EIB restricts lending for fossil fuel projects, with exceptions

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The European Investment Bank (EIB) has raised the bar on criteria that must be met for funding future fossil-fuel projects in a new energy lending policy, approved by bank shareholders – mostly EU member states – at a board meeting in Luxembourg on 23 July. 

The new Emissions Performance Standard (EPS) of 550 grams of CO2 per KiloWatt Hour (g/kWh) will change the way the bank – now the world’s largest public lender – does business, although its clean energy impact is yet to be determined. 

The figure is less than the 420 g/kWh standard introduced in Canada last August, but campaigners say it is consistent with the EU’s current decarbonisation policy.

“The significance of the EIB’s move to introduce an EPS cannot be underestimated,” Ingrid Holmes, the associate director of the environmental think tank E3G wrote to EurActiv in emailed comments.

“Of course we would have liked a tighter standard,” she added, “but the important thing for now is that the EPS is established. As the politics on 2030 targets firms up, we can expect to see the EPS conditions tightened so that lending to coal is phased out completely.”

Exemptions

Exemptions from the standard will probably be limited to projects that demonstrably alleviate poverty in the developing world – particularly Africa – or provide energy security to Europe’s geographical islands, where no alternative source exists.

A demand from EU states that the language on these exemptions be made more precise to prevent them from disfiguring the policy has delayed the final EIB energy policy text from being issued until later this week.

In the board meeting on 23 July, EurActiv understands that Germany requested a softer line on continued coal financing, but that the UK, Sweden, Austria and the European Commission, which also has a representative on the board, all pushed back strongly.

“A number of board members asked that [the 550g/kWh standard] be kept under review as technologies change - or if European goals require a reduction - and we agreed that it would be looked at again in the second half of 2014,” Richard Willis, an EIB spokesman, told EurActiv.

Internal rows

The 10-month-long review to bring EIB loans into line with EU climate and energy policy was dogged by heavy debate over the role for fossil fuels lending in bank practice.

Within the European Commission too, an internal row ended in a victory for directorates which advocated a significantly tighter 450g/kWh standard, and this may yet become a rallying point for future emissions-cutting initiatives.

“The 450g number would be in line with our long term [2050] decarbonisation target,” a Commission source told EurActiv, referring to EU plans for an 80-95% cut in carbon dioxide emissions by 2050. 

“We have been trying to push things even further and could have wished for more,” the source added. “We see some positive signs, [but] it is a mixed outcome.” 

Last month, the EU’s climate commissioner Connie Hedegaard entered the fray with a call for development banks to divest from fossil fuels.

Willis said that the bank’s new policy was in line with Hedegaard’s sentiments. “We think the announcement today fits very much into what the Commissioner asked for,” Willis said.

Rare circumstances

A recent announcement by the World Bank that coal funding would only be permitted under ‘rare circumstances’ did not give it an environmental edge over European banks, he added.

“The fact that the EIB has been the first institution to put a clear transparent standard in place shows our commitment to investment that reduces emissions across Europe and beyond,” he said, adding that the EIB had “set a lead amongst public banks.”

Since 2007, the EIB has provided more than €70 billion for energy projects in Europe and around the world. Of this, €19 billion went to fossil fuels – mostly gas – projects and €18.5 billion to renewables and energy efficiency projects.

Around €2 billion has been spent on coal power ventures, including a controversial €440 million loan guarantee for a proposed 600MW coal plant in Sostanj, Slovenia, which senior bank sources say they have been haunted by.

Willis refused to comment directly on the issue but did make one potentially telling comment. “We look at projects on a project-by-project basis,” he said. “But by having a clear standard it means that some projects which were previously eligible would not be now.”

EBRD energy policy launch

Attention will now turn to the launch today [25 July] of a draft European Bank of Reconstruction and Development (EBRD) energy policy which will also tighten coal lending criteria. But, campaigners say, not by enough to prevent the EBRD funding fossil fuels projects in areas like the Balkans.

Around half of the EBRD’s annual €6.7 billion of energy lending currently goes to fossil fuels.   

Officials from the EIB and EBRD have been in close contact to ensure convergence between their two new policies, unsurprisingly perhaps, as they enjoy many of the same nation state shareholders. 

“It’s very interesting that our shareholders and the EBRD’s and the World Bank’s are often physically the same people sitting at the same desks,” said another EIB official who asked to remain anonymous. “It is the same team sitting on the same tiny table feeding board meetings.”

“In terms of political guidance from the very top, there’s much more coherence than people would often think,” the official added. “People think that different institutions do things differently but the guidance we receive from the top is clear.”

A shared European commitment to ambitious climate standards was driving bank lending policy, the source said.

“Lets hope the EBRD takes note and tightens up its current set of grisly proposals on energy project lending accordingly,” said Holmes.

Positions: 

Environmental critics of the development banks were quick to respond to the EIB’s new policy.  “The EPS level proposed by the EIB in June (550g/kWh) does not guarantee the elimination of all high carbon lending. We need at least a 350 EPS level in order to say that the policy document is serious about addressing climate change,” said Anna Roggenbuck, EIB coordinator at Bankwatch, an environmental pressure group. “We therefore expect that the EIB review its proposed EPS soon after the discussion on 2030 climate targets is completed within EU.”

“It is important to have clarification on the exemptions, because these can open the gates for any dirty coal project to receive financing as long as its proponents are able to convince that the loan is essential for energy security,” added Bankwatch’s energy campaigner Kuba Gogolewski. “How this issue will be clarified over the next period will say a lot about whether the EIB and EU Member States are indeed committed to the transition to low-carbon economies. While we see promising signs in today’s policy, much more is needed.”

Berber Verpoest, a campaigner at the Counter Balance pressure group, said: “Despite the introduction of stronger emissions standards, the EIB keeps the door open to all fossil fuels including the possible financing of shale gas and also makes it easier to lend to large dams with negative social and environmental effects. More can and should be expected from a self-declared climate champion.”

Timeline: 
  • 25 July 2013: EBRD to unveil draft lending policy
  • After Summer 2014: EIB to review emissions performance standard
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