SIM Report: Western & Northern Europe, Issue 2
On 14 November, the European Investment Bank (EIB) announced that it would stop funding fossil fuel projects at the end of 2021. In particular, energy projects applying for EIB funding will need to demonstrate they are able to emit less than 250 grams of carbon dioxide per one kilowatt hour of energy produced. Some natural gas projects could still be eligible for funding but they would need to rely on environmentally-friendly technologies such as carbon capture and storage, and mixing natural gas with renewable gases.
French energy group Total has criticised the EIB’s decision with regards to financing natural gas, saying that the move could discourage energy companies shifting from heavy-polluting coal to gas-fired plants. The energy company’s head of gas, power and renewables added that gas helps drive the increase of renewables in the energy mix. Energy firms have promoted natural gas as a cleaner alternative to coal and oil, encouraging many governments to increase funding for such projects, including important ones in infrastructure such as pipelines.
The new lending policy underscores growing pressure on international financing agencies to demonstrate their pro-climate credentials. The decision followed a statement by EU finance ministers on 8 November calling on other development banks, including the Asian Development Bank and the World Bank, to implement similar measures reducing or stopping funding for fossil fuel projects altogether. The move is consistent with efforts by the EIB to grow investment in renewables, including a pledge to provide EUR1 trillion in investment for climate action initiatives from 2021 to 2030.
It comes as a steadily growing number of banks are reconsidering investments in high-polluting sectors. For instance, French banking group BNP Paribas (BNP) announced in May that it would reduce loans ‘significantly’ from 2019 to 2023 to high-polluting industries in Poland, where around 80 per cent of electricity is generated by coal. In September 2018, UK-based multinational bank Standard Chartered unveiled a new policy under which it would stop funding coal-fired power plants. Since 2010, the bank had given around USD1.8 billion in loans to coal projects across the world.
Since 2013, the EIB has granted EUR13.4 bn in funding to fossil fuel projects, while last year it provided EUR2 bn in funding. Following the EIB’s decision, other privately-owned banks are likely to follow suit, restricting investment in fossil fuel projects, as they come under increasing pressure from shareholders and environmental campaigners.
The decision will carry important implications for energy companies relying on funding from the organisation to finance projects. These firms will be required to identify alternative sources of funding, while resource shortfalls could imperil the long-term viability of some projects.
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