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Credit Where It's Due
The Role of Export Credit Agencies in
Promoting Sustainable Energy
A report for WWF International and the
Institute for Policy Studies by Kate Hampton
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Executive summary
 This
policy paper has been prepared by the World Wide Fund for Nature and
the Institute for Policy Studies to examine the potential role for export
credit agencies in supporting sustainable energy technologies, principally
in the field of renewable energy and energy efficiency. Renewable energy
currently represents only 2% of the global primary energy mix and is
expected to rise to a mere 3% by 2020 (International Energy Agency,
2000). This compares poorly with rate of increase needed to avoid dangerous
climate change, where scenarios have indicated the need for 40% of global
energy consumption to be supplied by renewables by 2050 (Nakicenovic
et al, 1998).
Export Credit Agencies (ECAs) are publicly funded institutions that
promote exports. They use public money to provide exporters and their
banks with insurance, guarantees against different types of risk and,
in some cases, debt and equity. ECAs use public funds and should therefore
serve environmental, social and economic policy objectives and support
the international sustainable development commitments of the countries
they belong to. In the energy sector, ECAs should be committed to supporting
the deployment of sustainable energy technologies (SETs), i.e. renewable
energy and energy efficiency technologies, not fossil fuels, large dams
or nuclear power.
Between 1994 and early 1999, oil and gas development projects and power
projects using fossil fuels made up nearly 40% of project and trade
finance flows to
developing countries; ECAs accounted for 20% of this financing (World
Resources Institute, 2000). The climate impact of this investment is
significant; for example, ECA support from the United States for fossil
fuels between 1992 and 1998, some $23.2 billion, will result in lifetime
emissions from these projects of 29.3 billion tonnes of carbon dioxide
(Institute for Policy Studies, 1999).
The SET industry is growing rapidly with established energy companies
and financial institutions entering the market. Good opportunities for
the deployment of SETs already exist in developing countries and obstacles
to investment relate to investor perception and institutional limitations
as well as to structural barriers specific to the SET sector. The recent
report by the G8 Renewables Taskforce concluded that ‘an outcome
of serving up to a billion people in the next decade with renewables
should be our goal and aspiration’ and that ECA reform has a major
role to play in this context.
The obstacles to SET deployment in developing countries can be broadly
categorised according to the following types:
•obstacles that are characteristic of Small and Medium sized Enterprises
(SMEs) seeking to export (e.g. weak balance sheets, small transaction
sizes);
•obstacles that are characteristic of developing countries (e.g.
lack of client "creditworthiness." high levels of currency
risk);
•institutional obstacles (e.g. lack of staff familiarity and capacity
regarding SETs, lack of products for joint ventures);
•obstacles that are specific to the SET industry (e.g. lack of
investor familiarity, high upfront capital costs); and
•wider political obstacles (e.g. lack of regulatory and fiscal
incentives to strengthen SET firms in the exporting country).
Most ECAs only give preferential terms to traditional power sources.
While some are establishing programmes to support SMEs in general, these
agencies have not yet developed products that are tailored to the SET
industry, nor is the SET sector targeted by most ECAs.
The key recommendations of this report are the following:
1. Measures to be undertaken immediately
•ECAs should provide maximum repayment terms available under existing
guidelines to support SET exports.
•ECAs should systematically consult with and target the SET sector
when designing and marketing their products, especially SME products.
•ECAs should introduce portfolio targets for SET support.
•Common environmental and social standards negotiated at the OECD
should be placed within a context of seeking to eliminate support for
unsustainable energy technologies.
These standards should be used as a first step in the phase out of
support for unsustainable energy technologies.
2. Measures to be completed within a year
•Staff capacity should be improved, through programmes to train
existing staff and recruit new staff with experience in the SET sector.
Each ECA should have staff members dedicated exclusively to the SET
sector.
•ECAs should offer concessionary rates for SET projects (e.g. in
the form of ‘SME Plus’ programmes) that are negotiated multilaterally
to surpass those offered for other energy technologies.
•Safeguards against tied aid and technology dumping should be introduced
by developing instruments to promote joint ventures.
3. Measures to be completed within two years
 •ECAs
should end all support for unsustainable energy technologies.
•ECAs should be reformed so that they support private sector investment
within the context of an explicit sustainable development mandate to
which they can be held accountable.
If ECAs are unable to shift current mandates in response to changes
in global market priorities and government policy, then in effect they
are acting as an anchor against the drive for sustainable development,
for example in the fight against climate change. Such inflexible institutions
clearly should not benefit from the support of the public purse –
ECAs must adapt to survive or face closure.
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