This year the European Investment Bank is expected to review its 2013 ‘Screening and Assessment Criteria for Energy Projects’, also known as its Energy Lending Criteria, which governs the types of projects the bank can finance in the energy sector.
The review will provide an opportunity to align the policy with recent European and global policy developments like the Paris Agreement, the accord under the United Nations Framework Convention on Climate Change.
While the Energy Lending Criteria recognises the challenges of climate change, it is not as ambitious as the Paris Agreement, which requires urgent action to limit temperature increases well below two degrees Celsius by ensuring financial flows are compatible with a pathway towards reducing greenhouse gas emissions and supporting climate-resilient development.
The review of Energy Lending Criteria gives the bank the opportunity to align its energy financing with the Paris Agreement and catch up with the rapid developments in the clean energy sector, in order to provide the necessary financial boost for the deployment of renewable energy and energy efficiency.
Avoid the risk of locking in a fossil fuels-future by explicitly committing to end any kind of financing for this sector
Set its new Emission Performance Standard level at 200 g CO2/kWh in order to send a strong signal to both power industry and investors
Make financing conditional on company-level decarbonisation plans
Strengthen efforts to diversify the location of its renewable energy projects across different regions within EU and beyond
Prioritise financial solutions for smaller, decentralised renewables projects
Strengthen efforts to diversify the location of energy efficiency investments, in particular by smaller companies, municipalities, regions and individuals across different regions within EU and beyond
Give special attention to social and environmental sustainability of renewables, in particular for the hydropower sector
Adopt the energy efficiency first principle to ensure that the projects it finances would make sense in an energy efficient scenario
EIB lending worldwide
As an EU institution, the EIB should adhere to the EU policies on energy, climate change, external affairs and development.
The 2013 Energy Lending Criteria prioritised renewable energy as a way to break fossil fuel dependence within the EU and to address a key challenge in meeting the EU’s 2020 energy objectives, where renewables account for 20 per cent of final energy consumption. Outside the EU, such investments were also prioritised in order to contribute to the UN’s ‘sustainable energy for all’ initiative.
Energy investments were generally in line with the expectations and priorities set in the Energy Lending Criteria, with electricity and heat generation and electricity transmission and distribution as the most financed categories of investment, followed by fossil fuels extraction, transmission, distribution and storage. Within electricity and heat generation, almost 90 per cent of investments went for renewables.
But comparing the share of renewable investments (EUR 18.4 billion) with the total for fossil fuels (EUR 11.8 billion) shows that contrary to its stated policy objectives, the EIB is perpetuating the use of fossil fuels, particularly in several EU countries.
Fossil fuels lending
Less than eight per cent of the EIB’s investments in electricity generation could be assigned to fossil fuel based power plants. In addition, emissions from these installations were far below the EIB’s Emission Performance Standard of 550 g CO2/kWh , with two exemptions allowed by its Energy Lending Criteria.
However, the EIB funded EUR 10 billion in fossil fuels infrastructure and natural gas extraction, with natural gas infrastructure receiving the lion’s share of funding.
Within the EU, the bank invested billions in fossil fuels projects in Italy, Spain and the UK, where the share of fossil fuels projects relative to overall energy lending amounted to 51, 33 and 17 per cent, respectively.
While the level of investments in fossil fuels has decreased over time, the EIB’s involvement in the fossil gas sector has been stable.
Between 2007 and 2012 the bank lent EUR 10.4 billion for the development and modernisation of Europe’s fossil gas networks, compared to EUR 8.3 billion between 2013-2017. However, this amount does not include the bank’s recent commitment of EUR 2.8 billion for the Trans Adriatic Pipeline and the Trans Anatolian Pipeline, two parts of the Southern Gas Corridor.
Loans to companies with a high share of fossil fuels
Between 2013-2017, the EIB provided EUR 3.9 billion to a number of companies with a high share of coal in their power and heat generation portfolios or which plan to develop new coal power capacities: Energa, Tauron and PGE in Poland, Endesa in Spain, PPC in Greece and CEZ in Czech Republic.
With the danger of carbon lock-in and stranded assets, no financial support should be given to companies planning new coal power capacity, including buying or retrofitting existing coal assets.
Making financing conditional on company-level decarbonisation plans would greatly improve the bank’s contribution, using its leverage to align with the commitments of the Paris Agreement.
Over 88 percent (EUR 18.4 billion) of investments in electricity and heat generation capacity went to renewables, with heat production receiving just a small portion in this category. In addition, according to the EIB’s categorisation, over EUR 5 billion were invested in electricity transmission projects directly related to renewable power generation.
Over 20 per cent (EUR 4.2 billion) of the EIB’s renewable loans were located outside the EU.
A more comprehensive picture of the EIB’s renewables lending can be drawn from the bank’s climate action reporting.
This pace is not enough to reach the new target of 34 per cent of renewables in the EU’s power mix by 2030. In order to achieve this 34 per cent target, the EU will have to invest EUR 62 billion annually to accelerate deployment of renewables.
The bank should strengthen efforts to diversify which countries receive its funding for renewable energy projects. Between 2013 and 2017, while 5.7 per cent of the EIB’s overall commitments within the EU were for renewables, many EU countries received little or no investments in this sector.
Almost half of the renewable projects focus on wind energy, with a slight predominance of offshore installations. This technology had the largest annual growth rate among all renewables technologies within the EU, and with its large investment costs is a perfect combination for the EIB to step in with a loan.
The EIB rightly considers energy efficiency as the most cost-effective and rational way of reducing emissions and improving the security of the energy supply.
With the support of various financial products, it has increasingly financed energy efficiency projects, with EUR 2.2 billion in 2013 and EUR 4.8 billion in 2017.
However, outside the EU, this trend has stagnated. Of a total EUR 16.5 billion in energy efficiency projects between 2013-2017, the EIB lent just 8 per cent (EUR 1.34 billion) outside the EU.
On average 4.5 per cent (3.5 – outside EU, 4.6 – in EU) of the EIB’s global commitments over the researched period contributed to energy efficiency.
Over the researched period we observed significant discrepancies between EIB energy efficiency investments across the EU Member States.
Outside the EU, the EIB lent EUR 568 million for energy efficiency in eastern Europe, the South Caucasus and Russian region, which is just over 8 per cent of the entire lending to this region. However, over 75 per cent of this sum was allocated in just one country, Ukraine, mostly for two projects. In candidate and potential EU candidate countries, the level of energy efficiency financing reached EUR 130 million, merely 1.2 per cent of the EIB’s entire lending in this region.
The review of Energy Lending Criteria gives the bank the opportunity to align its energy financing with the Paris Agreement and catch up with the rapid developments in the clean energy transition sector, in order to give provide the necessary financial boost for the deployment of renewable energy and for investments in energy efficiency.
The EIB needs to shift its funds: from funding fossil fuels to stepping up finance for renewable energy and energy efficiency projects, in particular for small-scale, and people-owned and controlled, decentralised projects.
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