Blog entry

When the EU’s bank can’t kick the fossil fuels habit

The numbers speak for themselves – EUR 13.5 billion spent on various fossil fuels projects since the latest revision of this policy in 2013 is an alarming sign even if renewables have been granted much more. This is the equivalent of EUR 6.2 million in EU public money – every day – over these six years going for the top culprit behind the climate crisis.

Every additional cent spent on another fossil fuel project, particularly in the relatively rich EU, makes it more difficult to realize the Paris Agreement and achieve the global Sustainable Development Goals which are intended to “leave no one behind,” irrespective of where people live or their material status.

Fossil fuels investments threaten people’s health and well-being, and undermine the fight against poverty, access to clean water as well as peace and justice – these are just few among the 17 global goals.

The EIB’s staff and leaders are certainly aware of the detrimental impacts of the bank’s continued fossil fuel financing. During the public consultation meeting in Brussels last month, Andrew McDowell, the bank’s Vice President responsible for energy projects, admitted the EIB has financed several uneconomic and heavily subsidized gas projects and regretted that projects defined by the European Commission as Projects of Common Interest (PCI) are not subject to a climate impact assessment.

This only confirms that the EIB’s due diligence has been inadequate, in turn enabling projects which should have never been financed. For example, the bank’s own carbon footprint assessment for the TAP and TANAP gas projects underestimated greenhouse gases emission by 3.5 and 2.5 times in comparison to environmental impact assessments for both pipelines, which eventually impacted the bank’s economic appraisal of these projects.

The public consultation document for the energy lending review suggests that, in light of the EU’s 2030 climate and energy targets, investment in gas network expansion may become stranded assets. And yet, the bank remains hesitant to finally commit to halting all fossil fuels investments.

It is surprising that the EIB, as an EU institution whose major role is to finance undertakings of common interest, has been granting loans to fossil fuels projects which are either meaningless or outright detrimental to achieving any stated EU policy objective in the energy sector.

At least 80% of gas related loans have been for projects outside the PCI pool, thus contributing to expanding and perpetuating the use of fossil gas. In reality, only 11 PCI gas projects out of dozens included on the list were supported by the EIB. Halting all these investments would not be difficult for the bank since its role was not significant anyway.

Where EIB money could make a positive contribution for EU policies is undoubtedly in mitigation of climate change through investments in energy efficiency and renewables. The situation is critical, as data from the European Environment Agency shows, since Member States’ most recent projections for emissions reductions fall short of the 40% domestic reduction target for 2030, with only six Member States expecting emission levels in Effort Sharing sectors below their respective targets. There are countries which are failing in achieving even their 2020 energy efficiency and renewables targets, not to mention new and more ambitious targets for 2030 agreed by the EU last year.

Prioritisation of these two sectors should be at the heart of the EIB’s energy lending review with the implementation strategy following soon after. The EIB‘s ‘fit for all’ business model may not be enough. The bank needs to develop national strategies, including relevant financial models and technical assistance.

New report highlights misuse of banking secrecy rules

Recent scandals show how susceptible the financial sector is to misuse and abuse. One of the main reasons for these violations is that the sector is cloaked in a shroud of confidentiality. Is there a better way for the financial sector to decrease the risk of mismanagement?

Civil society groups have repeatedly called on financial institutions to share more information about individual projects they finance, particularly when there are concerns about the social and environmental impacts of projects in the coal or hydropower sector.

A new report from BankTrack examines such calls for moving beyond confidentiality, examining 150 bank responses to different enquiries made by the organisation between 2012 and 2017. Nearly half of these responses said that the bank could not comment on whether it had a relationship with a customer or project. In 37 of 70 responses, client confidentiality concerns were cited as the primary reason for non-disclosure.

Yet client confidentiality is not an absolute rule – indeed many banks are able to comment on specific clients. The report suggests that banks readily share information when they see this as in their own interest or business practice such as in commercial databases (eg. Bloomberg) or registries of secured transactions. Moreover, ethical banks such as those in the Global Alliance for Banking on Values (GABV) share information about their investments routinely, showing that where there’s a will, there’s a way.

The report cautiously suggests a solution to the issue of banking secrecy: asking the client for consent to disclose information. In many major jurisdictions, including the UK, the Netherlands, Germany, Singapore, Switzerland, the US and Japan, there was no evidence that banks would be unable to disclose client information with their client’s consent.

European public banks such as the European Investment banks (EIB) should lead the way in disclosure of environmental and social information about the projects they fund. This is especially important as a significant portion of the EIB’s portfolio is channelled via commercial banks and other intermediaries: EUR 23 billion or 32 per cent of its entire lending in the EU and EUR 23 billion or 36 per cent of its entire lending in third countries.

