Maximum repayment terms for projects supported by export credit agency (ECAs) will be extended, and pricing incentives for green energy exports introduced, under a long-awaited modernisation of the OECD framework on export credits.
Participants in the OECD Arrangement on Officially Supported Export Credits unveiled the changes in a statement today, although many details are still to be ironed out as the members finalise the new text of the agreement.
The OECD Arrangement, a so-called “gentlemen’s agreement” which dates back to the 1970s, governs ECA support in most wealthy nations and sets minimum standards on lending, such as for pricing and tenors.
ECAs, commercial lenders and borrowers have long been clamouring for a large-scale overhaul of the framework, which has come under pressure as non-member countries such as Brazil, China, India and Russia become more significant providers of export finance.
The participants struck a deal on March 31, according to the statement, meeting their intended deadline for an agreement on modernisation but failing to finalise the pact during talks in Paris earlier in the month.
“The aim of the agreement in principle is to make Arrangement financing flexible enough to better face challenges posed by the economic and financial needs of projects as well as the increasingly competitive landscape and to create further incentives for supporting a wider range of climate-friendly and green transactions,” the Arrangement members say.
The revised Arrangement will allow ECAs to offer tenors of up to 22 years for projects that are eligible for support under a part of the agreement designed to boost support for climate-friendly projects.
The types of projects that are classified as climate-friendly are also being expanded to include “environmentally sustainable energy production”, clean hydrogen and ammonia, low emissions manufacturing, zero and low emissions transport, and clean energy minerals and ores.
The maximum tenor for all other projects has been increased to 15 years. Previously the maximum repayment terms were 10 to 18 years, depending on the type of project supported.
The participants also agreed on “further repayment flexibilities and adjusting the minimum premium rates for credit risk for longer repayment terms” for all projects.
The changes have all previously garnered widespread backing from the export finance industry and although many key details are not yet available, the announcement has been met with relief among banks and some ECA providers that an agreement on modernisation has at last been reached.
The announcement is “the culmination of more than two years of negotiations”, the European Commission says in a statement. “The modernisation was needed because the financial terms of the Arrangement were outdated and were no longer adapted to market needs in a changing, global financial landscape.”
Tim Reid, CEO of UK Export Finance, says the deal “means there will be incentives in place for export credit agencies to support climate-friendly and green transactions. Longer repayment terms and a more flexible approach will enable clean growth projects to rightly be prioritised.”
Commercial banks, whose lending is guaranteed by or co-financed with ECAs, also praised the announcement. The International Chamber of Commerce (ICC), whose head John Denton wrote to the participants urging bold reforms last year, said it “applauds the package of measures announced today to modernise the OECD arrangement”.
“The additional flexibilities provided for green projects are especially welcome given the well-known imperative to scale the availability of finance to deliver on the goals of the Paris agreement,” ICC director of global policy Andrew Wilson tells GTR. “Today’s deal is an important step forward in maximising the potential contribution of export finance to a sustainable and inclusive global economy.”
But the announcement has been met with dismay by campaigners who have urged governments to take a much tougher stance on ECA cover for fossil fuel exports and projects.
“Including problematic fossil-based technologies like carbon capture and storage, ammonia and hydrogen to the list of ‘climate-friendly’ not only gives incentives to the fossil fuel industry to continue extraction, but also detracts from the critical work needed to reach 100% renewable energy-based systems, which are urgently needed to meet our international climate objectives,” says Nina Pušić, a campaigner with Oil Change International.
Kate DeAngelis, International Finance Program Manager with Friends of the Earth US, says the OECD group “is once again allowing the fossil fuel industry to use export credit agencies as their piggy bank”.
Climate campaigners had previously called for ECA support for fossil fuels to be banned by the Arrangement, which agreed in 2021 to end backing for unabated thermal coal. The European Council had also expressed support for such an end to cover for fossil fuels, a policy which has already been put in place by several individual members of the Arrangement, such as Canada, the UK and several EU member states.
The participants in the Arrangement are Australia, Canada, the EU, Japan, Korea, New Zealand, Norway, Switzerland, Turkey, the UK, and the US.