EBRD lags behind rivals on trading dirty coal for clean energy

10 September 2013, The Guardian

The European development bank’s focus on fossil fuels has had a negative impact on communities. It’s time to change direction

Earlier this year, Barack Obama pledged that the US would no longer finance overseas coal plants through the US Export-Import Bank. This created a domino effect: the World Bank announced it would drop virtually all support for coal projects, then the house bank of the EU, the European Investment Bank (EIB), followed-suit.

In a year when three of the most important international financial institutions – the World Bank, the EIB, and the European Bank for Reconstruction and Development (EBRD) – are reviewing their energy-lending strategies, political pressure to stop financing dirty coal plants is stronger than ever.

Together, these institutions lend to most of the world’s poor countries and are influential actors in the development of these states. The EBRD operates in countries in eastern Europe, the former Soviet Union, and more recently, north Africa and the Middle East. Consequently, a decision to end financing for coal projects carries much significance.

But since 1994, these institutions have pumped more than $37.5bn (£23.9bn) into coal projects. Pouring money into coal projects in countries with economies that are already highly carbon-intensive limits their chances of ever becoming competitive. Such lending also diverts valuable resources away from renewable energy and energy efficiency projects, which the UN has argued can play a central role in combating poverty and empowering women worldwide.

And the domino effect of ending coal support has yet to reach the EBRD. While the bank has a mission to foster a transition to market-oriented economies and to promote environmentally sound and sustainable development, it continues to finance carbon-intensive fossil-fuelled development with coal, oil and gas projects.

Between 2006 and 2011, while the current energy policy was in place, 48% of the EBRD’s $8.9bn (£5.6bn) energy portfolio went to fossil fuels. Support for coal actually increased in this period, from €60m (£50m) to €262m.

Coal projects financed by the EBRD have mixed results, at best, for the people who experience them first-hand. At the the Kolubara mines in Serbia, locals live within unacceptable limits of the mining area. In Mongolia, where more than a third of people live in poverty, the EBRD overwhelmingly funds extraction projects. In spite of claims that the exploitation of Mongolia’s vast coal resources will bring development, this resource “curse” has proven otherwise.

In July, the EBRD released a draft of its new energy sector strategy, a roadmap for the next five years for investment and policy initiatives. Although the strategy claims, “the bank will promote the transition to a low-carbon model throughout the energy sector”, the document would keep the bank on course with fossil fuel development, providing no significant restrictions on the development of oil, gas, or coal mining and far too few constraints on coal power plants. The policy would also open the door for other controversial, dirty energy sources such as shale gas.

This leaves the EBRD lagging behind other international development banks moving towards a clean energy economy. A change of direction is imperative if the challenge of climate change is to be confronted in a credible manner.

But the EBRD’s retrograde behaviour has not gone unnoticed, and pressure is mounting on the bank to take heed. Civil society has rallied around this issue and joined forces to send a strong message to the EBRD during this week’s public consultations on its draft energy policy.

A petition initiated by the climate change campaign group 350.org and Bankwatch urging the EBRD to divest from fossil fuels, starting with coal, was signed by nearly 17,000 people worldwide. These signatures were delivered to the EBRD during the consultations, amplifying the public outcry for a livable future, not an industry bent on ensuring our planet’s destruction.

If the EBRD does not follow other development banks in its forthcoming energy strategy, it will find itself with a portfolio of financially worthless: fossil assets, jeopardising its ability to promote sustainable development and combat poverty in its region of operations.