Sat, Jun 15 2024 15 June, 2024

German export credit agency slammed over fossil fuel finance

A new policy proposed in Germany would allow the national export credit agency to continue investing in fossil fuel projects.

The government district in Berlin, Germany (Photo credit: Adobe Stock/ Von Frank Peters)

A proposed new policy in Germany has come under criticism as it would allow its export credit agency to continue investing in fossil fuel projects, in contrast with pledges made previously by the government.

The Federal Ministry for Economic Affairs and Climate Protection (BMWK) issued at the end of July new guidelines covering the energy, transport and industry sectors, introducing for the first time a climate policy standard for the issuance of export credit guarantees.

The guarantees protect exporters and banks against payment defaults caused by economic and political factors and provide favourable financing conditions and political support.

The new policy aims to promote innovations and climate-friendly technologies as well as the export of green technologies abroad, the BMWK said.

The policy envisages the phase-out of the support to fossil fuels, specifically with support to upstream oil and gas ending in 2029.

At the same time, it allows for gas project financing to continue provided these are considered as essential for “national security” or “geostrategic interest for security of supply.”

The proposals fall “far short of Germany’s promise in 2021 to end all public finance for fossil fuels by the end of 2022,” as it “allows continued public finance for oil and gas fields, gas pipelines, and infrastructure,” the NGO Oil Change International said.

Under the new guidelines, fossil fuel projects must also be aligned with the 1.5 degrees target stipulated in the Paris Agreement.

This is however in contrast with “strong scientific consensus that the extraction of any new fossil fuels is ‘not compatible’ with limiting global warming to 1.5C under any credible scenario,”

Adam McGibbon, a campaign strategist at Oil Change International, told Gas Outlook.

“Recent investments are already breaking climate targets… A gas-fired power plant, such as the Uzbekistan Stone City CCPP plant guaranteed by Euler Hermes in 2022, has a typical lifetime of 30 years,” he continued.

“A gas power plant financed by German export finance today could still be operating in the mid-2050s, long after the world is supposed to have met net zero targets.”

Moreover, while the new guidelines are “for export promotion generally” they apply to “export credit guarantees, and investment guarantees only” thus leaving “untied loan guarantees not covered,” Regine Richter, energy and finance campaigner at environmental research group Urgewald, told Gas Outlook.

While credit guarantees cover delivery of components such as turbines and investment guarantees would apply to investments in another country, for example in an oil field project, “untied loan guarantees can be given for a credit that is financing a deal under which raw materials are delivered to Germany…This can be gas,” she said.

Last October, an untied loan guarantee worth US$3 billion was given for a deal between trading company Trafigura and German gas importer Sefe, for LNG deliveries to Germany.

“Leaving this part of export promotion out of coverage of the new guidelines is a big problem,” she continued.

And while the guidelines foresee a review in 2025 “which would be a moment for improvement, that is pretty far away and many deals can be approved until then,” Richter added.

The ministry has opened a consultation on the new policy, which will end in late August, with the final guidelines to be issued in September and come into effect in October.

Meanwhile, new climate guidelines for another German state entity, KfW, which also has a prominent role in providing finance to fossil fuel investments, have been put on hold after a draft proposal last year, which would have allowed it to disregard Paris Agreement targets, was scrapped.

KfW Ipex, the export branch of KfW, was involved in the financing of several U.S. LNG projects – including Port Arthur, Plaquemines and Corpus Christi – for over $550 million in 2022 and 2023 alone, according to a paper by Urgewald and Deutsche Umwelthilfe.

Agencies key in fossil fuel financing

The news comes amid increased scrutiny over the role of export credit agencies in financing fossil fuel related projects.

Between 2018 and 2021, Euler Hermes financed $6.6 billion in fossil fuels, compared to $2.9 billion for clean energy, making it one of the largest public financiers of fossil fuels in the world, according to Oil Change International data.

The agency financed more fossil fuels than the prominent United States Export-Import Bank in the same period.

It was surpassed by a handful of countries, including Italy, which financed nearly $10 billion over the same period, China (around $12 billion), Japan ($25 billion), Korea (nearly $30 billion) and Canada ($40 billion).

In 2022, a Bundestag question revealed that Euler Hermes was considering 10 large international fossil fuel projects worth 1 billion euros despite the Glasgow pledge, including projects in Brazil, Iraq, Uzbekistan, the Dominican Republic, and Cuba.

The export credit agencies’ alignment to Paris Agreement targets plays a central role in government decarbonisation ambitions, a paper published in 2021 by Perspectives Climate Research said.

“As public finance institutions, export credit agencies use state money to offer their products and therefore indirectly bear the political mandates and international commitments of their respective governments,” it said.

“Thus, screening export credit agencies for Paris alignment becomes important to assess a country´s credibility with regards to its commitment to the Paris Agreement.”

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