Index for May 2023

Volume 22, Issue 5

  • (Oil Change International, Washington, 20 May 2923) G7 Leaders in Hiroshima concluded that there is “an important role” for “increased deliveries of LNG” and that “publicly supported gas investments can be appropriate” [i.e. by ECAs], jeopardizing the 1.5ºC warming limit and directly contradicting last year’s G7 commitment to end international public finance for fossil fuels by the end of 2022. The G7 endorsement of increased gas finance comes despite strong opposition. Leading up to the Summit, activists organized over 50 actions in 22 countries to urge Japan and fellow G7 countries to end their support for fossil fuels and to stop driving the expansion of gas and other fossil-based technologies, A majority of international public finance for fossil fuels is provided by OECD governed Export Credit Agencies – more than even Multilateral Development Banks – with 71% of export financing for energy going to oil and gas. OECD ECAs invested in 56% of new hazardous liquified gas (LNG) export terminal capacity built in the last decade (providing at least $81 billion total), helping drive the global fossil gas boom.  Overall, about 42% of all fossil fuel finance [comes] from ECAs under the OECD supported midstream infrastructure activities, such as pipelines, LNG ports, and shipping. At COP26, the 2021 global climate conference in Glasgow, 34 countries and 5 institutions pledged to end direct international public finance for unabated fossil fuels by the end of 2022 and prioritize their public finance fully for the clean energy transition. A regularly updated OIC briefing tracks implementation efforts and assesses whether countries are on track to keep their stop funding fossils promise.

  • (Price of Oil, Hiroshima, 20 May 2023) G7 Leaders in Hiroshima concluded that there is “an important role” for “increased deliveries of LNG” and that “publicly supported gas investments can be appropriate”, jeopardizing the 1.5ºC warming limit and directly contradicting last year’s G7 commitment to end international public finance for fossil fuels by the end of 2022. The G7 endorsement of increased gas finance comes despite strong opposition. Leading up to the Summit, activists organized over 50 actions in 22 countries to urge Japan and fellow G7 countries to end their support for fossil fuels and to stop driving the expansion of gas and other fossil-based technologies such as ammonia co-firing in coal-fired power plants. In their Leaders’ Communique, the G7 claim that “they are steadfast in their commitment to … keeping a limit of 1.5ºC global temperature rise within reach”. A true commitment to 1.5°C, however, requires the G7 to explicitly exclude continued investments in new upstream gas projects and Liquefied Natural Gas (LNG) infrastructure. Today’s G7 endorsement of increased gas investments came after a push from Japan and Germany, with Japan using its G7 Presidency to also promote other fossil fuel-based technologies such as hydrogen, ammonia and CCS. The G7 play a central role in enabling the global buildout of LNG infrastructure.

  • (Global Trade Review, London, 24 May 2023) The export credit agencies (ECAs) of OECD countries should take more ambitious action to protect the climate after pouring 77% of their spending into fossil fuel projects between 2018 and 2020, a campaign group has argued. OECD members pumped an annual average of US$41bn into fossil fuel exports during the three-year period, totalling almost five times the amount of financing provided for clean energy, according to NGO Oil Change International. The report uses energy finance data for OECD members with ECAs which held assets above US$1bn between 2018 and 2020. “This directly contradicts internationally agreed climate goals, including the Paris Agreement objective to align financial flows with the low-carbon energy transition,” says the organisation, which campaigns for an end to public financing for polluting energy sources. ECAs have come under increased scrutiny for their role in fossil fuel finance in recent months, and campaign groups called for strict curbs on such financing as part of the  modernisation of the OECD framework on export credits, announced earlier this year. OECD Arrangement participants are meeting in Paris this week to begin drafting the text of the updated framework. It will likely result in an expansion of the types of projects classed as climate-friendly to include clean hydrogen and ammonia, low emissions manufacturing, zero and low emissions transport, and clean energy minerals and ores. The OECD Arrangement’s announcement of the modernisation package did not include any measures on limiting oil and gas support.

