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Strong Commission push for climate action in the next EU budget risks backslide in Parliament and Council

The Parliament’s rapporteur on the legislation, Andrea Cozzolino, recently unveiled a proposal where he puts fossil fuels back into the scope of the European Regional Development fund. This is a disappointing development as it would enable investments that would drastically decrease the funding available for the clean energy transition, especially for the regions whose economies and energy systems need it most, all the while creating a significant carbon lock-in to fossil fuels infrastructure.

In June, the Commission committed to spending one of every four euros in the next EU Budget on climate action. At a time when it has never been more urgent to invest heavily in clean energy and low-carbon technologies, this is a welcomed move, but should not be seen as blank check to do business as usual with the remaining 75 per cent of the one trillion euros.

In one of its proposals for the future Cohesion Policy, the Commision for the first time clearly excluded a list of harmful activities from the support of European Regional Development Fund. This exclusion list was originally welcomed by many stakeholders including Bankwatch as a forward looking and ambitious proposal that provides the certainty that investors need to commit to low-carbon technologies and transition to a ‘circular economy’.

This list, if implemented correctly, would show the EU’s ambition to support clean investments, and would also serve as example for other public funds.

The Parliament’s report, however, by ceding to the pressure of the most backward-looking lobbies puts this all in jeopardy. Both the Parliament and Council should uphold this crucial provision and send a clear signal that the EU is ready to live up to its climate commitments.

 

200 million euro EBRD loan to Serbian energy giant EPS under investigation

According to the NGOs’ complaint, “although the investment is on corporate level (…) the project has caused harm (…) due to freeing up resources to allow the company to implement its long-term capital expenditure programme which includes lignite mine expansion and the construction of several coal plants.”

Back in 2015, the EBRD granted this loan to EPS after massive rainfall flooded EPS coal mines and damaged the company’s infrastructure the previous year. Nominally, the EBRD loan was meant to help the company get over the floods, but an EBRD board document said the money was meant to ensure the company can implement its long-term capital expenditure programme – and that means more coal.

The 2015 loan is one in a series of several loans the EBRD has given to EPS since 2001, despite the company clearly pursuing a strategy to expand coal-based electricity production and numerous allegations of corruption and legal violations tarring its reputation.

According to the 2016 Energy Strategy of Serbia [1], in addition to prolonging the life of existing coal plants, EPS is planning several new lignite power plants: Kostolac B3 [2], Nikola Tesla B3, Kolubara B and Stavalj. While it is unlikely that all of these will go ahead, EPS clearly prioritises Kostolac B3 in the implementation programme [3] for the energy strategy and has not publicly announced any cancellations of the other plants.

EPS is also expanding the Drmno lignite mine’s production capacity from 9 to 12 million tonnes per year, and it is doing so without an environmental and social impact assessment, in breach of EBRD policy, as well as Serbian and EU legislation. In September, Bankwatch and CEKOR also submitted a complaint to the Energy Community about mine expansion works going ahead without the necessary precautions.

“The EBRD’s 2015 loan for EPS should have prepared a coal-heavy company for the realities of adhering to stricter EU legislation. Instead, it appears to have freed up resources so that the company can extract and burn even more coal,” says Ioana Ciuta, energy campaigner at Bankwatch.

“The EBRD has given money to EPS to reform, but three years after this loan the company shows no signs of cleaning up its portfolio. If we only look at the CO2 price, coal is clearly becoming a liability. This is the elephant in the room everyone at EPS and the EBRD chooses to ignore,” says Zvezdan Kalmar, programme coordinator at CEKOR.

The EBRD’s Project Complaint Mechanism has now declared the NGOs’ complaint eligible and published its assessment report, which raises a series of questions about the Environmental and Social Policy of the bank when it comes to corporate level finance. According to Bankwatch, the assessors’ willingness to examine a ‘restructuring loan’ is a step in the right direction since such loans can serve as a facade for indirectly financing problematic projects.

The EBRD will organise a public consultation in Belgrade on October 19, in the context of its Energy Sector Strategy revision, where it is expected that lending to coal dependent companies, such as EPS, and decarbonisation of the energy sector will be among the topics for discussion.

