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Sectoral Guidelines for export credit guarantees to better serve climate policy – the Federal Ministry for Economic Affairs and Climate Action aligns foreign investment promotion more closely with climate action
Consultation phase with stakeholders begins
The Federal Ministry for Economic Affairs and Climate Action today presented the first drafts for the „Federal Government’s sectoral guidelines (PDF, 257 KB)“ (Hermes insurance). The draft guidelines have been agreed by the Federal Government; in a next step, they will now enter the consultation phase involving business associations, trade unions and NGOs.
The instrument of export credit guarantees is an important element of German investment promotion. Export credit guarantees protect exporters and banks against the risks of payment defaults due to economic or political risks. The Federal Government’s guarantee instruments enable more favourable financing conditions and provide political backing in the event that a business dealing does not go as smoothly as planned.
The sectoral guidelines contain decision making criteria for granting export credit guarantees. For the first time, these have now also been designed around climate policy. The sectoral guidelines affect three sectors: energy, industry and transport. A transfer of their use to the issuing of investment guarantees is planned and will take place shortly.
The aim of these new guidelines and thus the criteria for decision making is to incentivise innovation and climate-friendly technologies, to support their development, and to facilitate the export of green technologies abroad. At the same time, financing activities that harm the climate will come to end.
Progress in this support for green technologies will strengthen the competitiveness of German industry, as the markets of the future will be carbon-neutral, and small, medium-sized and large German industrial companies need to be able to operate successfully on these markets. Doing more to mitigate climate change ensures greater resilience and economic security. Furthermore, this not only benefits German foreign trade, but the use of our instruments to promote foreign trade and investment also fosters the transition to climate neutrality in the target countries.
The drafts of the sectoral guidelines have been agreed upon by the Interministerial Committee and the Federal Chancellery. The Interministerial Committee for Export Credit Guarantees is a Federal Government body that decides on export credit policy and applications for the provision of export credit guarantee for foreign transactions. In addition to the Federal Ministry for Economic Affairs and Climate Action as the lead ministry, the Federal Ministry of Finance, the Federal Foreign Office and the Federal Ministry for Economic Cooperation and Development are also represented in the committee.
In a next step, the consultation phase on the pro-climate sectoral guidelines will start this week. From this point on, comments will be able to be submitted via an online survey until the end of August. There will also be a webinar to explain the details of the new sectoral guidelines, as well as a roundtable. The consultation is primarily aimed at business associations, trade unions and NGOs, but comments from other stakeholders are also welcome. It is recommended for interested exporters and investors to get involved via their associations. After the end of the consultation phase, the sectoral guidelines are to become binding for the final quarter of 2023.
The sectoral guidelines form part of the climate strategy for foreign trade and investment promotion pursued by the Federal Ministry for Economic Affairs and Climate Action. This implements the goal of the coalition agreement to align climate, energy and economic policy with the 1.5 degree target in the Paris Agreement in the promotion of foreign trade and investment, and to activate the relevant potential at all levels of government, as pledged by the Federal Government at the 2021 United Nations Climate Change Conference in Glasgow.
The draft sectoral guidelines in more detail:
What exactly will the sectoral guidelines on climate policy regulate?
The pro-climate sectoral guidelines were developed using a scientific and evidence-based approach and include the sectors for which decarbonisation plays a key role and are of outstanding importance for export credit guarantees.
In the future, the sectoral guidelines will apply to three sectors:
Energy (climate-friendly energy plus the extraction, processing, transport and storage of fossil fuels and their use in power generation)
Industry (chemicals and metal)
Transport via civil aviation and shipping
Exports of green technologies are to be incentivised and intensified in these sectors through rules to facilitate the provision of export credit guarantees. In the field of renewable energy, for example, investment guarantees in 2022 amounted to €492 million. Now transactions in this domain are to be fostered even more based on the new sectoral guidelines. In addition, binding phase-out targets are to be set for the funding of exports through export credit guarantees in greenhouse gas-intensive projects.
The sectoral guidelines set out three categories. The first is a green category for (green) technologies that are particularly deserving of funding. These will receive simplified and more attractive conditions of cover. The second is a white category, in which conditions for attributable products will remain unchanged (for instance, the export of machinery and plants that do not make a significant contribution to the Paris climate goals). This third is a red category of products, for which export credit guarantees can no longer be provided.
For transactions in the green category, plans include increasing the rate of cover for financial loans for economic and political risks from 95% to 98%, which will make securing finance easier. Foreign export credit agencies already issue financing cover for over 95% of green products manufactured in their countries. We are closing the gap here. Our intention is to now provide guarantees for exported products whose foreign value added is up to 70%. The requirement, however, is that core competencies and key enabling technologies continue to come from Germany.
What is planned for the energy sector?
The sectoral guidelines set clear rules for phasing out the funding of fossil fuels in the energy sector. This is an important signal for aligning our funding of foreign trade with our climate targets. There are narrowly defined exceptions under which an export credit guarantee can still be issued. These exceptions primarily concern the gas sector. Cover for gas production projects can only be provided if this is necessary to safeguard national security (e.g. to avert a serious impairment to security of supply) or a geostrategic interest linked to security of supply (e.g. to avert a food crisis). It is also important that in realising this project, the 1.5 degree target is also met and lock-in effects are avoided.
This part of the Federal Ministry for Economic Affairs and Climate Action’s climate strategy implements international commitments such as the Glasgow Statement, and is consistent with our multilateral pledges, such as those made at the G7 summits in Elmau and Hiroshima.
What is planned for the industrial and transport sectors?
Iron, steel and aluminium production will be aligned as far as possible with the EU’s Taxonomy Regulation in the industrial sector – in terms of both positive and negative incentives. For example, in iron and steel production, no more guarantees will be provided for coking plants or other coal processing plants for the metal industry. In the production of chemicals, the requirements of the EU’s taxonomy regulation will be applied. This means, for example, that transactions for plants with particularly low life-cycle emissions will receive more favourable conditions of cover.
In the transport sector, international emissions rules will be implemented in civil shipping; in this sector as well as in civil aviation, the transition to climate-friendly forms of propulsion will be supported in particular.