The European Investment Bank’s draft lending policy guidelines offer a significant step forward for environmentally responsible practice and must be supported, writes Ingrid Holmes.
Ingrid Holmes is the programme leader on Low Carbon Finance for the environmental think tank, E3G
"Tomorrow (23 July), new proposals from the EIB management on using an emissions performance standard (EPS) to screen out the most climate-damaging fossil fuel projects will be voted on by the Board of Directors (the representatives of EIB member state shareholders). This vote will be a critical test of European intent on tackling climate change.
The EIB has been a quiet hero in the fight to tackle climate change. It is currently one of the biggest financiers of renewables and energy efficiency in the world. In 2012 around 25% of its overall lending went toward climate action.
The EIB management team also introduced in 2010 a shadow economic price of carbon. At €28/tCO2 it is set at a much higher level than the price set by the Emissions Trading System (currently ~€4/tCO2).
However, driven by the competing priorities of energy security and climate change, there is also a darker side to EIB energy lending activities. The shadow carbon price has not stopped EIB lending €1.88bn to lignite and coal-fired power plants since 2007.
The latest loan of €650 million – made in March 2013 and deplored by civil society groups – was to a 600MW Slovenian unabated lignite power plant. The pressure from civil society groups as a result of this rather schizophrenic position on energy financing has been troubling for the EIB.
But, if the management team has its way this coming Tuesday, the EIB looks set to turn a corner on this contentious position.
In June the management team published new proposals setting out how it will screen future applications for financing of energy projects. An outright ban on coal and lignite plants was always unlikely in the absence of firm European Policy on 2030 targets.
Instead the EIB management team has proposed introducing an EPS that will place a limit on the amount of CO2 a power plant can emit per unit of electricity produced. The initial level will be 550 grams of carbon dioxide per kilowatt hour (gCO2/kWh): that can be tightened over time to screen out lending to coal and lignite plant.
On 23 July, these proposals will be voted on by the Board of Directors. Since the EIB as an institution can only move as far and fast as the Board of Directors will allow them, this is a critical meeting. Whether the proposals pass or not will be an indicator of European intent on tackling climate change.
Civil society groups have responded positively to moves to introduce an EPS: the first for any Public Bank in the world. But they are asking for it to be tighter – 450 gCO2/kWh or less – to put Europe on track to deliver a virtually carbon-free power sector by 2050.
So why did the EIB choose 550? Because it is in line with the power sector emission reductions required by the EUETS Directive. This is sensible. The Directive is legally binding and the EIB Board of Directors will find it hard to justify voting against a measure that is in line with existing legislation. And herein lies the issue.
Discussion of tightening standards is moot if the proposals for an EPS are not accepted. It that a risk? Yes. The vast majority of EIB Directors are drawn from Members State finance ministries – who have been largely blamed for blocking progress on climate action in Member States because of the short term costs.
This should be “a no brainer”. The EIB management team’s proposals are more than reasonable: they bring the EIB’s lending policy in line with existing European legislation. For Directors to deny this would be a very dark day for Europe."