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View from Brussels: EU bankers ready to boost clean energy

Image credit: EIB

Climate change policy has quickly gone mainstream in Brussels but now attention has shifted to the world of finance. A looming decision on funding fossil fuels could prove to be monumental and unlock cash for new technologies.

As green protests reach new heights of participation and media coverage, EU countries stand on the brink of agreeing a pact that will see the bloc go carbon-neutral by 2050. But that is only a political declaration. Once signed, it will be up to policy-makers to actually chart a course that navigates greenhouse gas emission cuts, technology transition and mindset change.

EU emissions fell by less than 1 per cent between 2017 and 2018, so serious  financial investments will have to be made to bridge the ambitious gap. But work is ongoing behind the scenes, away from the spotlight currently fixed on teenage Swedish activist Greta Thunberg and the Amazon fires.

The European Investment Bank (EIB), the EU’s triple-A-rated lender, is planning for the immediate future: in the summer it proposed purging its extensive loan book of any fossil fuel-based project by late next year.

In 2018, EIB helped build 26,000km of power lines and generate 15,000MW of power. The bank claims more than 80 per cent of that was renewable energy.

But the lender has also pumped billions of euros into pipelines and carbon fuels. Between 2013 and 2017, the EIB shelled out €11bn on fossil fuel punts, including €8bn on gas infrastructure.

Under its draft policy update, money will be ring-fenced for renewables and other climate-friendly technologies.

Bank president Werner Hoyer recently said that “we aim for climate in everything we do” and explained that the change of policy is intended to align its work with the objectives of the Paris Agreement on climate change.

The EIB is owned by the 28 EU member states, so any changes to lending criteria have to be approved by shareholders. That is where the good intentions look set to hit obstacles and where the loopholes are likely to be introduced.

Although there is now near-unanimity on the carbon-neutrality issue, with coal-​hungry Czechia and Poland notable exceptions for now, the same is not true when it comes to the financial nitty-gritty.

Countries like Italy, Spain and much of Central and Eastern Europe have benefited greatly from EIB cash. For example, more than a billion was granted to the Trans Adriatic Pipeline between Albania and Italy.

EIB experts have already tried to sweeten the deal by promising poorer countries access to more financing and exemptions for extremely efficient gas plants. The update is still hard to sell to big hitters like Germany, though nuclear-reliant France and the wealthy Nordics are onboard.

The move is proving divisive between civil society and industry too. Friends of the Earth’s Colin Roche called it a “brave, correct and just proposal”, while Eurogas, a trade association, said that investments in gas infrastructure should continue. The group added that “we will need it to deliver the climate targets of the EU”.

A decision could be made in October although bank sources told this columnist that negotiations could last into 2020. Exemptions and even an extension to the deadline are already being bandied about.

Where, then, will the money flow once at least some fossil fuel options are banned?

The EIB’s energy chief, Andrew McDowell, is in no doubt that carbon-capture-storage (CCS) technology will form “a big part of our business”. He warned that the road ahead will not be easy for CCS, as it will have to contend with both legal and social obstacles.

CCS, as well as clean hydrogen projects, could pose a headache for the EIB when it comes to pipeline funding, as both need a viable way to transport their respective materials. Demo projects in Norway and the Netherlands will use ships and old gas pipelines but, if successful, inland areas will need to be connected to the new network.

The bank will therefore have to come up with clear criteria on what pipes can be used for what purpose, as some companies already want to lay new infrastructure, use it for natural gas for a period of time and then repurpose it when more financially viable.

A whole host of clean energy technologies could move on a quantum leap if the EIB’s lending policy update emerges in its most ambitious form after the ongoing talks. Billions of euros are on the table, it just needs a clear signal from the bank to show which path its energy policy is taking.

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