Europe’s greenest countries back fossil fuels abroad – ‘The Arrangement’ is to blame

Oft-overlooked export credit agencies quietly back billions in fossil fuel exports even as their governments curb emissions at home.
In the global effort against climate change, nobody is more impressive than Sweden — at least, according to the 2020 Climate Change Performance Index, which awarded the country its highest ranking, particularly praising its international climate efforts.
In the same year, business watchdog Swedwatch published a report accusing Sweden of sponsoring coal power in South Africa by supporting exports of trucks, loaders, drill rigs and other equipment. Since 2014, Sweden’s export credit agency had backed nearly $80 million of such exports to South Africa, plus hundreds of millions more to Indonesia. In response, Sweden’s export credit agency — EKN — pointed out that it had already committed to ending guarantees for coal sector exports, a promise it would keep by the end of 2020. 
﻿
﻿
Yet Sweden’s new regulations make it the exception that proves the rule. Since the Paris Agreement, public export credit agencies, or ECAs, have helped the world’s greenest economies maintain fossil fuel interests abroad even as they enjoy glowing reputations for sustainability at home. The Swedwatch report also called out Germany and France for backing coal sector exports. Oil Change International found that from 2016-2018, G20 countries provided $31.6 billion in annual fossil fuel support through their export credit agencies. Almost all of Norway’s power comes from renewable sources, yet its ECA’s latest report showed more than half of its portfolio was in fossil fuels.
“Certainly, Nordic countries have historically been at the forefront of environmental protection, but when you look into it, there still are a lot of unsolved sustainability problems,” explains Davide Maneschi, project manager for climate at Swedwatch. “And it is not uncommon that sustainability and environmental protection come second to business interests.”
Globally, ECAs are taking steps to reform, both unilaterally and through international agreements. But with billions of dollars of exports on the line and little incentive to take the lead, critics say change is, as Maneschi put it, “too little, too slow.”
”It is not uncommon that sustainability and environmental protection come second to business interests.”
ECAs work more or less like private insurance companies. For a premium, EKN might guarantee payment to, say, Volvo if a customer in Bangladesh fails to deliver payment for a shipment of engine parts. The ECAs of the Organisation for Economic Co-operation and Development member states submit to a governing framework, a self-styled “gentleman’s agreement”, that limits the types of support they can provide. This agreement — the Arrangement on Officially Supported Export Credits — is decidedly difficult to amend. 
“[ECAs] are just kind of traditional. Traditional, old, colonial arms of governments,” says Louise Burrows, policy adviser for European climate think tank E3G. “They are taking a very long time to get ahead of the game, far longer than other government departments.”
ECAs aren’t interested in the latest political fads, she says. They are interested in long-term stability, sound investment and fair competition. They are inherently cautious, inherently methodical and, some would say, inherently slow to change with the times — the canny old grandfathers of government finance.
Slowly but surely, those grandfathers are starting to take climate action. In 2015, the OECD amended the Arrangement to limit export credits for new coal-fired power plants. EKN’s own policy goes one step further, barring credits to even secondary coal products, such as trucks that would haul raw coal from mines. France and the U.K. have taken similar steps, and in April of this year, the U.K. and six European countries launched Export Finance for Future (E3F), which aims to “both massively increase support for sustainable and climate-friendly projects and impose restrictions on fossil fuels overseas.”
Yet some see even these steps as “too little, too slow.” It has been nearly six years since the Paris Agreement, and until very recently ECAs have been more than happy to ignore it, critics say. A 2020 report by Friends of the Earth Netherlands found that in four sub-Saharan African nations, high-income countries have provided “almost 50 times as much export support” for fossil-related projects compared to clean energy projects. As for E3F, a statement co-signed by 21 civil society organizations (including Swedwatch) claimed that the initiative’s principles are “merely a reiteration of what most signatories are already doing” and leave out key details, such as a firm deadline for phasing out fossil fuels.
﻿
﻿
The origin of this story was this climate warning, posted on We Don't Have Time.
﻿
Sweden, despite its recent action on coal, is still open for providing financial aid to airport expansions abroad, thereby supporting one of the world’s most fossil-heavy industries. State-owned Swedish Export Credit Corporation (SEK) and EKN have written a mutual letter to Vietnam with a non-binding declaration of intent of contributing with a $2 billion loan and guarantee, respectively, to airport expansions in the country if Vietnam chooses to buy equipment from Swedish companies. 
