DSTA published Green Bond Report, new 20-year Green DSL later this year
The DSTA published its Green Bond Report, whereby it shows that proceeds from its green bond tap in 2022 were directed to expenditures that are fully aligned with the EU Taxonomy. Looking forward, the DSTA will issue this year a new 20-year green bond (EUR 5 bn),in which taps of this bond expected in the coming years.
The expenditures allocated to the DSL green bond are EU Taxonomy aligned
These expenditures are mainly allocated to the railways and Delta Fund
This year the DSTA will issue a new 20-year green bond (EUR 5 bn). Taps of this bond expected in the coming years
On Thursday 25th of May, the Dutch State Treasury Agency published its Green Bond Report (see ), in which the allocation of the proceeds of the bond and its impact is explained. In 2022, the DSTA updated its Green Bond Framework (GBF) in order to align it with the EU Taxonomy and tapped its only green bond, the DSL 2040, according to this new Framework. On 14 June 2022, the DSTA raised almost EUR 5 bn, bringing the outstanding amount of the DSL 2040 to EUR 15.7 bn. Looking forward, the DSTA has announced that it will issue a new 20-year green bond in 2023, but we do not expect that the volume of green issuance will increase significantly next year.
New green bond framework, alignment with EU Taxonomy
The proceeds of the tap of the green bond are used to (re)finance expenditures that are part of the Central General Budget and contribute to the climate change mitigation and climate change adaptation. According to the GBF, up to 50% of the proceeds may be allocated to eligible green expenditures in the financial year preceding the issuance of the green bond and at least 50% will be allocated to expenditures in the year of issuance. As EUR 2.5 bn of eligible expenditures of 2021 remained unallocated, this amount was allocated to the proceeds of the EUR 5bn of the DSL 2040 tap in 2022.
Three categories of eligible green expenditures were used by the DSTA for the proceeds of the tap, renewable energy, clean transportation and climate change adaptation and sustainable water management. All expenditures in the first two categories are fully EU Taxonomy aligned, whereas in the latter category only a fraction is aligned. The expenditures in the renewable energy category, subsidies for offshore and onshore wind energy and solar energy, totalled around EUR 551 mn. In the clean transportation category (in total EUR 2.7 bn) the vast majority of the expenditures was allocated to the railways, while in the climate change adaptation and sustainable water management category, the expenditures were attributed to investments in the Delta Fund, which covers flood risk management, freshwater supply and water quality measures.
Impact of the Dutch State Green Bond itself on avoided CO2 is limited
The current Dutch coalition has an objective to reduce greenhouse gas (GHG) emissions by 55% by 2030 in comparison to 1990. In 2022, due to the energy savings triggered by high gas prices, GHG emissions were 9% lower than in 2021 and 31.7% lower compared to 1990. The production of renewable energy in 2022 amounted to 40% of total electricity consumption in the Netherlands. The production of renewable energy generated by solar panels increased by 54% compared to 2021 as a result of increased installed capacity. Wind energy, still the largest share in the production of total renewable energy, increased by 17% last year while the use of biomass for electricity production dropped by 12% in 2022.
The report also included an overview of the impact of the green bond issued in relation to eligible expenditures in 2021 and 2022. The emphasis is on the projections of avoided carbon emissions for each expenditure category, which always relates to the joint impact of all the expenditures and investments of all actors for the underlying projects. Only for the expenditures related to clean transportation the avoided CO2 is calculated on the part financed by the green bond. In 2021 and 2022 this was 0.2 Mton. Within the clean energy category, more than 19.000 projects received subsidies, which resulted in 4.71 Mton of avoided CO2 emissions. No CO2 emissions were avoided in the climate change adaptation and sustainable water management category, but the impact was measured by using metrics like the mortality risk and percentage of dykes to be improved and the availability of storm surge barriers.
Following the revision of the GBF in 2022, social and adverse indicators have been included in the impact report where possible. Examples of social indicators are the access to rail mobility measured by the proximity of a railway station (71% of the Dutch population lives within a 5 km range of a railway station) and the number of people protected by flood defence works (10.9 mln. inhabitants live are under flood risk, the Delta programme ensures life protection of 1:100.000 years becoming a flooding casualty). Adverse indicators are the use of space by Offshore wind parks (the area covered by offshore wind parks in the North Sea is expected to increase to 1.65% in 2023 and to 4.5% in 2030) and the noise pollution of railways.
New 20-year green bond this year, and taps only next year but probably not in the DSL 2040
In 2019, the DSTA issued its first and at the moment only green bond, the DSL 0.5% January 2040. At that time, it was the first AAA-rated country to issue a green bond. Since then, the DSTA has tapped this bond four times, the last reopening via a Dutch Direct Auction (DDA) in 2022 and the outstanding amount is EUR 15.7 bn.
In the second half of this year, the DSTA will issue a new green bond with a 20-year maturity with an initial issuance size of EUR 5bn. According to the principles the DSTA applies for its issuance policy to ensure liquidity for its outstanding debt, when the DSTA issues a new bond with a maturity longer than ten years, they will tap this bond to an outstanding amount of around 10 bn in the following years. This means that the DSTA will most probably want to tap the new 20-year green bond in 2024 and 2025.
The total of expenses eligible for green bond allocation in 2021 and 2022 has been stable EUR 3.8 bn in these years. Since the launch of the DSL 2040 green bond, the largest expenditures have been related to railway (management, maintenance and replacement) and the Delta Fund, accounting for more than 75% of the total expenses since 2018. These expenditures require long term planning and are labour-intensive and given the still tight labour market conditions in The Netherlands, the Dutch government might be constrained to increase expenditures in these categories. However, other expenditures that are eligible under the GBF and are EU Taxonomy aligned can be used to increase the government’s expenditures given the ambitions of the Dutch government to reduce CO2 emissions to at least 55% compared to 1990.
We believe that in 2024, the new 20-year green DSL will be tapped at least once to increase the outstanding amount to a higher level in order to enhance liquidity. Furthermore, the DSTA might decide to tap the DSL 2040 green bond as it complies with the GBF, but we think the probability of a tap of this bond next year is relatively low. Firstly, we expect that there will be around EUR 4 bn of eligible expenditures available to allocate to the green bonds (based on the expenditures data of 2021 and 2023), which will mainly be allocated to the new green bond. Besides that, the outstanding amount of the DSL 2040 is already at EUR 15.7 bn, which is well above DSTA’s target level for longer dated bonds.
