This article is part of our special report Cities and regions against climate change.
SPECIAL REPORT / Finance for developing nations will be central to successful negotiations at the UN Climate Change Conference, said Jonathan Taylor of the European Investment Bank.
Jonathan Taylor is European Investment Bank (EIB) vice-president responsible for environment and climate action. The EIB is Europe’s long-term lending institution and the world’s largest international public bank with a balance sheet of EUR €542 billion. It is directly owned by the EU’s 28 member states with Germany, UK, France and Italy each holding a 16% share.
Taylor spoke to EURACTIV’s Deputy News Editor, James Crisp.
What is the European Investment Bank (EIB) doing on climate finance?
The EIB is world’s largest lender for climate-related investment. We have for many years recognised the importance of supporting new investment across a whole range of sectors. That can help reduce emissions, and improve the resilience of infrastructure.
We have a new focus where we ensure that we don’t miss opportunities to make investments better from a climate perspective. Some of these are not at first glance climate-relevant. You wouldn’t think that supporting the construction of more than 30 new schools in Croydon in London could be climate relevant.
We visited one of those schools and found that by putting solar panels on the roof it will cut energy bills by a third. All in all, the EIB’s involvement in the scheme saved hundreds of thousands of pounds for local taxpayers.
Do you give a preference to European ventures and projects?
No we don’t. We look at projects on their relative merit and we ensure they follow procurement standards. If it was a US, American or Chinese company bidding; we would look on it at face value.
So, it’s purely a decision based on the return on the investment?
No, we look at a range of criteria. We look at whether it is technically feasible, if it works, that it is economically viable and can pay us back as a bank, and also fulfils European and international standards.
The UN Climate Change Conference (COP21) begins in a few days. What is the EIB doing for climate finance? It will play a vital role in the negotiations, especially for developing countries.
At the talks in Lima before the COP21, the EIB President Werner Hoyer announced that the EIB was increasing lending in developing countries must vulnerable to changes in climate. Looking ahead, we expect the EIB to provide $100 billion for climate investment over the next five years.
Does that include Europe, and the European Fund for Strategic Investment (EFSI) (the funding instrument of the Juncker Investment Plan)?
Yes. The bank has a target of 90% of EIB lending to be within Europe, and 10% outside. But that 10% is significant. In Europe, the investments tend to be larger and more expensive because the markets are more developed.
Will this 90% to 10% split continue after the COP21?
That is a decision for our shareholders. Back in 2012 the EIB had a target for lending which meant that, during the peak of the financial crisis, we were supporting renewable projects when people were saying we should only invest in projects for employment or SMEs. That was an important shareholder decision and, in September this year, they decided that that target of 25% investment for climate should be a bare minimum in the future.
What is happening at regional level?
You can’t really get anymore local than investing in skills. Two examples spring to mind, places I’ve seen at first hand. The investment being done by the University of Strathclyde in Scotland ensures their well-established engineering faculty is geared up towards building on their strengths in oil, but also in providing a key role for onshore and offshore wind, where there are many of the same basic skills but with new angles.
Likewise, with the new campus opened up last month at the University of Swansea in Wales, there’s a key element of skills being strengthened there to ensure local companies can play a role in green economy, maintaining and operating in offshore wind. But that expertise can also open local companies up to global markets.
+Cities and regions+
What is the role of cities and regions in Europe in getting climate funding to the right place?
We work very closely both with regions and cities as borrowers and project promoters. We lend a lot to regions and devolved administrations across Europe, as well as in other countries where you have investment in sectors by regional water companies.
I think the cities and regions play a crucial role in ensuring investment to fight climate change. Regions and cities are key partners for the EIB. Their involvement is vital to ensure our goal of 25% climate investment is possible but also in identifying key sectors like sustainable transport or water, or energy efficiency in buildings, or social housing. These are all areas where, without local involvement, the investment would not have been possible.
We have a strong track record with, for example, French regions, Bavaria, Catalonia, and also where things are changing. We can now do more with Manchester in the UK because it has been given greater borrowing powers by national governments.
How much money is there on offer for cities and regions?
