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The EU’s flagship investment scheme must not become backdoor for fossil fuel financing

As public pressure to address the climate crisis keeps growing, a report we released last week with Counter Balance shows, that only 29% of EFSI’s Infrastructure and Innovation Window investments, including for small and medium sized companies, supported climate action between 2015 and 2018. In central and eastern Europe the EFSI has been completely unable to address a market failure in financing climate change mitigation investments.

Moreover, even this limited allocation of European financial resources for climate action is undermined by EFSI’s continued support for fossil fuels projects. These investments – mostly in gas infrastructure – have received EUR 2.6 billion worth of guarantees over the same period.

As of April 2019, oil refineries and oil reserves have enjoyed EUR 65 million in guarantees under the EFSI’s Infrastructure and Innovation Window, and gas-fired power plants have been awarded guarantees worth EUR 148 million.

Climate breakdown courtesy of EFSI money

Scientists have been warning humanity must leave most of the world’s fossil fuels reserves in the ground if we are to avert the worst impacts of a runway climate crisis. Yet, the EFSI programme has effectively been providing a vital lifeline to the fossil fuels industry. In particular, it has extended almost EUR 2 billion in guarantees to gas transmission and distribution projects such as the controversial Trans Adriatic Pipeline, the Black Sea Gas Connection, the Italy-France Interconnector as well as the Transgaz Brua Gas Interconnection Project.

The EFSI’s climate action target risks becoming meaningless when 72 percent of the scheme’s support to the transport sector – or EUR 5 billion of guarantees – have gone to carbon-intensive projects such highways, airports, aircrafts and cars.

The world has just seen the hottest June and July on record. The hefty financial support granted to these reckless projects via the EFSI scheme at a time we’re already feeling the effects of a one degree increase are nothing less than a climate Russian roulette.

Higher standards needed

The European Commission’s insistence to continue pursuing business as usual – not least by promoting fossil gas – sure has been key to this. But so have been other issues plaguing this major investment scheme.

Successive analyses by our two NGOs have cast serious doubts about the sustainability of EFSI investments and their geographical concentration. These reports also questioned the scheme’s added value and highlighted its lack of transparency.

And there are real reasons for concern over the integrity of the Investment Committee, the EFSI’s governing body. Dominated by members of the financial and the banking industries, with no representation of civil society and trade unions, it lacks a diversity of perspectives required.

What’s more, conflicts of interest remain an issue in the Investment Committee. The new report reveals that at least four of its members who declared conflict of interest in 2018 had either worked or still work in companies that received EIB loans in the past. As obvious as it may sound, conflicts of interest cannot be tolerated in a body that manages a multi billion euro portfolio of public money.

Since the EFSI scheme has been extended for a second period and its portfolio has grown, the decision making process guiding the fund has become somewhat more transparent, mainly in retrospect. But information that is crucial for the accountability of the scheme is still withheld, even after guarantees for projects have been approved.

Reforming EFSI’s successor to enable a European Green Deal

The ongoing negotiations for the next EU budget have so far failed to prioritize Europe’s 2050 decarbonisation target. The ‘InvestEU programme,’ a proposal for a post-2020 successor to the EFSI, needs to be the turning point for EU public finance. The EIB is currently looking to end its investments in fossil fuels, so the InvestEU programme must not become the backdoor for oil, gas and coal financing.

If ‘InvestEU’ indeed becomes part of the so-called European Green Deal that incoming Commission President Ursula von der Leyen has been touting, it must exclude any and all support for fossil fuels. Instead, these are small scale, decentralized renewable energy and energy efficiency projects that need to be at the heart of Europe’s strategic investments.

Climate neutrality or annihilation?

On Friday 13 September the newly formed Estonian national climate commission held its first conference together with the Estonian Academy of Sciences and Government Office, with the apocalyptic title “Climate Neutrality – Annihilation or Success?” 

A coalition of 12 NGOs were permitted to use the event to hand the prime minister Jüri Ratas a petition with nearly 2 500 signatures, demanding that Estonia become climate neutral by 2035. However, things did not go according to plan. 

Shortly before the event however, the organisers announced that no petitions would be allowed and anywho who tried to hand over any signatures to the prime minister will be removed from the premises, contrary to what was previously agreed. 

Regardless of the initial setback, the NGOs continued to gather signatures and successfully delivered the petition to the prime minister on 30 September. The petition asks to re-open the outdated, long-term national development plans, some of which are based on studies conducted as far back as 2013, well before the landmark Paris Agreement was in place. 

Estonia produces some of the most per capita CO2 emissions in the EU, which rose more than four per cent in 2018, while the rest of the EU declined by 2.5 per cent, according to Eurostat. While Estonia will meet its 2020 Paris climate targets, it will fall way short of its 2030 goals if it continues business as usual: the government is proposing to extend the life of the fossil fuel shale industry by substituting electricity from shale with large amounts of biomass and instead use shale for oil. 

