Towards a decarbonised future
The European Investment Bank has set out a strategy for lending that will support the EU’s goal of decarbonising the economy by financing investments that cut emissions, combat climate change and support alternatives to fossil fuels.
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Towards a decarbonised future
The European Investment Bank has set out a strategy for lending that will support the EU’s goal of decarbonising the economy by financing investments that cut emissions, combat climate change and support alternatives to fossil fuels.
As scientific evidence on the catastrophic impact of greenhouse gas emissions has become more conclusive over recent years, so targets for decarbonisation have become progressively more ambitious. It is now more than a decade since the European Union agreed on its 20-20-20 energy and climate targets. This aimed at reducing greenhouse gas emissions by 20% on 1990’s levels, increasing the share of renewables in the EU’s energy mix to 20%, and boosting energy efficiency levels by 20%.
These goals, considered ambitious at the time, were later surpassed by new targets to reduce greenhouse gases to 40% of 1990 levels, lift the share of renewables to a minimum of 32% and generate energy savings of at least 32.5%.
More recently, the adoption of the European Commission ’s Clean Planet for All vision has embraced the objective of achieving a “prosperous, modern, competitive and climate neutral economy by 2050”. Unveiled ahead of the COP24 UN Climate Summit in Katowice last November, this highly ambitious blueprint for decarbonisation recognises that if global warming is to be restricted to a maximum of 1.5 degrees, emissions will need to reach a net zero level within the EU by 2050.
The EU Climate Bank
The EIB’s approach to energy lending has evolved over the last decade in tandem with the EU’s increasingly uncompromising decarbonisation goals, with almost a decade now having passed since the bank last supported a coal-fired power project. Between 2013 and 2017, meanwhile, more than 80% of the Bank’s energy lending was devoted to renewable energy, energy efficiency and modern electricity networks.
As it reinforces its credentials as the EU’s Climate Bank, however, the EIB is now intensifying its commitment to decarbonisation. This commitment will take shape in a new energy lending policy, following the most comprehensive public consultation ever undertaken by the Bank. This foresees a phase out of support to energy projects reliant on unabated fossil fuels — upstream oil and gas extraction, natural gas infrastructure, power generation or heat based on fossil fuels.
“We as the EU bank have a duty to focus on the longer-term challenge and investment needs of the energy sector,” explains vice president Andrew McDowell for energy at the EIB who has overseen the review. “As a result, all the bank’s lending activities in the energy sector must be fully aligned with the Paris Agreement. We know these are ambitious and profound objectives, which are challenging for our own shareholders but this is the moment to act.”
Edward Calthrop, senior economist in the energy team at the EIB, also recognises that this direction of travel implies virtually zero emissions from the EU’s power sector by 2040. Decarbonising energy supply to meet even the 2030 targets, meanwhile, calls for at least a doubling of today’s EU renewable power generation capacity.
Meeting this requirement is well beyond the resources of an individual multilateral development bank such as the EIB, which has lent, on average, between €12bn and €14bn per year to the energy sector over the last five years. “It is clear that the vast bulk of investment in renewable power generation will need to come from the private sector,” says Calthrop. “This means that the volume of the EIB’s lending is probably a less important metric than its risk sharing and advisory work.”
The EIB’s president, Werner Hoyer, emphasised the importance of promoting the institution’s role as the “crowding-in bank” when he addressed the United Nations General Assembly recently in New York. “By working with our public and private [sector] partners we aim to help unlock more than $1.1tr of investment by 2030,” he said. “This will include a marked increase in support for climate adaptation and resilience.”
Increasingly competitive renewables
McDowell says that he is optimistic that the targets set out by the EU and the EIB are achievable. “A decade or so ago, the central question was whether or not it would be possible to generate sufficient volu