New German climate policy will continue multi-billion overseas fossil fuel finance and break major international climate promise

New German climate policy will continue multi-billion overseas fossil fuel finance and break major international climate promise

The German Government is set to break a major international climate commitment, releasing a draft policy today for Euler Hermes, the German export credit agency, which allows the agency’s huge international fossil fuel financing to continue.

From 2018 to 2021, Euler Hermes financed USD 6.6 billion in fossil fuels, compared to USD 2.9 billion for clean energy, making it one of the largest public financiers of fossil fuels in the world. Euler Hermes financed more fossil fuels than the prominent United States Export-Import Bank in the same period. Last year, a Bundestag question revealed that Euler Hermes was considering 10 large international fossil fuel projects worth EUR 1 billion despite the Glasgow pledge, including projects in Brazil, Iraq, Uzbekistan, the Dominican Republic, and Cuba.

The German policy – out for consultation for four weeks starting 26th July – allows continued public finance for oil and gas fields, gas pipelines, and infrastructure, falling far short of Germany’s promise in 2021 to end all public finance for fossil fuels by the end of 2022. The policy has different sectoral end-dates stretching until the 2030s for different sectors (such as support for oil and gas extraction ending in 2029). The policy stipulates that any new oil and gas extraction financed must be aligned with the 1.5°C goal of the Paris Agreement, despite strong scientific consensus that the extraction of any new fossil fuels is ‘not compatible’ with limiting global warming to 1.5C under any credible scenario. 

At the United Nations COP26 climate summit in November 2021, 39 countries and financial institutions – including Germany – signed the Glasgow Statement, committing signatories to end international public finance for fossil fuels by the end of 2022, excluding in exceptional circumstances.

While a growing group of countries have met the same international commitment Germany signed, including the UK, Canada, France, Denmark, Sweden, Finland, and New Zealand, Germany is joining a small group of laggards who have not followed through on their promise. 

The new German policy is the most explicit indication of Germany’s departure from climate pledges. Last year, Germany played a leading role in weakening a G7 commitment near-identical to the Glasgow Statement pledge to end international public finance for fossil fuels under the guise of energy security concerns. Germany also called on EU states to work with countries that can develop new gas fields, and Olaf Scholz’s Chief of Staff publicly suggested Germany should finance new gas fields in Senegal. 

Campaigners claim that this move will also damage Germany’s energy security and will prolong an energy crisis caused by fossil fuels. A report by Oil Change International and the International Institute for Sustainable Development found that the energy crisis could be mitigated by a shift away from public finance for fossil fuels. The International Energy Agency’s authoritative World Energy Outlook, shows coal, oil, and gas demand plateauing this decade, and confirms that no new oil and gas investment can be permitted if the world is to keep to the 1.5°C goal of the Paris Agreement. The IEA also states, “No one should imagine that Russia’s invasion can justify a wave of new oil and gas infrastructure in a world that wants to reach net zero emissions by 2050.” This means that any further public finance for fossil fuels will only exacerbate the energy crisis, not solve it.

The policy also risks undermining the EU’s position at the OECD, where negotiations are expected to kick off in the autumn on restricting export finance for oil and gas.

Reacting to the new policy, Adam McGibbon, Public Finance Strategist at Oil Change International, said:

“Germany’s claims to be a climate leader are laughable after the release of this new policy. Olaf Scholz has broken the most significant climate promise Germany made at the 2021 Glasgow climate conference.

“This policy is anti-science – it runs against everything that the world’s scientists are telling us. No new fossil fuel infrastructure can be built if the world is to meet climate targets, and yet this policy keeps German public finance flowing to new fossil fuel infrastructure. If he can’t be trusted to keep this relatively modest promise, how can anyone trust Germany to live up to its even grander climate promises?”

Regine Richter, energy and finance campaigner at urgewald, said:

“It is terrible timing to release this weak policy in the midst of climate disasters across the globe. It sends the message to international negotiators and civil society that energy security and German companies’ business interests override climate protection and undermines whatever climate credibility is left for German negotiators.

A major loophole in the guidelines are the unmentioned untied loan guarantees, through which most fossil energies were hedged last year by the German government.”

Sascha Müller-Kraenner, Chief Executive Officer at Deutsche Umwelthilfe, said:

“We experience a new rush for gas and Germany should refrain from being part of it. The fossil gas industry pushes for new drilling, LNG infrastructure and industrial size carbon sequestration to guarantee a continued role of gas in our energy mix. Public funders like Germany should not invest in the fossil path but focus their resources in the renewable energy revolution. A reasonable interpretation of the Glasgow Statement should reflect that philosophy and prevent any future investment in new oil and gas fields and installations. Renewable energies are the better path to energy security, climate neutrality and stable jobs, both in developed and developing economies.”

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