A new report published by Bankwatch last week shows how EPS and other companies in Poland, the Czech Republic and Bulgaria have been receiving generous financial support from European developmnet banks despite their continued reliance on fossil fuels. In light of the revision of the EBRD’s Energy Strategy, the report makes the case for conditioning further financing to such companies on decarbonisation plans in line with the Paris climate agreement.

Notes to editors:

[1] http://www.mre.gov.rs/doc/efikasnost-izvori/23.06.02016 ENERGY SECTOR DEVELOPMENT STRATEGY OF THE REPUBLIC OF SERBIA.pdf

[2]The China ExIm Bank is supporting the construction of the new Kostolac B3 plant by the China Machinery and Engineering Corporation (USD 608 million approved in 2015) and has financed a desulphurisation installation at the existing blocks of Kostolac B (USD 293 million approved in 2011). The latter was allegedly completed in July 2017, however, the power plant has hardly been emitting through the de-SOx stack, which raises questions about the quality and reliability of the works.

[3] http://www.mre.gov.rs/doc/efikasnost-izvori/PROGRAM FOR THE IMPLEMENTATION ENERGY STRATEGY for the period from 2017 until 2023.pdf

For additional information please contact:

Ioana Ciuta
Energy Coordinator, CEE Bankwatch Network
ioana.ciuta@bankwatch.org
Tel. +40 724 020 281
Skype: ioana.ciuta
Twitter: @unaltuser

Zvezdan Kalmar
Coordinator for Energy and Monitoring of International Financial Institutions, CEKOR
vodana@gmail.com
Tel. +381 65 55 23 191

European development money helps sustain fossil fuels-based companies – report

The full report is available here.

The companies – Energa and Grupa Azoty (Poland), ČEZ (Czech Republic), Elektroprivreda Srbije (Serbia), and Bulgarian Energy Holding (Bulgaria) – rely heavily on fossil fuels, primarily coal, for energy generation. Despite governments’ pledges to address the climate crisis, these major energy companies have shown no commitment to reduce their reliance on oil, gas and coal. Some of them are even developing additional coal capacity. And yet, over the past years, they have been receiving hefty financial support from both the European Bank for Reconstruction and Development (EBRD) and the European Investment Bank (EIB).

The new report reveals that, while virtually halting their direct investments in coal in the last five years, the EIB and EBRD have provided corporate level financing and extended loans for distribution and renewable energy projects to the same fossil-fuel dependent companies. Therefore, by allowing these investments without a long term decarbonisation plan, the two European public banks have effectively turned a blind eye to the companies’ fossil fuels dependence, and ultimately helped perpetuate it.

Since 2012, the Polish state-owned energy company Energa has received generous financial support from the EBRD, the EIB and the Nordic Investment Bank. Most recently, in 2017, Energa and the EIB issued EUR 250 million in hybrid bonds with the aim of financing the upgrade and expansion of distribution system during the following two years. Nevertheless, earlier this month, Energa approved the construction of the controversial 1GW Ostrołęka C coal-fired power plant, a joint project with Enea, another state-owned energy utility.

Over the past decade, Serbia’s national power utility Elektroprivreda Srbije (EPS) has received a series of loans from the EBRD. A EUR 200 million loan approved in 2015 was meant for restructuring, thus not only legitimising EPS’s continued reliance on lignite, but effectively freeing up resources that ultimately helped perpetuate it. In 2011, EPS received a EUR 80 million loan from the EBRD for what had been termed “environmental improvements.” In practice, the coal energy company has increased its emissions, and it continues to expand its coal mines.

The report’s authors stress that, in addition, fossil fuels are fast becoming a financial liability, thus creating a tangible investment risk. The EBRD’s ongoing review of its energy strategy is a prime opportunity to ensure the bank’s investments help bring about the urgently needed transition towards sustainable energy, rather than hamper it.

The draft of the new EBRD Energy Sector Strategy acknowledges the urgent need for decarbonisation through increased support for renewables and energy efficiency, but at the same time it keeps the door wide open for fossil fuels investments. The bank also commits to encourage greenhouse gas emissions reporting and decarbonisation plans by clients with significant carbon assets, however, it lacks explicit commitment to divestment from companies that are building new coal capacities

Fidanka Bacheva-McGrath, EBRD Policy Officer with Bankwatch, says: “The EBRD needs to send a strong signal to the market that the low-carbon transition for fossil fuel dependent companies and carbon intensive economies needs to start now. It is a joke to ‘encourage’ a state owned energy utility to develop a decarbonisation plan when it is building a new coal power plant that will be in operation for decades in the future. You cannot eat your cake and have it all.”

