’s climate record.
Joe Biden should end EXIM support for overseas oil and gas projects
(Guardian, London, 14 February 2024) Oil Change International and Friends of the Earth US say the US president must follow his move to restrain fossil fuel expansion at home with similar measures to curb it around the world. We back Bill McKibben’s call for more of the sort of leadership recently shown by President Joe Biden in pausing new liquified natural gas export terminals. Biden has another opportunity to curb the fossil fuel industry’s relentless expansionist agenda and affirm his climate credentials in this election year at an upcoming meeting of the Organisation for Economic Co-operation and Development (OECD). At Cop26, the UN climate conference in Glasgow in 2021, 34 governments, including the US, pledged to end international public finance for fossil fuels by the end of 2022. Despite this, in the last year alone, the US has provided more than $2.2bn to oil and gas projects around the world via its export credit agency, the US Export-Import Bank, and its development finance institution.
TFX: Export finance trends of 2023: ECAs spearhead success amidst global challenges and geopolitical shifts
(TFX News, London, 22 December 2023) ECAs have looked to adapt their support for buyers and exporters in a high interest rate environment, revisiting and revamping older policies. The success of this evolution can be seen in the data – export finance is set for a record-breaking year. Greater flexibility brings diversification in financing instruments – the rise of untied support schemes for large corporates has continued with major new deals involving Trafigura, Siemens Energy and Gunvor. This has also given ECAs a prominent new geopolitical role. Realpolitik has driven ECAs into the world of energy security and they must now be more proactive than ever in their support for national interest. Reforms to the OECD Arrangement on Officially Supported Export Credits arrived after years of negotiation and debate. While the impact of these changes will only be truly felt over the coming year, the market has reacted with optimism. Tenors for large-scale renewables projects have been pushed out to up to 22 years while most other projects can now go up to 15 years. The premium rate curve has also been adjusted for obligors with high credit risk ratings. These changes increase the affordability of the ECA product at a time of economic turmoil. However, questions remain: how will ECAs balance their portfolios as longer maturities become the norm? Should the Arrangement set a common position on support for fossil fuel projects? Can ECAs plug the funding gap as critical minerals make headlines? The phrase ‘critical mineral’ has now become standard parlance as countries look to secure the green energy transition with a steady supply of metal. However, the mining industry continues to suffer from a chronic lack of investment. ECA financing is increasingly available for projects that are deemed significant for national security. Over the course of 2023 ECAs supported several project financings including the Kathleen Valley lithium deal and the Hybar rebar steel mill facility. Expect to see this deal flow rise over 2024 if ECAs can make good on their expressions of interest. Talks are under way for three new mines led by Cerrado Gold, while BNP Paribas will lead the financing for Vulcan Energy’s zero-carbon lithium project.
Watch the TXF highlights of 2023 video!
Norway joins 40-signatory partnership to end international public finance for fossil fuels
(Oil Change International, Washington, 2 December 2023) Norwegian Prime Minister Jonas Gahr Støre announced today that Norway has joined the Clean Energy Transition Partnership (CETP, sometimes called the Glasgow Statement) at the UN COP28 climate summit in Dubai. Boost for CETP which now boasts 40 signatories (including US, Canada, and many EU countries), shifting billions per year out of fossil fuels to clean energy. Norway – as a major oil & gas producing nation – boosts the initiative by joining, building momentum at the OECD level to create new rules to end international fossil finance across the OECD. This move from Norway bolsters an international campaign to adopt new rules at the OECD (the group of the world’s wealthiest countries) to end export finance support for fossil fuels. OECD countries supported fossil fuel exports by an average of USD 41 billion from 2018 to 2020, almost five times more than clean energy exports. The EU, Canada, and UK have tabled a proposal to end this finance. Having signed onto the CETP, Norway is now expected to deliver on the CETP’s commitment to “driving multilateral commitments in international bodies” by aligning with the UK, EU, and Canada in the push for oil and gas restrictions at the OECD.