This would mean upwards of one billion euros of investments in new fossil fuel infrastructure and refineries and allocating free CO2 quotas to subsidise the fossil fuel industry instead of planning a just transition. This is in clear contradiction with international climate policies.

The old developmental documents are now being used as the basis for the new National Energy and Climate Plan that all Member States must submit by the end of the year. Such an approach is leading the country on the road to annihilation, not success.

In Estonia, taming the IT tiger

Estonia is not a coal-mining country, but it is a country with oil shale, which is equally as polluting. It is a key factor why Estonia has the second-highest per capita CO2 emissions in the EU. 

When we started planning this visit, the risks of the forced oil shale phase-out were ignored by  Estonian politicians, but they had to face reality. Due to high CO2 prices in the electricity sector in the summer of 2019, the state energy company Eesti Energia had to suspend uneconomic operation of their power plants that were unable to compete in the energy market. This was the moment when the government started to look for short term fixes — such as the very inefficient co-burning of biomass or the even more bizarre proposal to resurrect production of oil from oil shale, an  industry that was hit by temporary crises in 2016. 

At the same time, there is still a positive side to all of this—for the first time in modern history, Estonia was able to operate its electricity sector without oil shale burning. When we met with the head of the Estonian Renewable Energy Association—Mihkel Annus—he said the Solar Energy Association had difficulty last year keeping track of all newly developed PV projects and indicated that there are a number of projects in the wind energy sector that are under preparation as well as  plans to build a pump storage plant in the mining area. It seems that the main problem remaining in Estonia is the Ministry of Defence, who is afraid that their obsolete radar system would not be able to deal with wind turbines in some parts of Estonia. Thus, they block development of wind turbines in some areas.

The Estonian Renewable Energy Association (EREA), at the end of 2016, already published a scenario for a 100% transition to renewable energy, showing that it is both economically feasible and technically possible. The scenario would allow Estonia to use its economical and geographical properties to act as a role model to help others realize that a strong political vision  and clear decisions are needed from the government.

 

The transition to zero-carbon is possible, as it was recently stated by the President of Estonia, Kersti Kaljulaid: “[w]hen looking at our experiences I feel that if there is one country capable of taking the leap ahead, it is Estonia. Countries that invest in future technologies usually win, as the success of our digital state attests.”

Indeed, a week ago, a group of 33 Estonian IT companies signed a Green Pledge prioritizing the environment as an integral part of their business.

First large-scale solar district heating plant in the Baltics opens in Latvia

In September, the town’s municipal district heating company completed the installation of the largest field of solar collectors in the Baltic states. This project will contribute to Latvia’s goal to increase energy independence and transition to renewable energy sources. It will help the country further diversify its fuel supply and upgrade its existing district heating to low-emission systems. 

Heating is Latvia’s highest energy-consuming sector. According to the Ministry of Economics, 70% of the country’s heat is generated in centralized systems, which suffer from aging infrastructure, insufficient or inefficient use of renewables and non-existent local or centralized cooling systems. There is a growing demand for innovative and emission-free heating solutions. 

Salaspils may provide a model for other towns in Latvia interested in weaning themselves off of carbon heavy heating. Salaspils Siltums provides 85 % of the town with a population of about 18,000 people with district heat.The company has now acquired 1720 solar collectors, which will generate an estimated 12,000 KWh of power per year. A 28 meter high storage tank and a 3MW wood chip boiler complement the collectors. 

The new system will enable a significant decrease in the utility company’s reliance on natural gas and the share of renewables in its energy consumption will grow by ~ 35%.  After the installation of solar collectors and the wood chip boiler, the district heating system will supply 90% of the energy required for heating water and buildings from renewable energy sources. Solar thermal energy will provide 20% of the total thermal energy transferred in the system. 

The system will also reduce service and operating costs, which may allow for a reduced heating tariff of at least 5% to be applied to the utility bills of Salaspils residents in 2020 if accepted by the Public Utilities Commission.

Inspired by the vast deployment of solar collectors in Denmark, Salaspils’ system was built in less than six months by Latvian and Danish companies working in close cooperation. Total project costs were EUR 7.08 million, to which EU Cohesion Fund co-financing contributed EUR 2.73 million. In addition to the EU funds, the SEB bank provided a  EUR 2.8 million loan. 

Salaspils Siltums, the local district heating company responsible for the project, is a well-known front-runner in energy efficiency and fuel diversification for its incorporation of renewable energy sources. In 2017, it received the Global District Energy Climate Award in the modernisation category. 

Ina Berzina-Veita from Salaspils Siltums, also the head of the Association of Latvian Heating Companies, led the project from start to finish: “This is a really important event, not only for inhabitants for Salaspils, but for anyone who is aware that sustainable solutions are increasingly needed also in district heating in order to meet everybody’s daily needs and reducing the negative environmental impact as well. With the realisation of this ambitious project, we have demonstrated that we are able to grow from a post-Soviet boiler house to a world-class company.”

