Climate Action and the European Investment Bank

The European Investment Bank (EIB) has been Europe’s climate bank since 2012 providing €150 billion of finance supporting €550 billion of investment in projects that reduce emissions and help countries adjust to the impacts of climate change. Today the EIB has decided to make a quantum leap in its ambition to meet the Paris climate goals engaging in climate action and supporting environmental sustainability.

A new energy lending policy was defined last November, reaffirming the institution’s decision to end financing for unabated fossil fuel energy projects from the end of 202 – a crucial milestone in the fight against global warming – and accelerate clean energy innovation, energy efficiency and renewables. Adding to that the EIB set a new Emissions Performance Standard of 250g of CO2 per Kilowatt-hour (kWh), which will replace the current 550gCO2/kWh standard.

“Climate is the top issue on the political agenda of our time,” said Werner Hoyer, EIB President, echoing the words spoken by Ursula von der Leyen, the EU Commission President, when commenting on the Commission’s New Green Deal. Hoyer then went on to underline that the world’s largest international public bank will support €1 trillion of climate related investments in the upcoming years making it the “most ambitious climate investment strategy of any public financial institution anywhere.”

The EIB’s engagement in the energy sector will be based on five principles as detailed in its new lending policy and namely a) prioritizing energy efficiency with a view to supporting the new EU target, b) enabling energy decarbonization by promoting low or zero carbon technology c) increasing financing for decentralized energy production, innovative energy storage and e-mobility, d) ensuring grid investment for new, intermittent energy sources like wind and solar while at the same time enhancing cross-border interconnections and finally e) increasing the impact of investments to support energy transformation outside the EU.

As the EIB President said, cooperation is key to advance in this direction to “support a climate neutral European economy by 2050.” However, the new energy lending policy will come into force a year later than initially planned due to the resistance from some key EU Member States like Germany, one of Europe’s biggest gas markets. The German government is committed to end coal power as well as phase out nuclear power by 2038 and is now relying on natural gas as a bridge fuel for its energy transition. This implies that fossil fuel projects already under appraisal for EU funding could still get financed if approved by the end of 2021 (currently there are 32 gas cluster projects eligible for funding). Still, gas projects would have to be based on new technologies such as carbon capture and storage, combining heat and power generation or mixing in renewable gases with the fossil natural gas.

Ten EU countries face specific energy investment challenges and they turn to the EIB and the European Commission to support investment by a Just Transition Fund.The EIB will be financing up to 75% of eligible projects for new energy investments (e.g. reconversion of coal mines in states/regions with a more challenging transition path). Additionally, the EIB is planning on gradually increasing the share of its financing dedicated to climate action to reach 50% of its operations in 2025 while aligning its goals with the Paris Agreement. The recent EIB loans in Poland highlight its ever-growing role as the EU Climate Bank. The heating distribution operators of Lublin and Bydgoszcz will receive sufficient funds to modernize their networks thus ensuring energy efficiency and better air quality. The project will benefit approximately 500,000 end-users and is part of the framework loan for the heating sector in Poland which has the guarantee of the European Fund for Strategic Investments (EFSI) as well as the Investment plan for Europe (Juncker Plan). The EIB has also recently signed a 2.5 billion loan with Wallenstam AB, a real estate company based in Gothenburg, Stockholm and Uppsala, to support the construction of sustainable and affordable housing classified as “nearly-zero-energy-buildings” in Sweden. It is also establishing and deepening key partnership as shown by the recent “Joint Declaration on Climate Partnership” with the city of Vienna. According to the Declaration, future housing, energy, waste and transport projects in Vienna will be subject to a careful analysis for possible EU climate bank financing, taking their climate action contribution into account.

E-mobility, energy efficiency, innovative energy storage and a decentralized energy production are the strategy’s main priorities. One of the main goals is to meet a 32% renewable energy share throughout the EU by 2030. However, like Markus Trilling, finance and subsidies policy coordinator at Climate Action Network (CAN), maintains among other experts, the EU will have to cover the entire phase-out of fossil fuel gas lending. Investing in fossil gas creates a significant carbon lock-in thus hindering EU climate neutrality goal. It might turn out to be a serious challenge for the EIB and the EU as a whole. Still, the EIB is sending a clear message to the international community as its Vice-President, Emma Navarro, stressed: “these decisions send an important signal to the world. Any financing that is not green will be made sustainable.” It has also called upon all multilateral development banks like the World Bank and the Asian Development Bank to phase out financing of fossil fuel projects. Additionally, according to recent Eurobarometer research, 93% of Europeans think climate change is a serious concern. With that level of consensus, EIB new energy lending policy will be well received by the majority of voters.