Just before the two-year anniversary of France’s first Green OAT issue, Agence France Trésor (AFT) is releasing today the first impact report on environmental expenditure. The report focuses on one of the main environmental measures matched to Green OAT issuance: the energy transition tax credit (CITE).
This report confirms the CITE’s positive environmental impact. More specifically:
- The CITE resulted in energy performance renovations for an additional 75,000 homes p.a. in 2015 and 2016, equivalent to a 16% increase in annual investments in energy performance renovations.
- The renovations made possible by the CITE over those two years are expected to reduce the CO2 emissions of the residential sector by 2.9 million tonnes over the period 2015-2050, i.e. 7% of the sector’s annual emissions.
The CITE is a tax credit that households can claim in the year after carrying out energy performance renovations in their homes. Funding for the CITE accounted for €3.2bn, i.e. one-third of eligible green expenditure for 2016 and 2017, matched with green bond issuance in 2017. In 2017, tax expenditure for the CITE came to €1.67bn.
This report has been published to meet the French government’s transparency commitments announced to coincide with the Green OAT’s launch on 24 January 2017. It was prepared under the supervision of the Green Bond Evaluation Council, made up of international experts in green finance and environmental policy evaluation.
“With this first report, the Republic of France lives up to its strong commitment to transparency and independent impact evaluation of its sovereign green bond, which must become the standards in the green bond market.”, according to Manuel Pulgar Vidal, the chairman of the Green Bond Evaluation Council, former Environment Minister for Peru and former chairman of COP20, who also leads WWF’s global Climate & Energy Practice.
The Evaluation Council established a methodological framework for the report and appointed Philippe Quirion (CNRS) and Louis-Gaëtan Giraudet (CIRED) as independent advisers to guarantee transparency and ensure that the report would comply with academic standards.
“France was a pioneer with the launch of its Green OAT. Now, it is fulfilling its commitment to investors by publishing this first impact report, supervised by an independent Evaluation Council, and following the publication in June of the first report on the use of proceeds and the performance of eligible green expenditure”, stated Anthony Requin, Chief Executive of Agence France Trésor.
About the Green OAT
On 24 January 2017, Agence France Trésor launched the largest and longest-dated sovereign green benchmark bond: the Green OAT 1.75% 25 June 2039, whose outstanding amount currently stands at €14.8bn. Green OAT issuance is matched to eligible green expenditure that contributes to France’s environmental and climate policies.
When the Green OAT was first issued, the French government committed to publishing reports on the environmental impact of green expenditure. This level of reporting is entirely new for the green bond market and helps establish rigorous standards on this market. The Green Bond Evaluation Council supervises this reporting initiative.
On 24 January 2017, Agence France Trésor launched the first sovereign green bond with a maturity of 22 years. The Green OAT 1.75% 25 June 2039 issuance amount was €7bn, making it the largest and longest-dated green benchmark bond ever issued. By becoming the first country in the world to issue a sovereign green benchmark bond, France confirmed its role as a driving force for the implementation of the goals of the December 2015 Paris Climate Agreement.
As is its practice for other OATs, France has tapped the green bond on four occasions in 2017 and 2018: with auctions in June and December 2017 and in April 2018, and via a €4bn syndicated tap issue in June 2018. It will continue to tap the bond – whose outstanding amount currently stands at €14.8bn – in response to market demand and up to the amount of eligible green expenditure, which comes to €8bn in 2018.
Eligible green expenditure must meet one of the Green OAT’s four objectives: combating (or mitigating) climate change, adapting to climate change, protecting biodiversity, and reducing pollution. To meet these four objectives, the programmes eligible for Green OAT funding fit into six major sectors: buildings, energy, transport, living resources, pollution and adaptation.
CITE funding accounts for the majority of Green OAT expenditure in the building sector in 2016 and 2017. More than 1.2 million French households received the CITE in 2017, thus contributing to nationwide efforts to improve the energy performance of buildings.
When the Green OAT was first issued, the French government committed to publishing reports at appropriate intervals on the ex-post environmental impact of green expenditure. This level of reporting is entirely new for the green bond market and helps establish rigorous standards on this market. The Green Bond Evaluation Council supervises this reporting initiative.
Chaired by Manuel Pulgar Vidal, the Green Bond Evaluation Council is made up of six independent experts:
- Mats Andersson, vice chairman of Global Challenges Foundation and former CEO of AP4, Sweden’s fourth national pension fund
- Nathalie Girouard, head of the Environmental Performance and Information (EPI) division, OECD
- Ma Jun, director of the Center for Finance and Development and special adviser to the Governor of the People’s Bank of China
- Karin Kemper, senior director, Environment and Natural Resources Global Practice, World Bank
- Thomas Sterner, professor of environmental economics, University of Gothenburg
- Eric Usher, head of the UNEP Finance Initiative
In addition, the Council has two outside observers:
- Sean Kidney, co-founder and CEO, Climate Bonds Initiative
- M. Nicholas Pfaff, senior director, Market Practice and Regulatory Policy, ICMA (International Capital Market Association)
The Green Bond Evaluation Council establishes a schedule and specifications for the environmental impact reports on eligible green expenditure matched to France’s Green OAT issuance. It also issues an opinion on the quality of impact reports and the relevance of their findings. The General Commission for Sustainable Development (CGDD) and DG Trésor jointly act as the Evaluation Council’s secretariat.
Agence France Trésor (AFT)
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