Both ENDS


Paris Proof Export Support

The Netherlands is slowly becoming aware of the need to stop climate change, and to make the transition to a 'climate-neutral economy'. In December 2015, our country agreed to the Paris Climate Agreement, which states, among other things, that global warming should be limited to a maximum of 2 degrees Celsius. A growing number of companies are making their production methods more sustainable and are switching to renewable energy, to minimise or even stop the negative impact of their activities on the climate. The calls for a short-term transition to a new, green and inclusive economy are becoming louder and louder.

 

Activities abroad

But Dutch companies do not only operate in the Netherlands, on the contrary. Export has always been one of the main pillars of the Dutch economy. Many of our economic activities take place abroad, and the negative effects of these activities are therefore mostly felt there. In continuation of the commitment to a green and inclusive transition, it is therefore vital that we pay attention to making Dutch activities abroad more sustainable as well. 

 

Suape_Harbour

 

Government support

The Dutch government stimulates the export of goods and services in many ways, for example with subsidies, tax arrangements and, for the very substantial and risky activities abroad, with export credit insurances (see box). Both ENDS believes that this public support for foreign trade should contribute to sustainable development for all, and not just to the profit of Dutch companies. This means, first of all, that Dutch activities abroad should always be in line with the climate goals set in Paris in 2015. Dutch activities should furthermore not be harmful to people and their environment in the countries where these activities take place. 

 

Dutch dredging operations

The Dutch dredging sector is an important recipient of export credit insurances. Because of the potential social and environmental impacts of dredging projects, Both ENDS has in recent years worked with local partners to look into two recent ECI-supported projects of a Dutch dredger in the port of Suape in the state of Pernambuco in north-eastern Brazil. An access channel and a space for a new shipyard were dredged here. Both ENDS and partners noted that the expansion of the seaport had significant damaging effects: coral was destroyed, people were evicted from their homes, their living environment was completely destroyed, fish stocks fell sharply and freshwater sources were polluted. In short, the entire region was disrupted. 

On closer inspection, the Dutch dredging projects in the port of Suape also turn out not to be in line with the Paris climate goals. On the contrary, the port's access channel had to be deepened to allow large oil tankers to unload their cargo for a large refinery at the port. The new shipyard is primarily used to build ships that will be used for the construction of oil and gas pipelines off the Brazilian coast. So the dredging operations mostly aid the fossil sector in Brazil. For more information about the expansion of Suape Port and the local impact, click here.

 

'How can export credit insurances be used to support green, sustainable transactions?' 

 

What is export credit insurance?

Dutch companies earn a lot of money exporting goods and services overseas. Doing business can sometimes be difficult, and a company faces all kinds of risks, for example of non-payment. These risks can be substantial especially for capital-intensive exports and investments. For example, because a government decides to cancel a project, or because a local client in a developing country goes bankrupt. A company cannot always find private insurance for these kinds of large financial risks. By way of supplement, the Dutch government offers a so-called export credit insurance (ECI). The company pays a premium and the government pays out in case of damages. Because the government acts as guarantor for the company with this insurance, private parties such as banks are more willing to invest and provide loans.

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Sustainable development for all

Because of the Paris Climate Agreement, from 2020, the Dutch government should only support export activities that are climate neutral and contribute to sustainable development for all. Activities such as those in Suape Port are neither. And this is not the only example. The ECI-supported Dutch export largely consists of dredging operations and the construction of ports and floating oil platforms. All activities that support the fossil fuel sector. Both ENDS research shows that the Dutch government extensively supports this type of export activities. Some of these projects have extremely harmful consequences for local communities and the ecosystem. Should the Dutch government continue to support these types of activities? We don't think so.

 

Green Dutch economy

What now? The government should ask itself what sectors are going to earn it money in an economy centred on renewable energy. And whether export credit insurances are actually needed in such an economy. And if so, how export credit insurances can be used to support green, sustainable transactions. If the Netherlands wants a green and inclusive economy, it needs to focus much more on energy efficiency, energy saving, sustainable mobility, and solar and wind energy. It is time for us to take the transition to a climate-neutral economy seriously in our trade and investment policy as well. 

