An overview of policies and projects of EBRD and EIB
The European Union had set certain targets for increasing share of energy production from renewable sources. The majority of shares of the European Bank for Reconstruction and Development (EBRD) and European Investment Bank (EIB) belong to the EU countries. Therefore, the projects that receive financial support from these banks can be used to verify whether the EU uses EBRD and EIB as tools to support the development of renewable energy and energy efficiency.
The data regarding policies of EBRD and EIB and projects financed by EBRD was collected from the websites of these banks. The EIB website contains only a fragmentary collection of projects description, therefore, to analyze projects financed by this bank the database created by CEE Bankwatch was used. Only approved and signed projects were taken into account.
Policies of the EBRD and EIB
EBRD
Investments into energy efficiency and renewable energy are stated as priority in the documents of both EBRD and EIB. Banks also claim that they will took effort to abate global climate change. The EBRD Environmental Policy states that the bank 'will attach particular importance to promoting energy and resource efficiency ... renewable resources and resource recovery in the projects it finances'. The same document declares that the EBRD will support through investments the implementation of the United Nations Framework Convention on Climate Change and the Kyoto Protocol. The bank also declares its interest in supporting the projects under flexible mechanisms of the Kyoto protocol – namely Joint Implementation and Clean Development Mechanism.
Actions that EBRD plans to take in order to support energy efficiency and renewables are described in the Energy Operations Policy and Municipal and Environmental Infrastructure Operations Policy. In both of the documents the bank describes energy efficiency, development of renewable energy sources and reduction of greenhouse gas emissions as priorities. Increasing energy efficiency at demand side, introduction of combined production of electricity and heat, and rehabilitation of district heating are the specific actions that the EBRD is planning to take. EBRD pays significant attention to the creation of the so-called energy service companies (ESCOs). ESCOs are supposed to provide services to increase energy efficiency. Investments in the energy service companies is probably the only practical step that is being clearly described in the official documents of EBRD.
The bank's policies provide neither specific targets like percentage of investments that should be spent on energy efficiency and renewables, nor mechanisms to control whether the defined priorities will have any practical implementation.
EIB
From the general point of view, EIB paid more attention to the climate change issue in its official documents. The bank claims that it is already taking action to cut greenhouse gas emissions by investing into energy efficiency and renewable energy, combined heat and electricity production, industrial efficiency, waste management and public transport ('EIB and Climate Change'). In the document named 'EIB Support to Renewable Energies' the bank promises to 'at least double its loans for renewable energy over the next five years' compared to the period of 1997-2001. The same document defines certain criteria for the renewable energy projects: '... Compatibility with existing generation and transmission systems; promising potential for demonstration effects and future developments; attractive lifecycle energy balance; environmental acceptability, including public participation in the decision-making process; sound financial and economic returns, taking account of the external benefits of renewable energy whenever it makes sense'. The EIB also expresses its willingness to support research in the field of renewable energy, in particular hydrogen cells, thermal solar power and geothermal energy. The bank declares its interest in 'supporting the emerging market in carbon credits'.
Although from the first sight the official documents of EIB might seem to cover climate change issues deeper than EBRD policies, there are serious deficiencies. First of all, criteria applied to the renewable energy projects are mostly economic. For example, there is no limit on the size of dams constructed for hydro power plants. Moreover, the EIB declares that it will continue supporting large-scale hydro power projects ('EIB Support to Renewable Energies') which can severely damage the environment. A self-speaking example can be seen in the 'EIB and Climate Change' document: ' ... an EU oil company might find it cost effective to meet its GHG emission cap by sponsoring ... a forest management project in Latin America ...'. In such way the EIB sees the future of the Clean Development Mechanism under the Kyoto Protocol. Apart of setting targets for increasing support of the renewable energy and participation in the flexible Kyoto mechanisms, the EIB would definitely need to develop sound environmental criteria to prevent even more environmental destruction by the oil companies making investments in Latin America.
Projects financed by the EBRD and EIB
Policies of the EBRD and EIB represent their good intentions to invest into the energy saving and support development of the renewable energy. These declarations can be easily checked against the reality by simply taking a look into the list of projects these banks financed during last years.
The overview of projects banks covers the period between 1997 and 2003. Only the amount of loan provided by the bank was taken into account. Projects were divided into two categories: positive and negative. Those projects which definitely contribute to greenhouse gas emissions reduction were put into the positive category. They include energy efficiency improvements, development of renewable energy sources and investments into energy service companies. Investments into renewable energy were reviewed as a subcategory of 'positive' projects. No sustainability criteria were applied to evaluate renewable energy projects (e. g. large dams).