Indeed, EIB policy requires the intermediary or fund manager to publish environmental and social information on specific loans, which would in turn also reveal the clients. In reality, the EIB does not include this requirement in financing contracts and it is not done in practice.

That’s why Bankwatch has submitted a complaint to the EIB’s Complaints Mechanism (CM), asking the bank to implement its own rules. The first response from the CM is expected in April. The European Ombudsman already requested more transparency from the EIB, including on intermediated loans, in a 2018 response to a complaint from Bankwatch, ClientEarth and Counter Balance.

One of the EIB’s financial intermediaries, the Croatian Bank for Reconstruction and Development (HBOR) has repeatedly refused to disclose information. HBOR even launched a court case against the Croatian Information Commissioner when it ordered the release of information to citizens that had asked about individual loans.

A recent ruling by the Supreme Court of Croatia rejected HBOR’s request that asked the court to review the legality of the High Administrative Court rulings pertaining to the citizens’ requests. The Supreme Court found that HBOR should disclose information about loans because of an overriding public interest.

This is the way forward. Public interest should prevail over commercial confidentiality rules, whether it is because public money is involved or whether there is a genuine interest from the public to learn about loans that bring risks of money laundering or human rights abuses.

Civil society groups will find a way to reveal what is hidden, and by then it may be that financial institutions’ reputations will be only more deeply compromised.

EIB and Volkswagen keen to return to business as usual

Nearly three and a half years after Bankwatch first raised concerns that millions of euros from the European Investment Bank (EIB) were involved in the Dieselgate scandal, a recently released summary report of an investigation by OLAF, the European Anti-Fraud Office, officially validated our suspicions. But it remains unclear whether the bank has learned any lessons.

Back in September 2015, shortly after the news broke that Volkswagen had fitted diesel cars with the so-called defeat device to rig emissions tests, a Bankwatch analysis featured in a Politico story was the first to reveal that the German carmaker had received no less than 17 EIB loans totaling more than EUR 4 billion over the preceding decade, five of them even classed as ‘climate action.’ We have since approached the bank multiple times requesting information related to its support for Volkswagen.

OLAF’s findings have confirmed our suspicions. The investigation revealed that part of the EIB’s EUR 400 million ‘Volkswagen Antrieb’ loan was deliberately used by Volkswagen for the development and installation of a defeat device on the EA 189 engine as part of the research and development programme financed under the loan.

This was one of the loans under the bank’s ‘climate action’ programme and it was originally intended to help develop cleaner and more fuel efficient drivetrain components with the explicit aim of lowering vehicle emissions. And surely enough, in February 2011 Volkwagen reported to the EIB about significant reductions of pollution emissions.

One would think that such findings would warrant some soul-searching at the EIB. Rather, it now appears that both the world’s largest public lender and the world’s largest automaker can’t wait to put this whole affair behind them as if nothing – or at least nothing that dramatic – had happened.

According to a statement published on the EIB’s website just before Christmas, the bank and Volkswagen had agreed the latter would donate EUR 10 million – effectively the equivalent of merely 2.5% of the defrauded loan – towards “environmental and/or sustainability projects in Europe,” and the bank’s internal investigation will be concluded.

The EIB has also claimed that it had stopped considering loans to the company in October 2015, and according to the statement, this moratorium will remain in place for 18 more months. Yet, even this lull considered, the EIB has been granting Volkswagen, on average, more than one loan every year since 2005 – so what’s a year and half more to wait?

A fraud of the scale of Dieselgate should have landed Volkswagen in EU blacklists. In August 2017 Transparency International EU has urged the European Commission’s EDES panel to consider the inclusion of Volkswagen in the Early Detection and Exclusion System (EDES) in light of the findings of the OLAF probe. Such inclusion would prevent the car manufacturer from accessing EIB funding. Now that (some of) the findings from this investigation are finally public, this proposal seems ever more relevant.

But even if one believes these penalties are adequate, the way the EIB has been handling this entire affair, as Bankwatch’s Anna Roggenbuck argued in September 2016, is a serious reason for concern about this EU public institution’s own accountability.

The bank has been particularly slow and hesitant to respond to our requests for information from the very beginning, breaching its own standards. It has also repeatedly turned down requests from Bankwatch, journalists and even the European Parliament to release OLAF’s report, despite the obvious public interest in disclosure in such case.

Only two weeks ago – 18 months after it had received OLAF’s report, a period longer than allowed under EU transparency standards on environmental information – did the EIB finally decide to make a 3-page version of this report public.

From an early stage, the bank responded to our inquiries, saying it is conducting its own internal investigation. Our requests for a report summarising this investigation have been rejected time and time again. On February 26, 2019 we received the following response:

“As indicated in our previous correspondence on the matter, the investigation was taken over by OLAF and the related EIB investigation was put on hold. Following the transmission of the OLAF report, EIB followed up on the case on the basis of OLAF’s findings resulting in the agreement reached between the EIB and Volkswagen (http://www.eib.org/en/infocentre/press/news/all/agreement-reached-between-the-european-investment-bank-and-volkswagen-ag-in-relation-to-eib-loan-antrieb-rdi.htm). EIB investigation was concluded on this basis and therefore, no internal investigation report has been produced by the Bank.”