  • (IEEFA, Lakewood OH, 4 May 2023) In its latest report, the Institute for Energy Economics and Financial Analysis (IEEFA) has found that globally significant financial institutions (FIs) are committing to divesting away from coal at a quicker rate as climate change becomes a priority globally. It took almost six years for the first 100 institutions to adopt coal exclusion policies, but since then the number has doubled in just over three years. “Interestingly, it’s not the largest asset managers who are leading the way. It’s more the medium- sized ones who recognise their duty to clients. This is a reflection that the market is learning and learning fast amid regulators getting tough on greenwashing. Collectively, the whole finance ecosystem is working together to find where the issues are,” said IEEFA’s debt markets leader for Asia Pacific Christina Ng. While several large global asset managers have established formal coal exit policies, the three largest asset managers managing assets worth US$20 trillion have either formulated weak coal exit policies or have no policy at all. Overall, there are 114 FIs in Europe, 53 in Asia-Pacific, 27 in North America, 6 in Africa, and 2 in South America. European financial institutions are leading the way in coal divestment with stricter policies than those in other regions. A total of 22 FIs in the emerging economies have also established coal divestment policies, including South Africa, Malaysia, China, Turkey, India, and the Philippines. Interestingly these countries are largely reliant on coal for electricity.

  • (Environmental Defence, Ottawa, 15 April 2023) In a letter to Prime Minister Trudeau, a broad range of Canadian organizations note that it has been over a decade since Canada first committed to ending inefficient fossil fuel  subsidies. Instead of fulfilling this promise, the Government of Canada has continued to  provide billions of dollars to oil and gas companies year after year. Now, the federal government has a critical opportunity to correct its track record and become a global leader in its efforts to eliminate fossil fuel subsidies. Noting the much-anticipated Assessment Framework for Fossil Fuel Subsidies has the potential to set an example for the rest of the world – if the framework delivers the highest possible ambition. Conversely, a weak framework could damage Canada’s credibility in international fora and set a dangerous precedent for other countries. Canada should use the World Trade Organization Agreement on Subsidies and Countervailing Measures Article 1.1 definition of subsidies to ensure all relevant measures are captured in the review. The definition of subsidy used must ensure that all tax and non-tax measures that benefit fossil fuel producers are captured in the review. Canada spent $18B on financial supports for the fossil fuel industry last year.

  • (IFC, Washington, no date 2023) One of the key goals of the Paris Agreement is to ensure that financial flows are consistent with a pathway toward low emissions and climate resilient development. In 2020, The International Finance Corporation (IFC) the World Bank’s private sector arm launched the Green Equity Approach (GEA) to help our financial institution (FI) clients continue to do business in a changing world. This year (2023) IFC, is taking the next step toward alignment with Paris Agreement ambitions by introducing an update to the GEA under which IFC will start requiring a commitment from FI clients to not originate and finance any new coal projects. Previous policy allowed the IFC’s financial clients to support new coal projects as long as they exited coal by 2030, but new update explicitly rules out new coal. However Re-Course notes that the IFC still has a fossil fuel addiction. In the year when the Multilateral Development Banks (MDBs) are finally aligning their portfolios with the Paris Agreement, over seven years after the Agreement itself was made, it is time for change. [ECA Watch can only hope the OECD and all ECAs could move quickly in this direction for all fossil fuel project credits and insurance.]