The report underlines the need for EBRD investments in fossil fuel dependent companies to facilitate absolute emissions reductions in both the short and the long term.

Europe’s development banks must also condition any further financing for companies whose electricity or heating capacity relies on fossil fuels on emissions reductions measurable within the lifetime of projects they support.

And lastly, companies planning new coal power capacity should not benefit from any financial support.

Anna Roggenbuck, EIB Policy Officer with CEE Bankwatch Network, said: “The review of the EIB’s energy strategy expected later this year is a great opportunity for the bank to reconsider its business model for the sector. As a financial institution, the EIB should be avoid getting involved with companies facing losses due to a major carbon exposure, and as an EU institution it ought to support energy transformation. Supporting companies’ decarbonisation plans based on energy efficiency and renewable energy sources is the only way forward.”

The full report can be found here: https://bankwatch.org/publication/european-public-funding-for-fossil-fuel-dependent-companies

For additional information please contact:

Fidanka Bacheva-McGrath
EBRD Policy Officer, CEE Bankwatch Network
fidankab@bankwatch.org
Tel. +359877303097
Skype: fidanka_b
Twitter: @fidankabmg

Anna Roggenbuck
EIB Policy Officer, CEE Bankwatch Network
annar@bankwatch.org
Tel. +48918315392 / +48509970424

Use of public money to support Tuzla 7 coal power plant must be investigated, shows new complaint

The Federation of Bosnia-Herzegovina Government has already approved a guarantee for a EUR 614 million loan from the China Export-Import Bank and is trying to rush it through the Parliament before general elections on 7 October.

However, under the Energy Community Treaty, Bosnia-Herzegovina must follow EU rules on subsidies in the energy sector. Among other things, in most cases state guarantees may only cover maximum 80 percent of the total loan amount.

The proposed guarantee for Tuzla 7, however, covers 100 percent of the loan, plus interest and other associated costs. There are circumstances in which this is allowed, but Aarhus Resource Centre and Bankwatch argue that the relevant conditions are not fulfilled in this case.

“Given the extremely complicated nature of legislation on subsidies, the mere fact that the State Aid Council of Bosnia-Herzegovina approved this guarantee within eight working days of receiving the request from the Federal Ministry of Finance casts doubt on the quality of the assessment”, said Nina Kreševljaković of the Aarhus Resource Centre, Sarajevo.

“Using public money to support a new coal power plant is scandalous and deserves much more in-depth scrutiny than this. It will lock us into 40-plus more years of health-damaging pollution, greenhouse gas emissions and most likely economic losses too. The Energy Community needs to examine the case before any further steps are taken and Parliamentarians need to resist the pressure to approve the guarantee”, she added.

“Since 2017, China has required Chinese entities operating overseas to observe the laws and regulations of host countries, as well as international best practices to mitigate known risks, through its ‘Guidance on Promoting the Green Belt and Road’. China must cease financing consideration for the project while investigation on illegal state aid is underway,” stated Pippa Gallop of CEE Bankwatch Network.

 

For additional information please contact:

Nina Kreševljaković
LL.B. Aarhus Resource Centre Sarajevo, Bosnia-Herzegovina
admin@aarhus.ba
+387 33/660 588

Pippa Gallop
CEE Bankwatch Network
pippa.gallop@bankwatch.org
+385 99 755 97 87
Skype: pippa.gallop

Notes for editors:

The Energy Community Treaty entered force in 2006 and aims to create a common energy market between the EU and the Western Balkans, Ukraine, Moldova and Georgia. As well as implementing EU energy legislation, Contracting Parties must also implement selected EU environmental and competition legislation. For more information, see www.energy-community.org

The EU’s house bank obstructs climate action with continued fossil fuels spending and lacking investment in sustainable energy – new report

The full report can be found here.

An earlier Bankwatch report that looked into the EIB’s energy investments 2007-2010 and released in 2012, ahead of the previous review of the bank’s energy strategy, showed an increase in lending to both renewable energy and fossil fuels projects [1].

