Green Guarantees: A Free Climate Measure if Used Correctly

Summary:

Norway's new state guarantee scheme for renewable energy can become a significant contributor to the green transition in the world. Unfortunately, poor policy choices and design stand in the way of the guarantee scheme realising its full potential.

As it is designed today, the new guarantee scheme risks having a negative effect on Norway's contribution to the green transition in the short term, and unclear effect in the longer term. This is due to the large use of resources in connection with the establishment, strong restrictions in use, narrow alignment and the fact that the scheme completely unnecessarily affects the ordinary aid budget very hard.

With changes in the scheme, Norway can take international leadership at a critical time for the world, in which Norway should and could have taken a greater role. This could mobilize increased efforts from more people and strengthened our reputation. Such a guarantee scheme would also be in our self-interest.

To harness the full potential of the scheme, Norwegian politicians should make the following eight changes to the scheme as soon as possible:

1. Eliminate the extraordinary loss deposit and send the funds back to the aid budget. The scheme will fund itself and there are no good reasons to spend aid funds on a liquidity buffer at Norges Bank.
2. Any loss provision should be kept “below the line” and is not reported as aid, as it is not expected to be lost over time.
3. The maximum guarantee framework should be set much higher than NOK 5 billion, and is increased significantly every year. A more ambitious starting point is NOK 20 billion.
4. The mandate of the scheme should be extended to not only include renewables. Both sustainable agriculture, food systems and climate and environment should be included. This will provide greater climate impact and flexibility.
5. Remove some of the many risk-reducing measures which, combined with high loss provisioning, provides (capital) inefficient assistance.
6. Any losses beyond the guarantee premiums paid should not be covered under the aid budget. It is contrary to the OECD DAC's guidelines and unnecessary as the scheme should over a long period of time go to zero.
7. It should be allowed that the guarantee scheme covers a higher proportion of risk per guarantee, for example 70%. In comparison, Eksfin accepts both 90% and 100% of its guarantee schemes for promoting Norwegian business.
8. The guarantee framework from the Storting should be converted from NOK to USD, in the interest that the investments for which it is to be guaranteed are mostly made in foreign currency.

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