 

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Who is responsible from the side of the government?

The Ministry of Finance is responsible for the policy on the export credit insurance facility, and grants the insurances on behalf of the Dutch state. It shares responsibility with the Ministry of Foreign Affairs. Atradius Dutch State Business (ADSB) administers the insurances. This is a subsidiary of the Atradius Group, a private company whose shares are held by two Spanish insurance companies, and specialised in trade credit insurances, surety and collections services. ADSB reviews all applications, advises the ministries and administers all insurances. In this way, the government grants billions of euros per year in insurances and guarantees for transactions.  

 

Where does export credit insurance come from?

Export credit insurances were created just after the First World War, when rebuilding their economies was the main priority of many governments. Dutch companies increasingly started to do business abroad and the government wanted to support this. To support its export, the Netherlands started offering export credit insurances in 1932.

 

Which other countries also offer export credit insurances?

Most rich countries have an export credit insurer, and an increasing number of emerging economies are starting one too. How these work exactly differs from one country to another. The government-supported export credit insurers of rich countries, such as the ADSB, meet at the Organisation for Economic Cooperation and Development (OECD) in Paris to set up shared regulations and guidelines. 

 

 

'So far, there has been no political discussion about the extent to which the Dutch state supports the fossil fuel sector through ADSB'

 

The Paris Climate Agreement states, among other things, that global warming should be limited to a maximum of 2 – preferably 1.5 – degrees Celsius. This means that all proven fossil fuel reserves will have to be left in the ground. Between 2012 and 2015, the Dutch government supported the extraction of these fuels with insurances and guarantees worth billions every year. There is no indication that policies have changed since then. 

 

Two thirds to the fossil energy sector 

Both ENDS made an analysis of all ADSB transactions during the 2012-2015 period, which showed that ADSB insured projects related to the fossil fuel sector for a total of € 7.3 billion. That is two thirds of the total value of ADSB insurances during that period. Almost all insurance policies that support energy projects are related to fossil fuels; only 1% goes to renewable energy projects. The huge support for the fossil fuel sector complicates the energy transition required in light of the Paris Agreement.

 

The Ministry of Finance is directly responsible for the policy of ADSB and the parliament has an important role as supervisor. So far, there has been no political discussion about the extent to which ADSB supports the fossil fuel sector and how this can be aligned with the agreed climate goals. At the moment, there are no indications that the Dutch government has any problems using public resources to support the fossil fuel sector.

 

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Photo: FPSO_by PAC on Flickr

 

Do export credit insurances contribute to development?

Since trade in developing countries is financially risky, ADSB often insures precisely these transactions. In line with the government's policy to promote corporate social responsibility (CSR), ADSB has a special CSR policy aimed at preventing adverse effects on the environment and human rights. The main goal of ADSB, however, is to promote Dutch export, not to promote sustainable development in the countries where the transactions take place. Not the development policy, but the needs of Dutch exporters and their business partners are leading. 

 

A significant part of the bilateral debts that make many developing countries vulnerable turn out to result from damages from previously granted export credit insurances. If an exporting company has not been paid, and the export credit insurance has covered for the damage incurred, the government tries to recover that damage from the developing country concerned. Because this usually involves major transactions, these claims often constrain the discretionary spending of developing countries. 

 

Offshore and maritime affairs

The vast majority (92%) of the ASDB support for projects in the fossil fuel sector goes to the offshore and maritime sector. For instance to shipyards that build 'pipe-laying vessels' and floating drilling rigs, the so-called ‘Floating Production, Storage and Offloading ships’ (FPSOs). Or to dredgers for the dredging of port channels specifically made for the transhipment of fossil fuels, or to companies that raise and expand the coast so oil refineries can be built on it. The export credit insurances for Dutch exporters of such projects thus greatly contribute to the expansion of the infrastructure of the global oil and gas sectors. 

