France’s plans to end export credits at risk of cancellation

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Publish date: July 20, 2015

Earlier this year the French government announced plans to withdraw credits for the construction of coal power plants in developing countries (‘export credits’). The French President noted that guarantees would only be granted to plants equipped with Carbon Capture and Storage (CCS) technology. Bellona is, however, disappointed to find that France may be abandoning these promises due to feared economic losses for the energy sector. The French government should focus on creating an enabling market for key mitigation technologies, such as CCS. CCS deployment would not only help meet climate objectives and enable a higher climate ambition, but would also offer an important opportunity for job creation and transfer.

Unabated coal use is devastating for the climate; a serious commitment to ensure CCS will be deployed  before French funds are being made available for coal generation abroad would send a clear signal that business as usual can no longer be rewarded. In order to avoid dangerous lock-in of CO2-intensive fossil plants, the French government needs to put in place measures to ensure funds for fossil generation abroad and at home are attached to concrete plans for CCS deployment” ­– argues Jonas Helseth, Director at Bellona Europa.

The beginning of 2015 was marked by a call from the European Commission for a Europe-wide CCS target; increasing recognition by governments and major fossil fuel-based companies of the reality of the carbon bubble and the risk of stranded assets. This buildup of momentum for ending unabated coal financing was followed by an announcement by the French government of plans to put an end to export credits for coal. In a public statement, the French President Francois Hollande noted that guarantees would only be granted to coal power construction in developing countries equipped with CCS.

Even though coal makes up only a small proportion of the French energy mix, the country provides public guarantees for new coal energy in third countries from the French export credit agency, Coface. Coface has guaranteed over €1.2 billion of coal projects since 2011, and was the fifth largest provider of coal energy exports from the OECD between 2007 and 2013. The French government had promised to halt issuing public guarantees to Coface for the purpose of export credits for unabated coal. If Coface, along with complementary measures from the French government, could be used actively as a tool to accelerate uptake of CCS across the world, this would be a major benefit in the fight against climate change.

Distinguishing between export credits and subsidies

It is important to differentiate between export credits and subsidies, the latter of which are incentivising the use of a particular fuel source, essentially a market distortion giving preferential treatment to emission-intensive production or consumption. The ongoing global debate about phasing out fossil fuel subsidies, highlighted by, among others, the IEA as instrumental in driving wasteful, climate-detrimental consumption, should not be directly associated with the discussion on export credits. Export credits serve to provide financial insurance, in the form of guarantees or loans, in order to minimise the risk and uncertainties to companies exporting a particular product or technology outside of their country. Those credits are not subsidies as such, but provide financial guarantees where there is a market demand. This demand would likely be met by other financial credit agencies if the French were to pull out, which could entail lowering of standards for other pollutants as well as labour conditions etc. Nevertheless, the adoption of an export credit policy by France, tailored to limit guarantees only to CCS-equipped coal construction, and introduce alongside complementary measures to ensure CCS deployment would be feasible, would provide a clear signal ahead of COP 21 that business-as-usual (i.e. unabated coal) will no longer be supported.

Compatibility of CCS and industrial growth

France’s export credit reform proposal is at risk of being cancelled due to raised concerns of job losses in the energy sector. These fears have been expressed in particular with regards to Alstom, the only French company benefiting from Conface guarantees today.

Bellona is very disappointed with this, not least because Alstom has also invested huge amounts of money in developing CCS technologies. The French government should focus more on creating a market for this crucial mitigation technology, rather than on securing jobs related to unabated coal investments, which undermine current and future climate ambition. Without a rapid deployment of CCS, from which Alstom could greatly benefit, there will be no future for French jobs in traditional turbine manufacturing for fossil fuels, as they will be obsolete in a carbon-constrained world.

Yet it should be underlined that leaving the African energy market to other investors like e.g. China will do little to prevent emission increases and might even lead to less stringent standards on other pollutants from coal. Nonetheless, countries like France with an outspoken climate ambition should do more to ensure that CCS is made available for deployment in developing countries that are likely to continue depending on coal generation for the foreseeable future. Without such commitments, France’s own emission reductions will matter but little when it keeps financing damaging projects abroad.

In fact, the French government would do well to more strongly support CCS deployment also in industries beyond the power sector, as this technology is the only one that will allow heavy industries like steel, cement, refineries and chemicals to continue to operate in a low-carbon economy. If France is serious about climate action, it should focus on employment in sectors compatible with that ambition, and Alstom’s CCS business is one such sector. CCS will be crucial in helping France and Europe combine growth and jobs with climate ambition.

What is more, an optimal export credits policy should feature targeted support to solar power production, as a means of protecting French jobs while ensuring stable access to energy for the developing world’s population. A study of the US Energy Information Administration looking at the capital costs of different energy technologies shows that investing in solar photovoltaic (150MW) could be a comparable or even more economical investment option as compared to some coal options.

Continuation of export credits threatens France’s reputation as the host of upcoming COP 21

The future of France’s export credit policy is to be decided on within the next month. If France fails to follow on its promises of a stronger link between export credits with climate action, this would have negative knock-on effects on the international negotiations ongoing at the moment within the OECD on the same topic. Blaming the market for not being able to deliver CCS competitively and therefore continuing to finance unabated coal is not good enough: renewable energy and other climate technologies would also not be delivered by the market without ambitious policies to drive early uptake, but through such policies, costs are driven down and they are becoming competitive in the market without support.

Given the inability of OECD Member States to agree on an ambitious position on export credits, a failure to stick to its earlier plans by France, would exclude the prospects of a more ambitious position within OECD. This is turn, would send a negative signal towards the climate negotiations in Paris at the end of this year. Last but not least, it would be in the best interest of France to set a positive example in climate action as the host country of COP 21 Climate Summit.