Coal finance

German government: KfW and Hermes continue to finance dirty coal abroad

KfW continues to finance the climate killer coal. Photo Ⓒ Bastian Neuwirth

Coal is the number-one climate killer, a fact that has prompted numerous countries – including the United Kingdom and the United States – to largely withdraw from financing coal projects abroad with public funds. In Germany, environmental and development organizations are working hard to make the German government acknowledge the irreconcilable nature of climate change mitigation and coal as a source of energy, and to finally put an end to the financing of coal projects by the state-owned Kreditanstalt für Wiederaufbau (KfW) and the provision of guarantees by EulerHermes, a credit insurer also owned by the German government.

The Ministries of the Environment, Development Cooperation and Economic affairs argued about the issue for months. Shortly before Christmas, the time had finally come. The federal government reached a decision on its funding policy for coal projects, as can be read in its report on international coal finance to the Economic Committee of the Bundestag. What did it contain?

Development funding: no new coal-fired power plants

The good news: KfW financing will no longer be available for the construction of new coal-fired power plants or the upgrading of decommissioned coal plants. The modernization of existing plants will be subject to stricter terms than before. Aid for coal projects abroad has thus essentially been struck from the budgets of Environment Minister Barbara Hendricks and Development Minister Gerd Müller. Minister Hendricks had already announced this move at the Climate Summit in New York last year.

Export finance: coal power for the world

The bad news: generous support remains in place in the form of export finance through IPEX, the private-sector arm of KfW, whose mission is to promote the exports of German and European companies abroad. This support already constitutes the bulk of the €3.3 billion that KfW put toward financing coal projects between 2006 and 2013. Restrictions are negligible: funding for the climate killers will be available only for countries that have a national policy on climate change or a national climate change strategy in place. However, this toothless provision does not specify which policies qualify, nor does it require them to pursue necessary, ambitious goals. Nothing mandates the compatibility of such strategies with the stated goal of limiting global warming to less than 2°C.

Furthermore, the eligibility criteria require the on-site review of the plant’s prerequisites for carbon capture and storage (CCS) – noncompliance or the lack of provisions for a future upgrade, however, are not an obstacle, making this criterion essentially worthless.

The revised regulation on minimum efficiency of new power plants is also lax: A minimum efficiency of 44 percent – a value proposed by the industry itself – is required of coal plants. The previous minimum was 43 percent.

Hermes guarantees also enable climate killers

With regard to guarantees by the state-owned EulerHermes GmbH, with which domestic industry can insure itself against defaults abroad, the same criteria as for KfW export finance shall apply in future – but only under the condition that they are then valid for all OECD countries. The German government is hoping to achieve this with a resolution of the OECD partner countries later this year. With its weak list of criteria, however, Germany is unlikely to contribute much toward an ambitious move by the OECD in this matter. By contrast, the United States has proposed an emissions cap of 500g of CO2 per kWh for new power plants. This would mean the end of funding for new coal plants without CCS technology and thus provide solid incentives for investing in clean energy.

The report to the Economic Committee of the Bundestag proudly states: “Overall, the German government is thus playing a pioneering role internationally.” Hardly. While the new measure does represent a tiny step forward, the German government still lags well behind the trailblazers.

Further reading:
Report of the German Government to the Economic Committee (in German only)
KfW coal free campaign (in German only)

Bastian Neuwirth / Oxfam


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