Rich countries have agreed in principle to make their export credit agencies lend money on better terms for a series of “climate-friendly and green” projects.
A group of 13 nations and the European Union agreed to give those developing projects like renewable energy, electricity infrastructure and low-emission transport longer to pay back loans and charge them less for insurance.
The Organisation for Economic Co-operation and Development (OECD)’s head Matthias Cormann hailed the deal as a “great milestone to help increase the impact of trade and finance flows on securing our climate objectives”.
But campaigners claim there is no clear definition of green projects and criticised the inclusion of technologies like hydrogen and carbon capture and storage.
They claim that, as many hydrogen and CCS projects are driven by fossil fuel companies, that sector will be among the beneficiaries of the reform, potentially for polluting projects.
The agreement is part of a package of reforms secured within a group of the OECD responsible for setting rules for the export credit agencies (ECAs) of member states.
ECAs influential role
Participants are the USA, France, Germany, Italy, Canada, the United Kingdom, Japan, the European Union, South Korea, New Zealand, Australia, Norway, Switzerland and Turkey.
The reform is expected to come into effect later this year once national ECAs have implemented it.
ECAs are highly influential in directing investment towards specific sectors by offering exporters government-backed loans, guarantees or insurance. This limits the risk taken by companies selling services and goods in countries or industries considered high-risk.
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Under the new agreement, maximum repayment terms will be increased from 15 years to 22 years for investments including ‘environmentally sustainable energy production’, carbon capture storage and transportation, clean hydrogen and ammonia, low-emissions manufacturing, zero and low-emissions transport and clean energy minerals and ores.
The reforms will introduce further flexibilities on repayment schedules and adjust the minimum premium rates charged for insurance cover.
Uncertain ‘climate-friendly’ label
The statement released on Monday does not give any more detailed explanation of what specific type of projects will be given favourable treatment.
A definition for ‘clean hydrogen’, for example, could range from green hydrogen produced with renewable energy to gas-derived blue hydrogen.
An OECD spokesperson said the member states are still in the process of negotiating the final text, which will incorporate the agreement in principle and make all the details public.
OECD boss Matthias Cormann said the reforms will allow the scaling up and better targeting of public and private finance to support climate-friendly investments.
The European Commission said this is “the culmination of more than two years of negotiations”.
‘Incentives for fossil fuel sector’
The reforms have been met with disappointment by campaigners who had pressured governments for more far-reaching changes, including the end of public export finance for fossil fuel projects.
Nina Pusic of Oil Change International told Climate Home the group is worried this will enable benefits to fall into the lap of oil and gas industries that are already heavily supported by export credit agencies.
“Better incentives for truly climate-friendly projects are needed at OECD level, but we are concerned about the definition used here,” she added. “It is still subject to further refinement but the scope has now been set”.
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Steven Feit, a senior attorney at the Center for International Environmental Law, said carbon capture, hydrogen or ammonia are the primary avenues through which the fossil fuel industry seeks to legitimise itself in the wake of climate action. “Labeling these projects as ‘green or climate friendly’ perpetuates a false narrative,” he added.
Carbon capture and storage is where carbon dioxide is sucked out of the air, often directly from a polluting smokestack. Hydrogen and ammonia are products used for a wide variety of purposes. They can be made using clean electricity or polluting fossil fuel electricity.
Bankrolling fossil fuels
In recent years, ECAs have come under fire for being a prominent source of public funding for fossil fuel projects worldwide.
The ECAs of G20 nations provided seven times as much export finance to fossil fuel projects ($33.5 billion) than for renewable energy ($4.7 billion) between 2019 and 2021, according to data compiled by campaigners.
In 2021 the OECD group agreed to end ECAs’ support for unabated coal-fired power plants.
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But campaigners and some countries urged it to go further. The Council of the European Union called for an agreement to end officially supported export credits for projects in the fossil fuel energy sector, including oil and gas projects.
Backsliding on pledges
Additionally, at Cop26 in Glasgow 20 countries – including the biggest EU members, the UK, the US and Canada – signed onto a commitment to end public finance for overseas fossil fuel projects by the end of 2022.
But countries have subsequently been accused of watering down the terms of the pledge, by inserting exemptions.
Italy has U-turned on its promise. Its ECA’s new funding policy carves out a wide range of exemptions for the continued support of fossil fuel projects beyond the deadlines on energy security grounds.
Germany and the United States have yet to publish their policies outlining how their pledge will work in practice.