  • (South China Morning Post, Hong Kong, 4 May 2023) The number of financial institutions globally that have committed to coal divestments has doubled in the past three years, but it remains negligible in China, according to a new IEEFA study. While more than 200 “globally significant” companies now have formal policies restricting investment in coal mining or coal-fired power projects, just three financial institutions from China have established a formal coal policy,

  • (Reinsurance News, Brighton, 15 May 2023) Berne Union, the global association for the export credit and investment insurance industry, has reported that its market showed “strong growth” across business lines in 2022 and a fall in claims paid overall. Highlights from the year’s data show that the export credit industry supported $2.83 trillion of cross-border trade and investment with an additional $68.6bn in non-cross-border support for exporters. Berne Union notes that growth has been supported by the return of significant transactions in the transportation sector as well as a large expansion of manufacturing sector project. The report notes that renewable energy transactions also continue to increase and are close to doubling 2019 levels, while commitments for natural resources continue to decline now at just 33% of their 2019 levels. Total claims paid fell from $9 billion to $7.6 billion over 2022, following a notable drop in MLT transportation claims which had spiked in the first stages of the pandemic. [However as noted in other articles of this issue of What's New, ECAs poured 77% of their spending into fossil fuel projects between 2018 and 2020, making claims for increased renewable energy transactions almost irrelevant! ]

  • (UK Government, Rome, 19 May 2023) The leaders of official Export Credit Agencies (ECAs) of G7 Countries - Canada, France, Germany, Italy, Japan, United Kingdom and the United States of America – met on May 16th in Rome, hosted by SACE, the Italian ECA. The meeting provided a framework for an open and constructive exchange around topics of relevance for the financing of global trade, from a practical and policy perspective. Discussions centred on recent business trends in the ECA industry, new instruments implemented to address the challenges currently faced by national exporters, policies and initiatives related to climate, as well as on joint support for the reconstruction process in Ukraine:

  • (Deccan Herald, Bangalore, 21 May 2023) The leaders of the US, Japan, Australia and India met for the Quad Summit on the sideline of the G7 conclave in Hiroshima and agreed to work on a Memorandum of Cooperation (MOC) between the export credit agencies of the governments to strengthen collaboration for the promotion of trade, financing of trade-enabling projects, economic development, and knowledge-sharing with respect to the export of goods and services. The MOC underscores the importance of economic development of the Indo-Pacific region and of increasing business opportunities, they said. "We emphasise the importance of adherence to international law, particularly as reflected in the UN Convention on the Law of the Sea, and the maintenance of freedom of navigation... including those in the East and South China Seas,” the leaders stated in a joint statement, tacitly hitting out at China. India on Saturday joined Japan, Australia and the US to denounce China’s “destabilising and unilateral actions” to change the status quo in the Indo-Pacific region and its move to militarise the disputed features in the East and the South China sea.

  • (Infrastructue Investor, Sydney, 19 May 2023) Australia’s infrastructure sector has centred on privatisations for decades. But a rapidly changing world calls for more greenfield development. Australia’s transition prospects have recently been boosted by the country’s most significant emissions reduction legislation in more than a decade. Total emissions from major industrial facilities must now be cut and not just offset. This is deemed critical to meeting Australia’s net-zero pledge, which will require a 45% reduction in emissions by 2030. Danny Latham, head of Australia and New Zealand at Igneo Infrastructure Partners notes: “We need something like $400 billion of investment in renewable generation and associated transmission links to get anywhere near 2050 net-zero targets". Aaron Ross of rhw ANZ Banking Group notes that one way the Australian government could better support technologies associated with the transition is through export credit. “The Danish and Korean export credit agencies EKF, KEXIM and K-Sure have been providing significant support to help develop wind and battery manufacturing projects, for example,” he says. “We have seen similar things in Taiwan, Southeast Asia and Europe generally. There are opportunities for Australia too, in terms of accessing the Export Credit Agency market as an additional source of capital to fund the transition.”

  • (ScandAsia, Bangkok, 18 May 2023) The European Commission has approved Danish measures to set up Denmark’s Export and Investment Fund. The fund has a total estimated value of over €4 billion. It aims at supporting economic development, competitiveness, innovation, and growth for Danish companies. Denmark notified the commission its plans to set up the fund, with an initial capital of up to €807 million. The fund will be established as a new, fully state-owned entity gathering three existing state-owned entities: the Danish Growth Fund, the EKF Denmark’s Export Credit Agency and the Danish Green Investment Fund.

