The ECGD, Sustainable Energy and Climate Change
Recommendations from Friends of the Earth to the ECGD

Summary

In November 2001, governments agreed that export credit agencies (ECAs) should support the global transfer of climate-friendly technologies. To respond to this mandate, the UK Export Credits Guarantee Department (ECGD) should introduce a portfolio target of at least 20% in support of sustainable energy. Other institutional reforms are also necessary if Britain is to abide by its commitments. If ECAs do not begin a meaningful transformation away from fossil fuels towards renewable energy by 2004, they should be abolished.

Contents

• 1. What is the ECGD already required to do to support sustainable energy?
• 2. Why should ECGD support sustainable energy?
• 3. What role can ECGD play?
• 4. Recommendations

1. What is the ECGD already required to do to support sustainable energy?

As part of the Marrakech accords, adopted at the 7th Conference of the Parties to the UN Framework Convention on Climate Change last November, governments agreed that export credit agencies specifically should support the global transfer of climate-friendly technologies. This decision forms part of the rules implementing articles in both the 1992 Framework Convention, which is already in force, and the 1997 Kyoto Protocol, which the UK has ratified and will soon enter into force, requiring that industrialised countries support the transfer of both adaptation and mitigation technologies to developing countries.

Clearly, the ECGD should already be acting in accordance with the Framework Convention on Climate Change, in addition to investigating how to implement relevant clauses in the Marrakech Accords before the Kyoto Protocol enters into force. This paper seeks to provide guidance on how this might be done.

2. Why should ECGD support sustainable energy?

According to energy modellers, reducing emissions to a level that would avoid dangerous climate change without relying on the widespread use of nuclear power would require that energy efficiency be maximised and that renewable energy account for at least 40% of global energy consumption by 2050 and 80% by 2100. The deployment of sustainable energy technologies, i.e. renewable energy and energy efficiency, is also desperately needed to avoid further accumulation of the devastating local environmental and social impacts associated with fossil fuels, large dams and nuclear power.

However, business-as-usual investment trends do not support such a shift. According to the Council of the Global Environment Facility (1999), "Less than 2% of the energy investment being made annually in developing countries is currently in [renewable energy technologies]... This is despite the fact that [renewable energy technologies] are technically feasible and financially feasible in many places and are often national priorities." Projections by the International Energy Agency (2000) suggest that renewable energy will only represent 3% of global primary energy mix by 2020 if these business-as-usual investment trends continue.

3. What role can ECGD play?

Obstacles to the deployment of sustainable energy technologies do exist. They are:

• Obstacles that are characteristic of Small and Medium sized Enterprises (e.g. weak balance sheets, small transaction sizes);
• Obstacles that are characteristic of developing countries (e.g. lack of client creditworthiness, currency risk);
• Institutional obstacles (e.g. lack of staff experience with renewable energy projects, support for competing technologies);
• Obstacles that are specific to the sustainable energy industry (e.g. lack of investor familiarity, high up-front costs); and
• Wider political obstacles (e.g. lack of regulatory and fiscal incentives to strengthen sustainable energy companies either domestically or overseas).

However, ECGD should already be familiar with and addressing obstacles specific to SMEs and developing countries, and the regulatory and fiscal framework is changing in favour of clean energy in many countries, including the UK, and will continue to do so. Meanwhile, the remaining obstacles, both institutional obstacles and obstacles that are specific to the sustainable energy industry, can be addressed directly by ECGD.

Friends of the Earth International believes that if export credit agencies do not begin a meaningful transformation towards binding environmental and social standards and significant portfolio shifts away from fossil fuels towards renewable energy within two years, they should be abolished (FOEI position paper, January 2002). In a recent letter to G8 energy ministers, Friends of the Earth International, Greenpeace International and WWF International called upon export credit agency funding for fossil fuels, large dams and nuclear power to be phased out, starting with an immediate cessation of all funding for export-oriented fossil fuel extraction projects, nuclear power and dams that do not meet the standards of the World Commission on Dams, as well as any projects that do not receive prior informed consent from local communities in developing countries. In addition, the letter said that export credit agencies should allocate 20% of their energy portfolios to sustainable energy starting now.

This view is echoed in the 2001 report of the G8 Renewable Energy Task Force, which was chaired by Corrado Clini (Director General of the Italian Ministry of Environment) and Mark Moody Stuart (former CEO of Shell International). The report called upon export credit agencies to identify criteria to assess the local and global environmental impacts of energy projects and establish minimum standards of energy efficiency and carbon intensity. The report noted that simply supporting renewable energy was not enough: subsidies for conventional energy must be reduced simultaneously.

4. Recommendations

The ECGD should:

• Immediately provide maximum repayment terms available under existing guidelines to support sustainable energy projects;
• Systematically consult with and target sustainable energy companies when designing and marketing their products, especially SME products;
• Introduce a portfolio target of at least 20% in support of sustainable energy;
• Negotiate common binding environmental and social standards for export credit agencies within a context of seeking to eliminate support for unsustainable energy projects;
• Improve staff capacity through programmes to train existing staff and recruit new staff with experience in the sustainable energy sector with the objective of having staff dedicated specifically to sustainable energy;
• Negotiate with other export credit agencies to provide concessionary rates for sustainable energy (e.g. in the form of SME Plus programmes) that surpass those offered to other energy technologies;
• Develop safeguards against tied aid and technology dumping (e.g. through the highest standards of public consultation and support for projects that promote technology transfer, such as manufacturing and contractual joint ventures).

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