The importance of an internal report is not only about establishing whether or not the EIB has been defrauded by a client, but primarily about how this happened and what needs to be done to prevent future misuse of public funds.

Instead, the EIB has consistently portrayed itself as the helpless victim of the fraud, implying there was nothing it could do to detect its loan could have- and had been misused. That’s not good enough. Specifically, the bank’s reliance on information provided by the client alone for both the due diligence prior to approval of loans as well as for monitoring the realization of EIB investments is particularly problematic.

The EIB is yet to explain what it has done, in light of the OLAF investigation findings, to ensure clients do not receive financial support under false pretenses, and what measures it has introduced to improve oversight of the implementation of its investments.

Other cases Bankwatch has explored give us reason to believe the EIB is failing in monitoring companies that enjoy its generous financial support. EIB loans to Israel Chemicals, a multinational with dubious environmental record whose subsidiary is behind one of the worst environmental disasters in Israel’s history; the bank’s support for Myronivsky Hliboproduct, a Ukrainian agribusiness giant whose massive poultry factories have taken a toll on local communities; and the EU Ombudsman’s recent critique of the EIB’s mishandling of complaints over its investment in the giant Ambatovy nickel-cobal mine in Madagascar – these are but a few examples that should ring the alarm.

We also understand the EU Ombudsman is currently looking into the way the EIB has been responding to requests for disclosure of information related to its role in the Dieselgate affair. Perhaps this probe would help in holding the bank to account.

Back in March 2009, less than a month after the EIB had granted the EUR 400 million loan that was used by Volkwsagen for the defeat device, Bankwatch and Greenpeace warned that EIB financing could end up as a “window dressing for the car industry” if no mechanisms are put in place to ensure the money is indeed used for cutting emissions. We couldn’t have imagined our warning would materialize so literally. But ten years later, there is no comfort in being vindicated. Rather, we are worried there is still nothing to guarantee this kind of scandal does not repeat.

A billions-worth problem

A new report Chronic Coal Pollution shows that Western Balkan coal power plants emit 20 times more than an average EU plant, causing thousands of lost lives and chronically ill people, in addition to millions of euros in health costs all across the continent.

Worse still, these findings might be understated due to a lack of monitoring data. Many of these power plants are not properly monitored by the national ambient air quality monitoring systems.

Several reports, including Air Quality in Europe 2018 and our own independent air quality monitoring, show that the air quality in the Western Balkan countries is gradually worsening. Outdated coal power plants and loosely regulated open-cast lignite mines might not be the only source of air pollution, but as the Chronic Coal Pollution report shows, their contribution is undeniable massive.

Failing the plants directive

Under the Energy Community Treaty, the Western Balkan countries were obliged to bring all thermal power plants in line with the Large Combustion Plants Directive (LCPD) requirements by January 2018.

More than a year after the original deadline however, the requirements remain unfulfilled. Meanwhile, the same power plants continue to log thousands of working hours with the same overused equipment.

Even the most basic requirement to continuously monitor emissions is not fulfilled at most of the plants. Available data is mainly composed of estimates based on periodic measurements; the monitoring of emissions does not provide real-time access to air quality data and the results are only available through yearly reports. Additionally, this data does not include dispersion patterns and effects on the surrounding population and ecosystems.

Failing the health and environment directive

Unlike the LCPD that targets pollution at the source, the Ambient Air Quality Directive (AQD) is established “to protect human health and the environment as a whole” and therefore provides principles for continuous real-time monitoring of air pollution and obligations related to emission reduction at the national, local, and community levels. In order to accomplish its goals, the AQD determines the siting criteria for sampling points for the assessment of ambient air quality:

Sampling points directed at the protection of human health shall be sited in such a way as to provide data on the areas within zones and agglomerations where the highest concentrations occur to which the population is likely to be directly or indirectly exposed for a period which is significant in relation to the averaging period of the limit value(s);
Where contributions from industrial sources are to be assessed, at least one sampling point shall be installed downwind of the source in the nearest residential area. Where the background concentration is not known, an additional sampling point shall be situated within the main wind direction.

The regions’ thermal power plants, being an immense source of air pollution, should have been first in line for monitoring.

All Western Balkan countries have transposed the AQD in their national legislation, but secondary legislation for its implementation varies significantly from one country to another (or even within the same country, as is the case for Bosnia and Herzegovina).

One of the key reasons why the EU is making progress in curbing its air pollution is that there is a level playing field for all countries, and they all aspire to the same standards. This is not at all the case in the Western Balkans.