The energy strategy the EIB adopted later that year saw the introduction of the Energy Performance Standard, which in practice prevented financing to the most polluting, primarily coal-based, electricity generation projects.

Later, in 2013-2017, the EIB committed a total of EUR 52.5 billion – or more than 14 percent – of its entire portfolio to energy projects. Nevertheless, Bankwatch’s new analysis finds that under the guidance of the EIB’s current energy policy, the bank kept financing fossil fuels projects – mostly gas transportation and distribution, and mainly in western Europe, led by Italy, Spain and the UK.

The EIB’s annual fossil fuel lending should have long been on a downward trend. It seemed to have peaked in 2010, the year after the Copenhagen climate summit debacle, but it has since fluctuated. Moreover, two record loans to sections of the Southern Gas Corridor which were approved in 2018 mean the EU’s house bank is again doubling down on fossil fuels.

Over the same period, 2013-2017, energy companies with a high share of coal in their electricity and heating generation capacity – including Energa, Tauron and PGE in Poland, Endesa in Spain, PPC in Greece, and CEZ in the Czech Republic – enjoyed nearly EUR 4 billion in EIB money.

At the same time, the EIB lending for sustainable energy has been insufficient. Energy efficiency, as the bank itself acknowledges, is the most cost effective way to cut emissions and improve energy security. Yet, Bankwatch’s new analysis shows that in 20 EU countries, financing for energy efficiency projects constituted less than of the EU average (4.6% of overall EIB investments in each country).

The review of the EIB’s Energy Lending Criteria, expected to commence this year, is an opportunity to buck these trends and align the energy investments of the EU’s house bank with European countries’ commitments under the Paris Agreement.

Bankwatch’s report lists a number of steps the EIB can take to this end, and primarily ending the bank’s support for fossil fuels. This should go in parallel with stepping up support for energy efficiency and renewble energy projects, in particular to small scale, community owned, decentralized projects.

Additionally, financing for electric utilities should only be allowed under the condition they have a solid transition strategy into low emissions energy, including a commitment not to develop new coal capacity or extend the existing one.

The EIB’s next energy strategy needs to adopt the EU’s ‘energy efficiency first’ principle, and the bank needs to take a proactive approach to help stimulate energy efficiency investments.

Lastly, the new energy strategy should make the EIB pay special attention to the social and environmental sustainability of renewable energy projects, and hydropower in particular.

Anna Roggenbuck, Policy Officer with CEE Bankwatch Network and author of the report, says: “By continuing to support fossil fuels projects with billions of euros in public money, the EIB is effectively betraying Europeans. The EU’s house bank must change tack and commit to shifting its funds from fossil fuels projects to sustainable energy ones.”

Xavier Sol, Director of Counter Balance, said: “Figures clearly show that the EIB still needs to raise the bar to put the EU’s commitments under the Paris Agreement into practice. The review of its energy lending criteria is the chance to show that as the EU bank it is not lagging behind but rather showing the way to a clean energy transition and a fossil free future.”

 

For additional information please contact:

Anna Roggenbuck
EIB Policy Officer
CEE Bankwatch Network
annar@bankwatch.org
+48 918315392 / +48 509970424

 

Notes for editors:

[1] https://bankwatch.org/publication/carbon-rising-european-investment-bank-energy-lending-2007-2010

Court complaints launched against Bosnia-Herzegovina hydropower permits

Aarhus Resource Centre, Sarajevo, Bosnia-Herzegovina
Coalition for the protection of rivers of Bosnia-Herzegovina
Environmental Movement Ozon, Montenegro
Green Home, Montenegro
CEE Bankwatch Network 

The river Drina constitutes the most significant habitat for the endangered Danube Salmon (Hucho hucho), which is found only in a few of southeast Europe’s cleanest rivers. [2] The area has also developed small-scale tourism facilities based on rafting and angling which would be heavily impacted by any nearby dams.

A larger version of the Buk Bijela project has been disputed since the 1970s due to its impacts on the protected Tara canyon in Montenegro, which is both a UNESCO World Heritage site and part of the Durmitor National Park.

