The pending announcement from the government to phase out fossil fuel in export finance is welcome, but not enough to help Denmark meet its climate goals. A study from Just Finance shows, with zero new fossil fuel projects in the Danish export credit agency EKF’s 2019, 2020 and 2021 portfolio, it will have a minor impact on EKF’s or indeed Denmark’s carbon budget. Rather, all international public finance should be Paris aligned, which goal is also to encourage a climate resilient transition by avoiding financing of environmentally damaging projects and energy sources. Read our op-ed (in Danish)

A year ago, Denmark announced in its global climate strategy to prioritise phasing out global subsidies on fossil fuels and to strengthen the focus on the environment. At the same time, the Danish state-owned export credit agency EKF said it would no longer support coal. The Danish government, through EKF, supports domestic companies in finding overseas markets for their products in sectors and countries where there is a higher risk of buyer default – and where commercial lenders are therefore reluctant to lend. Now trade in all fossil fuels, including oil and gas, will be exempt from export credit support so that Denmark can meet its climate targets. But for “global financing flows to shift from fossil investments to green solutions and adaptation”, as the Global Climate Strategy 2020 states (the new strategy will be published 29 September 2021), and to reach the Paris Agreement climate targets, this phase-out is not enough.

The phase-out is a welcome statement, but on its own will not have a major impact on EKF’s – or Denmark’s – greenhouse gas budget. Indeed, no new fossil fuel projects have been added to the Danish export credit agency EKF’s portfolio for 2019, 2020 and 2021. And as our analysis of emissions from Danish export credits from 2021 shows, EKF has other carbon intensive and environmentally damaging projects in its portfolio.

After the most recent IPCC report, pressure is mounting on countries to up their climate efforts, in particular, in terms of limiting funding for fossil fuels. Denmark has phased out international development (IFU) support to fossil fuel-related power generation (exemption transition gas until 2023) and, after having phased out coal, is currently undertaking an analysis of the implications of an oil and gas phase out from export credits for example for jobs. The UK phased out fossil fuel in international public finance (with exemptions) earlier this year and Sweden has phased out support for export credits in coal and limited support to oil and gas extraction and exploration only. Both the UK and Sweden (see our report p.24) were strong supporters of fossil fuel projects before committing to restrictions.

By comparison, Denmark’s export credit agency EKF last supported new fossil fuel (oil) projects in 2018 with just over DKK 1.5 billion (EKF 2018 business list), out of a total budget for new projects of DKK 33 billion in 2018 (EKF annual report). In 2019, 2020 and 2021, EKF has not supported fossil fuels.

Although a formal phase-out is welcome and necessary, Denmark’s phase-out has a minor impact on Denmark’s greenhouse gas budget. It therefore also does not imply significant political persuasion for other nations, which have a larger share of fossil fuel in export credits, to take the same decision.

For Denmark to take the lead and significantly reduce its carbon footprint, we must take clear steps forward and reduce all public funding of polluting projects across sectors. Although Danish export credit support is dominated by wind projects, our research shows that in addition to the three fossil fuel-related projects from 2017 and 2018, EKF is allowing support for projects in other sectors that lead to greenhouse gas emissions that risk not being aligned with the Paris Agreement. The financial support for a project may be small in comparison, but it enables the project to be implemented, expanded, and can have a significant impact on the local environment and emissions.

In 2019 and 2020, for example, the state-owned EKF supported Danish trade with the Brazilian blacklisted mining company Vale SA (reported by ExtraBladet). Mining involves significant carbon emissions during extraction and delivery to market. Serious environmental and humanitarian concerns about Vale SA’s operations were previously raised by the UN. Tailings dams used in mining to store the large quantities of iron ore, dredge spoil and toxic waste pose a significant risk to the environment and climate change. A screening of all export credit projects in terms of their emissions, impact on climate resilience, as well as observed transparency and reporting standards would exclude such environmentally damaging and risky projects from receiving Danish public export support.

Denmark’s global climate strategy should, in addition to a phase-out of fossil fuels, include requirements for assessments of project emissions and environmental impacts in all international public finances. This includes, in addition to support from the Danish export credit agency EKF, financing through multilateral development banks, development investments in the IFU and investments in the state-owned pension fund ATP.

This will include, but not be limited to, trade related to cement, large hydro and dams, mining, aluminium, chemicals and pharmaceuticals, deforestation, conventional farming methods, machinery and transport equipment. In order to monitor compliance with Danish climate commitments, a phase-out should be accompanied by increased requirements for transparency in decision-making and monitoring of international public finances (see our demands to EKF in our report p. 9f).

EKF: The purpose of the state-owned Danish export credit agency is to support domestic economies and employment by helping companies find overseas markets for their products. EKF phased out coal in September 2020.

IFU: IFU, the Danish state-owned Development Finance Institution (DFI), provides equity, loans and
guarantees on commercial terms to private sector investments in developing countries. IFU ended new investments in fossil fuel based power production to the grid in 2020, with the exemption of natural gas in a transition period.

ATP: Mindst 30 milliarder kroner af de omkring 4000 billion kroner pensionsfonden ATP administrerer, er investeret direkte i fossile selskaber, og dertil er der investeringer i finanssektoren med store fossile aftryk og CO2-tunge industrier (source: Mellemfolkelige Samvirke).