The European Investment Bank (EIB) – bank of the EU and world’s biggest public lender – is currently reviewing its energy lending policy. Its choices will be decisive for EU citizens, European public finance and the climate worldwide.
What’s in the bank’s energy policy, and why is it so important?
The EIB’s energy policy, officially referred to as “Energy Lending Policy”, concretely consists of a set of rules that define which kind of energy projects the bank will finance.
In depth: How will the review of the energy policy work?
Every few years the bank revises its energy policy. Its current policy was approved in 2013. The EIB has now opened a public consultation on its new energy policy, which means stakeholders from institutions, industry and civil society can submit their contribution. A final policy will be adopted by the bank by the end of 2019, following discussions with its stakeholders.
Our group of civil society organisations will contribute to this process to make sure the bank moves towards improved standards for its energy lending, reflecting the current climate urgency and the EU’s commitments under the Paris Agreement.
Read more about the public consultation launched by the EIB.
As the bank that lends the most money in the whole world, even more than the World Bank, its energy choices are key to set the world on the right path to fight climate change and lead the transition towards clean energy.
Source: Bankwatch’s analysis “Energy Doublethink”
In addition, as the bank of the European Union, the EIB’s energy choices should reflect the EU’s commitments under the Paris Agreement – the United Nations’ accord to keep global warming well below 2°C above pre-industrial levels, and strive to limit the increase to 1.5 °C.
In depth: The recent 1.5°C report by the Intergovernmental Panel on Climate Change (IPCC)
The IPCC’s 1.5°C report is the latest analysis carried out by the by the Intergovernmental Panel on Climate Change. The study describes the devastating and even irreversible consequences of global warming beyond 1.5°C – with the world’s most climate-vulnerable communities struggling to survive. According to the analysis, keeping the temperature rise “well below 2°C” will be thus insufficient.
The report warns that at current emissions rates, the world would breach 1.5 degrees by around 2040. In order to avoid this, deep cuts in greenhouse gas emissions must be achieved within the next decade, which means phasing out the largest source of greenhouse gas emissions – the oil, gas, and coal primarily for energy generation – will be essential and extremely urgent.
The EU is only so far considering committing to ‘net zero emissions’ by 2050. But as one of the regions most responsible for causing climate change, and most capable of responding, it needs to act at much greater speed and scale.
In 2015 the Paris Agreement fundamentally changed the global policy approach to climate change, requiring financial flows to be compatible with a pathway towards net zero greenhouse gas emissions and climate-resilient development.
As all EU governments – the shareholders of the EIB – have signed the Paris Agreement, a new approach to the bank’s energy finance is simply necessary. Its current policy, adopted in 2013, is largely outdated.
The EU also committed to phasing out fossil fuel subsidies by 2025 under the auspices of the G7 and by 2020 under its own Environment Action Programme. As the bank of the EU, the EIB’s lending choices should reflect such engagements.
In depth: On a coherent path?
This process will also run in parallel to the negotiations over the post-2020 EU Budget, in which the EIB is likely to be a strategic implementing partner. For the sake of coherence, greening the EU Budget needs to happen in connection to greening the financial arm of the EU.
What is more, the drops in costs of clean energy technologies have fundamentally changed the economics of the clean energy transition. Offshore wind costs have already dropped to what the EU expected them to be in 2050 in its roadmap. Recent solar and wind auction prices in Europe are below those of the EU’s 2016 Clean Energy Package modelling for the year 2030. This is complemented by a global trend to phase out coal and a long-term trajectory of declining gas demand, as renewable energy is set to become cheaper than existing gas in the next decade.
At the “One Planet Summit” in Paris in December 2017, the momentum by the financial industry to align flows with climate objectives has become visible. The World Bank for example announced it will no longer finance upstream oil and gas projects after 2019.
Since then, there have been some global efforts in this direction. For example, at the latest Conference of the Parties of the UNFCCC – the COP24 – a group of Multilateral Development Banks including the World Bank, the Asian Development Bank and the EIB, announced a common approach to align their operations with the objectives set in Paris in 2015. Unfortunately, this contains no concrete commitment about the much-needed, complete phase out of their fossil fuels investments, that’s why the EIB needs to set this change in stone in its next energy policy.
In depth: What happened when the EIB last updated its Energy Lending Policy in 2013?
The current Energy Lending Criteria adopted in 2013 were a first step towards a new approach by the bank to the energy sector. Following a fierce civil society campaign, the bank decided to tighten the criteria for fossil fuel power plants by setting-up the Emission Performance Standard (EPS) which practically ruled out most of the EIB lending to coal (not without exceptions), and helped eliminate the most polluting electricity generation installations from the EIB’s portfolio. Also, under the guidance of this policy between 2013 and 2017 the bank has granted loans worth almost € 20 billion in support of renewable energy sources globally and at least another € 11 billion for energy efficiency.
Still, in a deeply-changed global context, such measures are now far from sufficient to reflect the climate engagements the EU has committed to under the Paris Agreement. New forward-looking criteria for the EIB’s Energy Lending are urgently needed.
In depth: What have other EU institutions recommended to the EIB?
The European Parliament has repeatedly called on the bank to take a more sustainable path for its finance, but its calls remained unheard. In particular, in its 2019 reports on the EIB, the Parliament criticized the EIB’s lack of action on climate, and urged it to phase out fossil fuels. The European Parliament:
“Notes the on-going review of the EIB Energy Lending Criteria; expects this review to be aligned with the 2015 Paris Agreement; reiterates the call to the EIB to prioritise its lending to energy efficient and small-scale, decentralised RES and to present an ambitious plan to stop funding fossil fuels’ projects; calls on the EIB to aim to become a climate action leader and to increase investment in the renewable energy and energy efficiency sector, as well as to consider that goal as a priority in the revision of its energy lending criteria”
In parallel, the High-level group of experts on EU Sustainable Finance has also asked European public finance and the EIB to take a similar direction.