The 'negative' projects include activities that definitely contribute to the increase of greenhouse gas emissions: all investments into the extraction of fossil fuel, oil and gas pipeline construction, construction of the new power plants using fossil fuels, waste incinerators. Transport projects like road construction were not taken into account. However, direct purchase of the vehicles (mainly airplanes) was classified as 'negative'.
Table 1 presents a summary of the projects sponsored by the EBRD during 1997-2003. Starting from the year 2000 the total amount of lending by EBRD was rapidly growing. However, there is no direct relation between the increase of the overall amount of investments made and the share of energy efficiency and renewable energy in those investments. Both the number and the total cost of the 'positive' projects significantly reduced in 2001-2003 compared to the period of 1997-1999. In fact, during the last three years EBRD invested less into renewables and energy efficiency than in previous years. During 2002 and 2003 EBRD supported no project in the field of renewable energy. However, in 1998, 1999 and 2003 the cost of the 'positive' projects was higher than the amount spent on the fossil fuel extraction and other adverse activities - mostly because of investments made into the energy service companies.
In most cases the average amount invested by EBRD in the renewable project is 1,5-4,5 times lower than the average cost of a project in the fossil fuel extraction or other activities with adverse impact on climate. On the one hand it can be explained by the fact that usually oil and gas extraction projects have very high costs. On the other hand, such a big difference shows that the priority for supporting renewables set in the bank's policies is merely a declaration of good intentions with little practical results.
Table 1. Projects financed by EBRD in 1997-2003.
All figures provided in million Euros; the amount of loan presented in different currency was converted into Euro by the rate at December, 30 of the respective year.
Source: The EBRD official website, http://www.ebrd.com
Summarized data on the projects financed by the EIB during 1997-2003 is presented in the Table 2. The amount of overall financing provided by EIB each year is over 10 times higher than those of EBRD. The data is organized in the same way as for the EBRD, so it will be possible to compare the percentage of financing spent on different kind of projects financed by both of the banks.
The total amount of financing provided by the EIB was constantly and rapidly growing during the past years. Again, as in the case of EBRD, there is no direct correlation between increasing total amount of the loans and the amount of money spent on renewables and energy efficiency. In general, the amounts spent on the 'positive' projects between 2001-2003 is less than during the period of 1997-1999. The share of financing spent by EIB on energy efficiency and renewable energy was maximum 2,2% of the total amount (1997). This figure is much lower than the same number for EBRD. At the same time, the average amounts spent for renewable energy projects are quite high. For example, in 2002 the average loan for a project on renewables was about 1,5 higher than an average loan for fossil fuel extraction and other 'negative' projects. This can be explained by the fact that the EIB gives priority to invest into construction of large dams. Although such projects can be considered as renewable energy, they often result in serious environmental and social damage. Therefore, the bank should pay much more attention for analyzing all aspects of the projects it finances.
In general terms, the EIB has spent significantly larger amounts of financing to support extraction of fossil fuel and other activities that increase emissions of the greenhouse gases. This fact contradicts to the priorities to develop renewable energy set in the official bank's documents ('EIB and Climate Change', 'EIB Support to Renewable Energies'). Although in 2002 the financing of renewable energy development significantly increased compared to previous year, it was result of extensive support of large dam projects. If the bank's target to double the investments into the renewable energy sector will be fulfilled in this way, the negative environmental and social consequences can be higher than the direct profits.
Table 2. Projects financed by EIB in 1997-2003.
All figures provided in million Euros; the amount of loan presented in different currency was converted into Euro by the rate at December, 30 of the respective year. The total amount of EIB financing in 2003 is an estimation based on the data from previous years.
Sources: CEE Bankwatch database of MDB projects, http://www.bankwatch.org/database/index.php; The EIB official website, http://www.eib.org
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Conclusions
The amount of EIB and EBRD investments is increasing during the last years. Although these two banks set the development of renewable energy and energy saving as a priority in their policies and official documents, the reality proves that extraction of fossil fuels and other activities that lead to increase of greenhouse emissions receive significantly higher amounts of financing. Moreover, during the past three years the total amount of investments of both EIB and EBRD into renewables and energy efficiency decreased compared to the period of 1997-1999. The bank's declarations regarding renewables being a priority does not result in higher amounts of money invested.
Both banks should review their policies in order to set up exact targets for financing of energy efficiency and renewable energy projects. At the same time, the financed projects should pass a thorough evaluation to assure that they will not bring adverse environmental or social effects. Since major share stakes in both EBRD and EIB belong to the countries of the European Union and the banks are spending public money of the taxpayers, governments and citizens of the EU should put more pressure on the both banks to increase financial support of projects in the field of energy efficiency and renewable energy.
CEE Bankwatch Network gratefully acknowledges EU funding support.