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EU makes fresh bid for OECD export credit fossil fuel ban

Export credit agencies (ECAs) in the EU have been given until the end of next year to set deadlines for ending support for the fossil fuel sector, as the bloc calls for a ban on export credit support for fossil fuels at the OECD.

In a statement released following a meeting of EU finance ministers on Tuesday, the European Council said member states have given themselves until the end of 2023 to set “science-based deadlines for ending officially supported export credits to fossil fuel energy sector projects”.

Scientific evidence on global warming, including from the UN Intergovernmental Panel on Climate Change and the International Energy Agency’s report on the pathway to net-zero emissions, show that fossil fuel use needs to be curbed, the statement says.

At last year’s Cop26 summit, 12 EU member states, including France, Germany, Italy and Spain, committed to ending public finance for fossil fuels by the end of this year, meaning the EU’s position will only apply to those countries that have yet to make such a pledge.

Campaigners are unhappy with the Council’s decision, arguing that open-ended deadlines beyond 2023 are insufficient in the face of the urgency of the energy transition.

Instead, they say the Council should have built its position on the public finance pledge made at Cop26, under which support for fossil fuels must end in nine months.

“A concrete path and a deadline for phasing out fossil fuels, in line with the Cop26 commitment, is nothing short of necessary,” says Niels Hazekamp, a senior policy advisor at Dutch environment NGO Both Ends. “Leaving member states the leeway to procrastinate will seriously undermine the chances of limiting climate change to 1.5°C.”

Antonio Tricarico, programs director at ReCommon, a Rome-based NGO, says: “The same European ECAs which have backed new and large-scale fossil fuel infrastructures in Russia are now shying away from taking a clear commitment to put an end to the financing of the expansion of fossil fuels.”

“The weak decision of [the] Council is a blank cheque for European fossil fuel companies to make us more dependent, not less, from fossil fuels in the near future.”

In April last year a group of European countries formed the Export Finance for Future (E3F) coalition, committing to ending ECA support for fossil fuels. But the countries did not make any firm timelines for winding down their support, and the French government has indicated it will back gas projects until at least 2035.

The UK, also a member of the alliance, has already axed export credit support for fossil fuels.

 

EU warns of break with OECD Arrangement

The Council is also calling for similar action on fossil fuels in the OECD Arrangement on Export Credits, which includes the EU and eleven other advanced economies.

The ministers’ statement calls on the European Commission to “launch a discussion” with OECD Arrangement participants “in order to reach an agreement on ending officially supported export credits for projects in the fossil fuel energy sector, beyond coal and including oil and natural gas projects” except in some limited circumstances.

The Arrangement, created in 1978, created a consensus among participants on terms offered by ECAs, such as repayment and interest rates. But countries not party to the agreement are free to provide export support as they wish, which the OECD members say create an unequal playing field dictated by economic might.

The OECD Arrangement agreed to nix export credit support for unabated coal last year, despite some members reportedly being wary of the move. The Arrangement includes major fossil fuel exporters such as Australia, Canada and the US, and countries overwhelmingly reliant on fossil fuel for energy, including Japan and South Korea.

The EU ministers also called on the Arrangement to include “financial mechanisms to incentivise environmentally sustainable projects; for example lower down payments, longer maturities, or a specific risk-based adjustment to premia”. The members of the E3F alliance also said last year that they support the development of green incentives at the OECD level.

The ministers also suggested that reforms at the OECD level should be built on the EU’s sustainable finance taxonomy, which has come under attack from climate activists for allowing investments in natural gas and nuclear power, in limited circumstances.

An OECD spokesperson tells GTR that “the issues are currently being discussed by the participants.”

More generally, the ministers expressed dismay at what they see as the slow pace of reform of export credits at the OECD and global levels, saying the Arrangement “is being increasingly challenged by financing provided by non-OECD countries”.

If progress remains stalled at the OECD level, the Council says, the EU may break from the Arrangement and bring about independent reforms in order to maintain European competitiveness.

The statement expresses a “willingness, in case the pace of progress between participants on the modernisation would not be satisfactory, to look into the possibilities of refocusing on European strategic and industrial interests and the best way to serve them autonomously”.

The finance ministers also say in the statement they are willing to make use of the Arrangement’s matching clause to “explore ways in which to improve cooperation and increase transparency among member states and between the participants to the OECD Arrangement when matching competing offers from non-participants”.

The European Commission has ordered a feasibility study into the creation of an EU-wide export credit facility, first flagged in a trade strategy review published early last year.

Ministers say the study must focus on market gaps and failures, including “commercial banks’ de-risking behaviour on lending to certain sectors or countries” and suggests that the varying risk appetites of ECAs across the 27-member union could be improved through the use of reinsurance by counterpart agencies.