Can the EIB lead the European economy out of crisis by championing EU climate policy?
Bankwatch Mail | 8 August 2014
The European Investment Bank, the biggest multilateral public bank in the world by lending volume and the self-styled ‘EU bank’, has recently announced that it will be reviewing its approach to climate change in the coming months. According to comments made by EIB vice-president Philippe de Fontaine Vive to civil society representatives, “The EIB wants to position itself between this October’s anticipated EU 2030 climate agreement and the Paris COP 21 meeting in December 2015”.
This article is from Issue 60 of our quarterly newsletter Bankwatch Mail
It would appear, therefore, that the EIB is eyeing the opportunity to go beyond the EU 2030 climate agreement, with its own climate review due to be finalised in the months leading up to the Paris COP 21 meeting. If you like, the ambition may well be to adopt an EU 2030+ climate policy within the EIB itself.
This, then, appears to be a promising start to the bank’s climate review. With the EU climate policy process grinding on, and with the member states bickering over how unambitious the final deal due to emerge from an EU Council meeting in late October, the EIB is now well placed to push beyond the uninspiring hot air of these negotiations and commit real financial firepower to meet Europe’s climate challenges.
Currently the EIB does not have a climate policy as such. Bits and pieces of climate relevant rules and guidance are spread across the bank’s sectoral policies (in sectors such as energy and transport), its greenhouse gas accounting methodology and project feasibilty assessments, as well as its so-called Climate Action Programme that currently covers 25 percent of all EIB lending.
Substantial climate progress at the EIB, though, was achieved in 2013 with the adoption of a revised energy policy following an extensive consultation process that saw a coalition of European environment NGOs strongly encouraging the EIB to clean up its wide-ranging energy sector lending. This duly materialised, to a reasonably ambitious extent, with the EIB introducing an innovative Emission Performance Standard of 550gCO2/kWh for energy investments, a shadow carbon price and accounting for non-climate related externalities (such as nitrogen oxides and other pollutants).
The new energy policy also involves the bank putting more weight behind the EU’s energy efficiency directives as well as other directives that aim to improve air, water and soil quality and increase the relevance of the renewable energy sources.
This kind of recent progress suggests that the EIB is able to provide leadership and propose solutions that address climate concerns – it has the financial means and the policy tools to direct other market players in both the private and public sectors. And let’s be clear – accelerated and strong climate financing is urgently required.
Climate impacts are not going away. As recent findings on the retreating Antarctic ice sheet show, we need to act with a level of resolve and determination that has not been required from any European society since at least the end of the second world war. At the EU level, however, we are witnessing a stand-still, and a decision-making procedure requiring unanimity is presenting a serious challenge for progress to a low-carbon economy and the necessary energy transition across the EU-28.
The current EIB climate review thus offers a unique opportunity to introduce progressive initiatives and approaches at the EU level without the risk of being blocked by a single member state. Both the conclusions of Denmark’s recent EU Presidency and the European Parliament resolution on the EIB from March 11 this year offer a very good starting point and suggest that there is a climate consensus among European representatives as well as a majority of EU member states representing a majority of EU citizens.
This year’s European Parliament resolution in particular has set the scene for relevant changes in EIB lending and its alignment with climate science and the EU Roadmaps for 2050. In the climate context, the European Parliament has specifically called on the EIB to:
- Update its climate change strategy as regards its financing operations before the end of 2015.
- Perform a climate assessment and review of all its activities in 2014, leading to a renewed climate protection policy, e.g. through project assessment and an integrated approach to smartly combine sector-specific policies for key sectors; and calls on the EIB to annex this review to its next annual report.
- Present a comprehensive phase-out plan for lending for non-renewable energy.
- Step up its low-carbon investment efforts and to work on policies leading to more ambitious climate targets (in view of the 2030 climate package, including its decarbonisation priorities).
- Focus the EIB’s investment policy even further on sustainable projects.
Expanding on these calls from the European Parliament, and confident that the EIB is willing to show climate leadership at a crucial juncture, CEE Bankwatch Network has developed a set of policy demands aimed at the EIB’s climate policy process.
1. The EIB should further increase its support for energy efficiency and renewable energy
Steady year-to-year total investment increases by the EIB in new renewables and demand-side energy efficiency – with an emphasis on the housing sector – are essential. The EIB should elaborate together with different stakeholders – finance, energy, climate and environment ministries in the EU-28 member states, relevant departments within the European Commisison (DG Climate Action, DG Environment, DG Energy), and civil society organisations – a plan that would determine the level of ambition for these annual increases that would, in the short-term, result in the EIB becoming a ‘climate positive’ bank. The bottom line in this regard is for the EIB to be financing the avoidance (both directly and indirectly) of GHG emissions through its projects rather than generating them. Central to this, the EIB needs to be mainstreaming climate considerations into each and every sector it lends to – from the financial market and SMEs to loans in the infrastructure and natural resources sectors.
2. The EIB should develop a ‘Climate Roadmap’ up to 2016
Such a roadmap would indicate how absolute investments by the EIB into fossil fuels will decrease, and by when the bank will stop funding all fossil fuel based projects and infrastructure. This would cover loans for refineries, oil and gas pipelines, oil and gas exploration and field development, new coal and lignite mines, coal or lignite mining equipment, equipment used for gas and oil (including unconventional hydrocarbons) extraction, retrofits for the fossil fuel industry, and carbon capture and storage and supporting infrastructure. We highly recommend that this objective should be reached by 2016, with an absolute deadline of 2018. As part of this roadmap, the EIB should ensure that its Emission Performance Standard is revised continuously and strengthened in line with the EIB climate roadmap.
3. The EIB should dramatically decrease project-generated GHG emissions and become a climate friendly bank
The drawing up of a financed “GHG emissions (going beyond the fossil fuel sector)” plan – including airports, highways, expansion of industrial capacity, new non-passive commercial buildings etc. – guiding the EIB to become a climate friendly bank by 2020. This would entail the level of GHG emissions financed by the EIB decreasing, and from 2020 becoming negative.
At a practical level, the bank’s investment focus should shift to projects such as: sustainable small-scale biomass plants using agricultural waste that has otherwise not been used for any other purpose; energy-producing buildings; deep retrofit programmes in housing that dramatically decrease the sector’s energy consumption, and; support for fuel switching in the energy sector from fossil fuels to renewables, for example, geothermal and solar energy for heating or cooling instead of coal or gas.
By aiming to thoroughly mainstream climate change considerations, the EIB’s climate policy would also result in its loans to the small- and medium-sized enterprise sector providing increased energy efficiency or small, client-tailored renewable energy components as part of the overall loan packages. This would also také shape over the course of the next couple of years across all the other sectors in which the EIB is active, including the multi-billion euro lending provided via financial intermediaries and financial markets.
The EIB’s positive climate potential is truly vast. The road to this point may have been long and winding, but it is now time to realise this potential in full.