That issue is more debatable: Why target aviation when it accounts for less than 3% of global emissions, contrasted with 30% from coal power? And shouldn’t developing economies have a right to air transportation? 
These are important questions, Maneschi agrees, and they should have been answered already. “Why did it take until February 2020 for them to have a somewhat ambitious climate policy? For what reason haven’t they been more progressive?”
The answer, says Karin Wessman, sustainability director for EKN, is that there is more going on behind the scenes than outsiders may realize.
“In one aspect, you could say the Paris Agreement was signed six years ago, which is a long time,” Wessman explains. “But in other aspects, it is also a short time because you need to integrate it into national policy and conduct sometimes years-long negotiations to try to change a multilateral agreement such as the OECD Arrangement.”
Wessman argues that EKN is a leader in climate policy, yet even its robust policies will not change the market, at least, not directly: Even if you can discourage, say, Volvo from exporting trucks to a coal mine in Indonesia, the mine wouldn’t close; it would just buy trucks from China, Japan or Italy. Thus, ECAs are caught in a sort of prisoner’s dilemma, and until they can strike a strong, multilateral agreement, agencies will be reluctant to act.
“Declining a transaction is always the end of the line, but when we do that, we want to use that leverage to the maximum,” Wessman explains. “We do it in order to influence others and change the rules of the game. This is how you make lasting change.”
”Some participants continued to provide support for coal-fired power plants after the agreement, using non-Arrangement programs.”
So what will it take to change the rules? A lot of time, and a lot of politics. And even if the Arrangement is amended, there are plenty of ways for member states to get around it, says David Drysdale, head of OECD’s export credits division. 
“The problem is that the Arrangement applies to ‘official export credits,’ an undefined term,” Drysdale explains via email. “So some participants continued to provide support for coal-fired power plants after the agreement using non-Arrangement programs, such as untied export credits, untied aid, or investment-related finance.”
Drysdale believes a better approach is to work toward a separate deal in which OECD members agree to halt support for fossil fuel-related projects across the board, regardless of method. But that still leaves the problem of non-OECD countries filling the market gap. Furthermore, while there tends to be consensus against coal power, other topics are far more divisive, such as the role of natural gas as a bridge fuel for developing economies. There is no perfect strategy. Yet Drysdale remains optimistic. “At some point I would not be surprised to see efforts to multilateralize this agreement among all OECD members.”
Louise Burrows understands the ECA prisoner’s dilemma. But she doesn’t believe it justifies a wait-and-see approach, nor that unilateral action should hinge on a multilateral deal. ECAs can reform, she says, and should, regardless of how the game is played. In fact, Sweden’s recent reform is a case-in-point: “It just goes to show if one has moved faster than the others, then the others can probably do it as well,” she says. 
As for Maneschi, he still sees Sweden’s policy change as a reaction to bad press rather than active leadership. But he agrees, at least, with Wessman’s theory of influencing others. “It’s important for countries to move first because then they can also use this as a tool in their climate diplomacy and get other countries to move.”
Above all, Maneschi thinks reform should emerge from sheer principle. There is simply no excuse for Norway to celebrate its high number of electric vehicles while remaining one of the world’s top exporters of fossil fuels. Nor should Sweden claim to be reducing the climate impact of its transportation infrastructure while offering to support airports in Southeast Asia. It may not be the most methodical or economically prudent strategy, but it is simply the right thing to do. “If you have a goal to be a climate leader,” he says, “then you have to walk the talk.”
Written by JARED DOWNING﻿
﻿
PEOPLE-POWERED NEWS is an initiative by Climate & Capital Media and We Don’t Have Time to democratize climate action through crowdsourced journalism. Climate & Capital Media is the Publisher of People-Powered News (and can be contacted here), but the articles will also appear on We Don't Have Time. 
How it works: Every day, members of the We Don’t Have Time community post several climate reviews on the platform. Each month Climate & Capital Media will select at least two climate reviews that have earned at least 250 agrees, dig deeper into the issues and publish news stories based on those reviews. 
So if you want us to write a story based on your climate love, climate idea or climate warning: Create a review, share it, and get at least 250 people to agree.  Learn more about how to create a climate review, and see a list of companies and organizations that have replied and joined the climate dialogue.
Europe’s greenest countries back fossil fuels abroad – ‘The Arrangement’ is to blame

Welcome, let's solve the climate crisis together

Write a climate review

Open for Climate Dialogue™

0 trees planted

Download the app