At the ceremony marking the project’s completion, Latvian Prime Minister Krisjanis Karins applauded the solar project’s contribution towards local energy independence. Salaspils mayor Raimonds Cudars stressed that the project was an example of Latvia’s successful transformation from the Soviet legacy’s ineffectual district heating system into a sustainable, modern low-carbon heating system. Their words underscored that the event celebrated not only the conclusion of a single project, but also the start of a larger change in the energy system. 

In general, district heating in the rest of Latvia remains reliant on natural-gas imports, and most of the recent EU-supported modernisation projects have been woody biomass-based. In 2018, natural gas was used for 37.6% of the thermal energy produced in the boiler houses and 58.5% of the thermal energy produced in cogeneration plants.

 Yet according to a 2018 survey conducted by the research company SKDS, 85.2% of Latvia’s population supports the wider use of solar energy. Solar energy had the highest rating among all renewable energy sources: woodchip-powered cogeneration plants were supported by 56.6%, and gas-powered cogeneration plants by 34%.

With the support of Latvia’s National Energy and Climate Plan, a faster uptake of solar thermal energy in the urban heating networks is expected. Solar technologies have recently become more wide-spread and competitive, lowering their price. Financial institutions like the European Investment Bank have also indicated their intention to provide more affordable loans for renewable energy projects. 

Thus, the Salaspils solar project may be remarkable for its vision on long-term decarbonization, becoming a model for utility companies in other towns and cities.

Strike! Bankwatch and Fridays for future

Bankwatch and other NGOs are supporting the global strike. Our staff will be taking part in street actions, we’ll put up a protest banner on our website and post information about actions in our countries of operation, and we’ll do our best to show support to strikers everywhere. 

We also call on staff at the two banks we have monitored for years, the European Investment Bank and the European Bank for Reconstruction and Development, to do the same –  support the global climate strike. 

This summer, the EIB, the house bank of the EU, proposed an end to the financing of all fossil fuels beyond 2020, becoming the first multilateral financial institution to make such a commitment in line with the Paris Agreement. We at Bankwatch welcomed the news. 

While we’re waiting for the draft energy policy to be approved by the board of the bank, we call on the staff of the EIB to show their support for the global climate strike. This will demonstrate that the EIB is truly a bank for the future, and it will encourage political actors to make the right decision about future investments of the EIB. 

At the EBRD, on the other hand, the reality is less promising. The bank carries on with oil and gas projects and continues to provide financing to utilities which rely on coal. As the EIB example shows, the EBRD can and should do better. 

Therefore, we call on the EBRD staff too to support the climate strike. Show your support for the strike and tell the EBRD leadership and the national representatives on the board of the bank that it’s high time for the EBRD to become a bank for the future too. 

Dear EIB and EBRD staff,

Please join us in showing support for the strikes by joining the digital action – putting up a banner on your websites, posting content on social media accounts, selfies in the bank cafeteria with reasons why you support the strike – anything. Use this amazing global momentum to call for a real transformation of your bank. It’s in our common interest. 

Sincerely,

Huub Scheele

Interim Executive Director

On behalf of Bankwatch and its member groups

Montenegro finally cancels Pljevlja II coal power plant

For almost three years, since it lost its main source of funding in October 2016, the Pljevlja II project has been in limbo. A further nail in the coffin came at the end of 2018, when the Montenegrin government and state-owned electricity company broke off a deal with Czech company Škoda Praha to build the plant. Yet until now, the Government has been reluctant to write off the project completely, instead putting forward proposals about co-firing with biomass.

That this is a long way from becoming reality became clear yesterday at the Miločer Development Forum in Cetinje, where Premier Marković was quoted as saying “We decided to refrain from using the significant coal reserves in the Pljevlja region to build a second unit at the power plant, although this is a large investment and would bring a large number of jobs. We said no, we will build something in line with our economic policy, sustainable development and preservation of the environment. Maybe in 50 or 100 years future generations will think up some new technology for using coal in combination with biomass in a way that does not harm the environment”.

This news follows an announcement by the Government in June that Montenegro had experienced 10 days in a row of coal-free electricity generation – quite a breakthrough for a country that traditionally produces around 40 per cent of its electricity from lignite.

There are still plenty of problems to solve in Montenegro’s energy sector, for example reducing pollution from the existing coal plant, reducing energy wastage, and securing a just transition for the Pljevlja region. 

But the announcement that Pljevlja II is finally cancelled at least serves as a good example. Neighbouring countries like Bosnia and Herzegovina, Serbia and Kosovo are still pushing forward new coal plants, against all environmental and economic logic, and often in contravention of Energy Community Treaty rules on environment and subsidies.

The Montenegrin government’s courage in grasping the bull by the horns and admitting that coal is not the way forward must now be followed by its peers. Let us hope this is the first of many such announcements in the months and years ahead.