“The Republika Srpska Ministry for Spatial Planning, Construction and Ecology extended both the environmental permits even though the investor failed to request their renewal within the legally defined deadline. The Ministry should have annulled the previous permits considering that construction had not begun within four years of their issuance. Instead, it issued an illegal decision to prolong the existing environmental permits. In contravention of Bosnia-Herzegovina’s obligations under the Aarhus and Espoo Conventions, [3] the environmental impact assessments were not repeated, nor were the public consultations, either in Bosnia-Herzegovina or Montenegro,” explained Nina Kreševljaković from the Aarhus Resource Centre in Sarajevo.

The original public consultations, held in 2012, had been poorly advertised and the comments provided by NGOs in Bosnia-Herzegovina and Montenegro were not taken into account.

“The latest version of the project is claimed in the environmental impact assessment not to impact on the river Tara, but without any evidence provided. Considering that the Tara is the main tributary of the Drina and that the reservoir would reach the Montenegrin border, it is inevitable that some impacts would occur and need to be assessed”, pointed out Nataša Kovačević from Green Home in Montenegro.

The 93 MW Buk Bijela dam is being pushed by state-owned company Elektroprivreda Republike Srpske (ERS) and a memorandum on construction of the project has been signed with China National Aero-Technology International Engineering Corporation (AVIC-ENG) in July 2017. It is expected to be financed by Chinese state banks.

The 44 MW Foča plant, a few kilometres downstream, is also promoted by ERS, but no source of financing has been mentioned publicly. Both plants are part of the so-called Upper Drina cascade, along with the planned Sutjeska and Paunci plants.

Goran Krivić, Co-ordinator of the Coalition for the Protection of Rivers of Bosnia-Herzegovina, commented that “A project similar to one cancelled half a century ago is not something that should be pushed by Republika Srpska’s institutions and representatives. This week it has even been revealed that no feasibility study has been carried out for the project. This in itself is reason enough for the project’s suspension, not to mention the threatened species and development of sports and tourism.”

“Chinese banks are already attracting negative publicity for their support for coal power plants in the region,” added Pippa Gallop from CEE Bankwatch Network. “Financing harmful hydropower plants like Buk Bijela and Foča is only going to create more disharmony between China’s business activities and Bosnia-Herzegovina’s EU aspirations. The EU urgently needs to ensure that the countries in the region adhere with EU nature protection legislation, no matter who is financing infrastructure projects, and Chinese banks need to enhance their due diligence around such projects.”

 

For further information please contact:

Nina Kreševljaković
LL.B. Aarhus Resource Centre Sarajevo, Bosnia-Herzegovina
admin@aarhus.ba
+387 33/660 588

Goran Krivić
Coalition for the protection of rivers in Bosnia-Herzegovina
gorankrivic@gmail.com
+387 65/690-972

Nataša Kovačević
Green Home
natasa.kovacevic@greenhome.co.me
+382 67 605 060,

Aleksandar Perović
Environmental movement Ozon
aleksandar.perovic@ozon.org.me
Tel: +382 40 206 564
M/Viber: +382 67 608 083
Skype: alexandar.perovic

Pippa Gallop
CEE Bankwatch Network
pippa.gallop@bankwatch.org
+385 99 755 97 87
Skype: pippa.gallop

 

Notes for editors

[1] Aarhus Resource Centre Sarajevo complaints:

* 77/18 (Buk bijela), dated 14.06.2018 against Decision 15.04-96-35/13 of 17.05.2018 by the Ministry for Spatial Planning, Construction and Ecology of Republika Srpska, Bosnia-Herzegovina.

* 81/18 (Foča), dated 22.06.2018 against Decision 15.04-96-43/13 of 04.06.2018. by the Ministry for Spatial Planning, Construction and Ecology of Republika Srpska, Bosnia-Herzegovina.

[2] Freyhof, J., S. Weiss, A. Adrović, M. Ćaleta, A.Duplić, B. Hrašovec, B. Kalamujić, Z. Marčić, D. Milošević, M. Mrakovčić, D. Mrdak, M. Piria, U. Schwarz, P. Simonović, S. Šljuka, T. Tomljanović, & D. Zabric. 2015. The Huchen Hucho hucho in the Balkan region: Distribution and future impacts by hydropower development. RiverWatch & EuroNatur, 30pp. https://balkanrivers.net/sites/default/files/Huchen_Study_2015.pdf

[3] Article 6. paragraphs 4, 8, and 9 of the Aarhus Convention, and Article 5 of the Espoo Convention.