  • (Upstream, Perth, 29 May 2023) Australian oil giant Santos denied claims of human rights abuses against Indigenous Australians relating to domestic gas and LNG projects planned or under development that have been alleged to some of the company’s investors and financiers. Equity Generation Lawyers, which bills itself as specialists in Australian climate change law, early last month filed human rights grievances against financial institutions supporting the Barossa gas project located in waters off northern Australia. Those financial institutions included Australia’s ANZ and Westpac, DNB Bank of Norway, Singapore’s DBS Bank and three Japanese banks. In tandem, export credit agencies in Japan and South Korea that are set to provide financial support to Santos’ project partners from those nations also received letters of complaint. The company has more than 90 agreements in place across Australia that relate to native title, Aboriginal land rights and cultural heritage management, involving six Aboriginal Land Councils and 23 Traditional Owner groups.

  • (Railway Gazette, Suttton UK, 24 May 2023)  Alstom and Export Development Canada have signed a C$3·5bn three-year sustainable global corporate partnership covering export financing support and insurance in the transport sector. The export credit agency will focus its support on digital systems, services and projects based on low-emission freight and passenger transport technologies. These could include electrified, hybrid, battery or hydrogen propulsion. Alstom will report on sustainability using indicators such as CO2 emissions, renewable energy and gender balance.

  • Global Trade Review, London, 15 May 2023) UK Export Finance (UKEF) and defence giant BAE Systems have struck a last-minute out of court deal to settle a £13.9mn claim by the government agency over guarantees for missile systems sold to Iran in the 1970s. In around 1980, export credit agency UKEF paid a claim under a policy covering contracts for the supply and maintenance of the Rapier surface-to-air missile system, a deal which fell apart in the wake of the Islamic Revolution of 1979. A UKEF spokesperson later confirmed to GTR that a deal was struck and the trial averted, but did not provide details of the settlement. Court documents show that UKEF paid BAE (then BAC) £27.3mn under guarantees issued between 1973 and 1977, when Iran was ruled by Western-backed autocrat Shah Mohammed Reza Pahlavi. But in 1991, Iran’s defence ministry launched arbitration proceedings in The Hague against BAE for alleged non-performance of defence contracts, which triggered a counterclaim by the UK firm. Almost two decades later the arbitration panel awarded BAE £28.8mn from the Iranian defence ministry, while Iran was awarded an undisclosed “greater amount” from BAE in relation to other contracts not covered by the UK government guarantees. BAE has historically been a major purchaser of UKEF’s export credit products. Between 2018 and 2022 alone, UKEF extended £3.5bn in support to BAE through direct lending and buyer’s credit, according to the agency’s data.

  • (Swedwatch, Stockholm, 27 April 2023) Despite promises to make financial flows consistent with a low-carbon economy, EU member states continue to provide financial support to the fossil fuel industry through export credits. It is time that the EU Commission replaces its outdated policy with new and ambitious regulation, prohibiting export support to oil and gas, Swedwatch argues in a new policy paper. “Export credit agencies are the world’s largest international public financiers of fossil fuels. In the EU, the lack of an ambitious regulatory framework allows for oil and gas projects to continue to be supported through state-backed export finance, undermining EU contributions to climate goals. This gap needs to be urgently addressed“, says Davide Maneschi, climate change program officer at Swedwatch. Export credit agencies (ECAs) have a critical role in the energy transition, as they de-risk large scale infrastructure and energy projects. However, in the period 2019-2021, some six years after the Paris Agreement was signed, G20 export credit agencies provided seven times more support for exports of fossil fuel projects than for clean energy. In an April 27 policy paper Swedwatch calls on the European Commission to promptly initiate a reform of  the regulatory framework on the activities of ECAs, ensuring that they are aligned with the Paris Agreement 1.5°C climate change mitigation goals and EU climate objectives.