OECD oil and gas export credit fossil fuel ban postponed to next year
(Global Trade Review, London, 15 November 2023) A proposal to end export finance for oil and gas supported by the UK, EU and Canada will remain under discussion at next year’s OECD meetings after being tabled last week during negotiations in Paris. If agreed, the proposal would see a ban on export credits for new oil and gas projects, following the approach taken to prevent export credit agencies (ECAs) from financing unabated coal-fired power plants. The current proposal calls for a similar prohibition on oil and gas, a move that would bypass the transition stage seen in the approach to coal of an emission threshold coming before an overall ban. “The EU and UK position expands that coal-fired power prohibition to include all fossil fuels and all parts of the fossil fuel value chain, with some exceptions,” says Nina Pušić, OECD export finance climate strategist at Oil Change International (OCI), speaking to GTR from the negotiations. This could be a stumbling block in securing the agreement of the remaining eight countries in the Arrangement on Officially Supported Export Credits: Australia, Japan, Korea, New Zealand, Norway, Switzerland, Turkey and the US. According to OCI, Japan and Korea together provide on average more than US$16bn in oil and gas financing, based on 2018-2020 levels, while OECD ECAs provided an average of US$41bn per year in export support to fossil fuels between 2018 and 2020. The OECD is set to meet again in Q2 next year.
Banks urge OECD to resurrect 5% down-payment rule
(Global Trade Review, London, 22 November 2023) Export finance banks are urging members of the OECD Arrangement on Officially Supported Export Credits to reinstate the rule reducing the down-payment threshold for emerging market borrowers to 5% amid escalating debt risks. On November 4, a temporary common line which had allowed export credit agencies (ECAs) to cover up to 95% of the total export contract value on sovereign transactions – involving category II (non high income) nations – came to an end. The common line was first introduced in late 2021 to counter reported constraints in the private insurance market, and was renewed last November for a further 12 months. The temporary rule has now been formally wound down and any new ECA deals involving sovereign borrowers must revert to financing 15% of the contract on commercial terms. In another development, negotiators secured a modernisation of the OECD Arrangement on Officially Supported Export Credits in March which saw maximum repayment terms for export credit agency (ECA)-supported, climate-friendly projects extended to 22 years, while the maximum tenor for all projects was upped from 10 to 15 years. Revised repayment terms under the OECD framework on export credits could be challenging for banks, prompting increased demand for alternative means of funding, according to industry experts. It will be challenging for certain banks, especially in the current macroeconomic climate. All the banks are struggling with much higher funding costs compared to two or three years ago,” said Nazli Konac Edgu, director of export and agency finance at Citi.
Over 250 organizations back groundbreaking efforts by OECD countries to end $41 billion a year in fossil fuel finance
(Price of Oil, Washington, 30 October 2023) As Organisation for Economic Co-operation and Development (OECD) delegates prepare to meet in Paris from November 6-10, over 250 civil society organizations (CSOs) from 30 countries published an open letter calling on negotiators to support an end to OECD export finance for fossil fuels. Signatories include Amnesty International, Greenpeace International, and Friends of the Earth International. The Financial Times (FT) has revealed that the UK and the EU will put forward proposals for doing so, with Canada planning to back the UK’s proposal. These efforts can end the USD 41 billion per year flowing to fossil fuel projects from government-run OECD export credit agencies (ECAs). The OECD Arrangement on Officially Supported Export Credits sets rules that all OECD country ECAs must follow.
ECAs and Reconstruction in Ukraine
(Ukraine Recovery, London, 22 June 2023) The Ukraine Recovery Conference 2023 was co-chaired by the UK and Ukraine in London on 21-22 June 2023. The conference was a continuation of the cycle of annual events, with URC 2022 conducted jointly with Switzerland in Lugano. The conference focussed on mobilising international support for Ukraine’s economic and social stabilisation and recovery from the effects of war, including through emergency assistance for immediate needs and financing private sector participation in the reconstruction process. URC 2023 showcased the strength and potential of the private sector in supporting Ukraine to “build back better”, working alongside a broad coalition of governments, international organisations and civil society. URC 2023 brought together Leaders, Ministers, and representatives of 59 states, 32 international organisations and international financial institutions, over 500 businesses, and 130 civil society organisations. Press articles this month (October) highlight Swedish, French, Dutch and Canadian support for aid to Ukraine: The Swedish government proposes to allocate SEK 333 million (about $30 million at the current exchange rate) for special export credit guarantees for companies trading with Ukraine; The French state-owned insurance company Bpifrance Assurance Export will insure French companies ready to invest in Ukraine and its recovery without waiting for the war to end; The Netherlands is allocating EUR 102 million for the third support package of assistance to Ukraine in 2023; Export Development Canada, without announcing specific funding has noted that it continues to closely monitor the situation in Ukraine, engage with Canadian exporters and qualified investors interested in the market and provide support through its suite of products.