 

In these sectors, ADSB insures huge sums per project: in 2015, one insurance was even issued with an insured value of over 1 billion euros. This insurance was issued for the construction of an FPSO, which is used for the extraction of oil in the deep sea off the coast of Brazil.

 

Does it come out of our tax money?

No, in recent years the export credit insurance facility brings in money for the Dutch treasury. At the OECD, it was agreed the export credit insurers have to be cost-effective. This means that the execution costs and damages of the export credit insurer have to be fully funded from income from premiums and interest paid by the clients. According to the latest policy review, the Dutch export credit insurer has been amply cost-effective since 1999: the revenues are 362 million euros higher than the expenditure plus facilities.

 

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'Phasing out export credit insurances that support the fossil fuel sector should of course be done gradually, but we cannot afford to postpone the discussion about it any longer.' 

 

 

Hardly any social and environmental screening

Shipbuilding projects related to fossil fuels are usually categorised as 'M' or 'no', which means that after the compulsory due diligence ADSB does little or no additional research into the social and environmental consequences of a project. This is problematic, because the chance of social and environmental consequences is much larger in the country where a FPSO is deployed, then at the shipyard where it was built. Both ENDS is therefore of the opinion that the due diligence process of ADSB should also include the potential effects of the use of a ship.

 

Public funds

Support through export credit insurances makes it attractive for private companies and banks to invest in a future based on the extraction of fossil fuels. This practice is not consistent with the commitments that governments have made with regards to the Paris Climate Agreement. Both ENDS realises that it is necessary to phase out export credit insurances that support the fossil fuel sector, but that this needs to be done gradually. But we cannot afford to postpone the discussion on how this phasing-out should be conducted any longer. Given the urgent need to fight climate change, Both ENDS uses this report to call on the Dutch government – especially the Ministry of Finance – and Dutch members of parliament to come up with a plan with goals and steps to abolish export credit insurances for the fossil fuel sector.

 

 

What is Both ENDS’ opinion about this and what do we do to achieve that?

Because of the public nature of the 'export credit insurance' instrument, Both ENDS is of the opinion that the government should be transparent and give full disclosure on how this is used. The Dutch government should protect the rights of local communities in the countries where insured projects take place and ensure that those communities have a say in these projects from the start. Furthermore, vulnerable ecosystems have to be protected as much as possible. The government also has the responsibility to ensure that the policy and the insurances of ADSB are in line with the broader development and climate objectives of the Dutch government. Together with local partners, Both ENDS brings concerns and suggestions concerning specific projects to the attention of policy makers, and promotes national and international policy improvements of export credit insurers. 

In line with the motion mentioned above, Both ENDS calls on the Dutch government and the Lower Chamber to ensure that the ADSB export credit insurance is in line with the climate goals of the Paris Agreement:

  1. Starting from 2017, report with clear, understandable and public information on all export credit insurances for commercial transactions that contribute to the fossil fuel sector and on the progress in lowering the volume of these kinds of transactions in the ADSB portfolio. This should be in line with existing initiatives for ‘carbon disclosure and accounting’. The French law for introducing mandatory ‘carbon disclosure’ for listed companies and ‘carbon reporting’ for institutional investors can serve as an example. The Dutch government should ensure that ADSB joins the Platform Carbon Accounting Financials (PCAF). The government should also closely monitor and take into account the work of the Werkgroep Klimaatrisico's (working group on climate risks), under the Platform voor Duurzame Financiering (platform for sustainable funding).
  2. Set an ambitious date – preferably 2020 – on which all export credit support is solely aimed at transactions that contribute to low-carbon and climate-proof developments.
  3. Set an ambitious end date – preferably 2020 – to exclude all export credit support for transactions that promote development and use of fossil fuels.
  4. Start the phasing-out by ending the support for new infrastructure projects concerning the production, transport and processing of fossil fuels.
  5. Promote the drafting of an exclusion list for fossil fuel related projects (coal, oil and gas) that should be adopted by all ECAs at the OECD. 

 

Links:

Both ENDS also wrote about ECAs and their relation to:

 


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