As clearly visible on the map, most of the power plants are not sufficiently monitored: many of them fall outside the monitoring stations’ range and do not cover all relevant pollutants. Several of those, such as Stanari in Bosnia and Herzegovina, and Kolubara and Morava in Serbia, are completely excluded from the national monitoring systems. The closest monitoring station to TPP Stanari is 25 kilometers away, and to TPP Morava – almost 30 kilometers away.

If the governments are serious about their citizens’ health, proper implementation of the AQD is a must.

In the Western Balkans, we need to get back to the basics and have a reliable system of air pollution monitoring and assessment in place before we move on to air quality plans, national emission reduction plans, and step further.

In order to combat air pollution, we have to know where it comes from.

New investigation in Kresna gorge reveals another major breach of law

The bTV reportages (1, 2, 3, 4, 5 – in Bulgarian) show ongoing preparatory works alongside the potential route of the Struma motorway even though the procurement procedure for this lot is not finished and a construction company is not selected. This violates the public procurement legislation for EU-funded projects, including the Struma motorway that received EUR 610 million in Cohesion funds.

The investigation reveals that a private company Patproekt – 2000 has already built 7 km of roads and made 13 drillings for geological samples in the Natura 2000 site without notifying responsible authorities. Evidently, no environmental assessment and precautionary measures for protected species have been carried out.

Patproekt – 2000 has a long and flawed history with the Struma motorway. According to the investigation, it has already breached procurement procedures in the past. In 2016, it pulled the same trick by starting illegal preparatory works a year before the official tender opened and announced results. Since 2011, it has also been participating in the construction of other sections of the motorway.

A hotbed of problems

That same area of Struma motorway is subject to a 20-year-long dispute between the government of Bulgaria and environmental groups fighting to protect this invaluable European natural heritage.

Since its conception, the motorway wrought havoc on local biodiversity and triggered a massive public petition protesting the project.

The European Commission must step in

The recurring problems with the Struma motorway threatening the Kresna gorge have been well recorded by the Commission since 1998. Nevertheless, in the past years the Commission services have repeatedly failed to act on evident breaches of the EU Environmental Directives.

This is happening within one of the biggest EU-funded projects in Bulgaria that should have been the best example and a learning tool for the Bulgarian government in implementing EU legislation.

We alerted the Commission on multiple occasions but so far the formal response was that the EU funds are not yet involved in the most problematic section of the motorway.

Earlier this year, we petitioned the European Ombudsman to end the prolonged maladministration by the Commission.

Today, we present to Commissioner Cretu the evidence of EU laws violation and fraudulent practices in decision making around the Struma motorway.

We believe, the European Commission should question its commitment to the corrupt project that goes against European values and does not shun dubious practices. The Commission needs to conduct a comprehensive investigation of its own to make sure the EU’s public money are spent in line with public interest.

Croatian coal plant must not be resurrected

The Plomin 1 coal power plant started work in 1969, back in the days when Croatia still had its own coal reserves. It was supposed to comply with EU pollution control regulations by the end of 2017 or close, under the terms of Croatia’s EU accession agreement. Being only 115 MW, it was hardly worth the investment, and so it was planned to close.

In reality, a fire got there first. In May 2017 the plant was seriously damaged and stopped working.

Imagine our surprise, then, when late that year the Ministry of Environmental Protection and Energy first announced that HEP, the Croatian state electricity company, had applied for an extension of the plant’s environmental permit and that it plans to extend the plant’s lifetime for another 15-20 years.

Croatian environmental groups Zelena akcija, Zelena Istra and Greenpeace Croatia argue that the plant is already closed and should not be raised from the dead.

But the Ministry is acting as if it is a functional plant that just needs its permit extended. Recently, it published a draft permit on its website for public comments, after which it will decide whether to go ahead with issuing a new permit.

Not even an environmental impact assessment has been carried out for the plant. In 2018 the expert background paper for the resurrection project claimed that it had, but it was actually referring to the study done for a completely different project, the now long-forgotten 500 MW Plomin C.

After environmental groups exposed this deception, the Ministry has now changed its story, saying that no environmental impact assessment needs to be done. This is based on the incorrect argument that the new project would automatically be better for the environment than the “existing” plant. But the existing plant is not operational, and thus not emitting large amounts of pollutants, so the proposal would actually add new pollution compared to the current situation.

For this reason, if the Ministry goes ahead with issuing the environmental permit, we will have no other choice than to submit a lawsuit against the decision.

As well as coal’s climate impacts, air pollution from coal power plants has been demonstrated to cause premature deaths as well as respiratory diseases. Croatia, as a small economy with only two relatively small coal plants, is well-placed to speed up its energy transition but has so far dragged its feet instead of capitalising on this opportunity to bolster its clean, green image.

« Previous Page