The EIB’s overall lending of about €80 billion a year covers a whole range of sectors. The EIB can help with crucial investment, such as upgrading social housing to cut energy efficiency bills and reduce heat losses in public buildings. 20 years ago this would have been done simply out of the public budget. Now we can get involved. We share technical experience – if it’s being done for the first time, we sometimes help out with that with grant funding – alongside limited public funds.
+Committee of Regions+
One of the issues that has been mentioned in the Committee of the Regions (COR) is that it is difficult to get the EFSI money to smaller projects.
EFSI is put in place to unlock new investment of different scales. EFSI will follow the bank’s overall target. If you look at the projects coming through already there’s clearly a strong renewable and green energy focus in EFSI. We have a number of projects that really tackle the investment gap for smaller projects, (and) a number of funds focusing on that.
But the COR members have said they are struggling to access the money because some projects are too small, and the Commission has said it will come out with a scheme to aggregate this projects so they are big enough to get EFSI funding.
We are addressing that challenge on a number of fronts. One of the ways is by working with funds, where our investment can help bring in other investors. We’ve got a dedicated programme for smaller scale renewables coming up with a German local bank , which will cover both France and Germany. We’ve also got an initiative with our colleagues at the Commission. It helps local banks across Europe to help them support smaller scale energy efficiency investments for companies and households. So this can be scaled up.
We see the benefit of this being done in cities where you have local boroughs which own housing stock. Clearly it makes much more sense to improve the energy efficiency of a whole block of flats than try and do each flat separately. We’ve seen this for a number of years now in Bucharest, Lithuania and also in the UK, where fire stations and public buildings are being worked on.
You need a promoter to come forward with an investment project. Do you prefer that to be from the private or public sector?
We are completely agnostic. It makes no difference. Indeed the EIB was the largest lender for the UK water sector, both before and after privatisation.
How do you avoid the taxpayer being ripped off by the private sector?
We see the clear benefit of always lending alongside other sources of finance. Coming up next week, we expect an announcement about the rolling out of smart meters to millions of households across the UK but that is being done alongside six or seven commercial banks, and other sources of funding.
Why aren’t these projects getting financed anyway by the private sector?
Many of them are. Some projects are going ahead where the EIB can cut costs. Some schemes have been on the drawing boardfor a while. There can be a hesitancy to do things for first time. We see this with energy efficiency programmes; we’ve visited social housing in places like Dublin in Ireland and Plymouth in the UK where houses have been cold and expensive for many years. The technology required is not mammoth but it’s getting a scheme in place to roll things out and get them done at local level. Both from the financial and technical side, we can say this is what can be done, and in that way things get pushed ahead.
Our role can reassure other investors and get them involved – we’ve seen that with some offshore renewable deals – and in others it just makes it cheaper for the project if half the funding comes from us, as non- profit maximising body. This is crucial for first time projects and very important for public sector schemes.
+Mayors and funding+
Is part of the problem down to the financial crisis? Has that made people more risk-averse?
Yes, there is the question of being too risk averse. But there’s also a question of limited budget resources across Europe.
Social housing is probably an area that was cut in the public budgets.
Yes. And other fields, like improving connections to new renewable energy sites, and increase investment in energy grids to ensure energy can be shared across borders, are key steps in the broader picture.
What advice would you give to a mayor who wants to access EIB funding?
All promoters should get in touch with the EIB directly, we have offices across Europe, and have a discussion to see what has been done elsewhere and what the EIB has done in similar cases and then take it from there.
A lot of local leaders I’ve spoken to, especially in the UK, have expressed frustration at national policy changes, such as cutting support for wind and solar. Have any of those retroactive policy changes hurt EIB investment?
Not that I am aware of, but we have a long-term view. It’s crucial that regulation enables long-term investment to take place across a range of sectors and there are sectors where changes have made them more attractive, and the other way around.
You’ve got a total of $100 billion to cover developing countries, Europe and you have to play a big part in completing the Energy Union. It doesn’t seem like enough.
The EIB is not a silver bullet. We are not a panacea. But by using limited public resources in different ways, we can bring in private capital, and there’s a lot out there. If you look at our engagement in renewable energy focused funds, for every euro the EIB puts in, 15 or more is coming in from other sources. It is clearly better approach towards achieving these immense public policy goals than having one euro from the public purse and one euro from the project.