Can the European Investment Bank Become a Leader in Climate Issues?

The European Investment Bank is poised to see its role bolstered in Europe with the new European Commission’s investment plan. But while certain governments are jeopardising Europe’s climate goals for 2030, the self-proclaimed “Eu Bank” is putting an end to its climate-harming practices and has finally earned its position as frontrunner in fighting climate change among international financial institutions. Before establishing its Climate Policy, the EIB held a public consultation in the first half of 2015. The NGO Counter Balance and CEE Bankwatch Network explore the issues at hand.

The European Investment Bank (EIB), the public institution set up under the Treaty of Rome in 1958, makes annual investments of around €70 billion in order to support the objectives of the European Union. Over the next three years it will have to mobilise €315 billion worth of additional investments in Europe to boost growth in the region. The EIB spends up to 7 billion Euros outside Europe as part of its “development” budget designated by the European Union to support investments in other areas of the world.

In recent years, the EIB has invested about a quarter of its lending portfolio to climate-oriented projects, as part of its Climate Action Programme. Although what the bank defines as relevant climate action should be met with a sceptical eye, it nevertheless remains a significant change for a bank, which, since its creation, has financed large-scale infrastructure projects such as roads, airports and pipelines. However, there is currently no guarantee that the remaining three-quarters of its investment portfolio do not undermine efforts to combat climate change.

In the past, the EIB has financed a number of climate-damaging projects, denounced by local communities and civil society. For example, in February 2005, the EIB (which aims to reduce poverty in Africa) invested €48 million in the Mopani copper mine in Zambia. The European and Zambian NGOs have since then reprimanded the bank for the disastrous ongoing impacts of the project on the local population: job insecurity, forced evictions of farmers, water contamination with sulphuric acid, sulphur dioxide air pollution, resulting in serious health consequences. Closer to home, the EIB financed the coal-fired power plant in Sostanj (TES 6) in Slovenia. It is unlikely Slovenia will meet its 2050 climate targets given the fact that this plant alone will emit the maximum number of greenhouse gas emissions for the country.

Yet, in 2013, the EIB became the first major public investment bank in the world to move forward on climate issues, temporarily upholding its leadership role.

The bank has indeed adopted a new energy policy and a system for measuring emissions, committing to no longer financing highly polluting infrastructures such as coal-fired power plants. This represented a victory for NGOs campaigning for the end of public funding of coal via EIB as it existed in 2010.

But although a restriction on investments in carbon-intensive energy projects represents a step in the right direction, what of the bank’s ongoing support for pipelines, refineries, highways and airports climate-damaging projects that pose a threat to the European Union’s long-term goal of a low-carbon economy by 2050?

By clearly separating its climate-beneficial loans from the rest of its activities, perverse effects are achieved: the EIB boasts about its climate programme, but

the bank still loans three quarters of its research budget (around €10 billion each year) to the automotive industry. Moreover, efficiency improvements at coal-fired or gas-fired plants are categorised as climate-friendly investments when in fact they prolong the carbon-emitting lifetimes of the plants, leading to more emissions than are cut via efficiency measures. And the EIB’s speeches remain ambiguous when it comes to new energies such as shale gas that threaten the health of the climate.

These questions have become even more pertinent with the new Juncker (1) Commission’s investment plan, the financial backbone of which will be the EIB. While the climate summit in Paris will see climate negotiations finalised by late 2015, there are already concerns as to where environmental and climate issues will fit into this plan. The EIB’s stance on these issues will be pivotal in regards to the message it transmits to other international financial institutions.

The EIB is a key player in financing the European Projects of Common Interest – a set of cross-border projects in the energy, transport, and digital industries.

Among the 248 projects on the list include nearly 100 projects dedicated to the delivery of natural gas, in particular new pipelines that would bring natural gas into Europe. This represents the kind of project that only threatens to foster the current addiction to fossil fuels and delay a true ecological transition.

However if Europe wishes to make the economy carbon neutral by 2050, as it claims, climate issues need to be fully integrated into the different economic activities in Europe – including via public funding. Marginally increasing climate-friendly investments while continuing to support fossil fuels does not represent a viable solution. The EIB, whose goal is to implement European objectives through its investments must therefore establish a solid Climate Policy that undertakes to formally phase out its support for fossil fuels by 2016.

The EIB needs to thus plot out a binding roadmap, which aims to gradually increase its annual investments in renewable energy and energy efficiency projects in order to reduce energy demand and move towards upgrading to a power grid that will accelerate transition towards a carbon neutral future.

In addition, the EIB needs to adopt a Climate Policy that prioritises climate issues in its project selection process. For example, in the transport industry, the potential projects should be judged on how climate-beneficial they are, in order to reduce total greenhouse gas emissions from the bank’s loan portfolio in this sector and leave carbon-intensive projects aside.

At the same time, the EIB’s current energy-saving initiatives such as the JESSICA (3) and ELENA (4) programmes receive only limited attention from Central and Eastern European countries whose economies, including those of households and the public sector, are the most carbon-intensive in Europe. The bank’s new Climate Policy should feature a better understanding of these countries’ needs as well as promote already available solutions.

The EIB often attempts to justify its involvement in polluting projects by claiming that there is a lack of concrete projects in the green energy sector. However, this situation is also due to the fact that the bank favours dialogue with large companies and familiar business partners such as large national energy monopolies. This partiality towards established relationships runs counter to proactive research into projects of a smaller scale, which are more in need of public loans at interest rates lower than those charged by commercial banks.

A truly constructive Climate Policy should target small and medium enterprises such as cooperatives, community, and municipal initiatives where there is a wealth of sustainable initiatives but where funds are sorely lacking (4).

The experience of the 2007-2013 European funding period illustrates that when small-scale energy conservation and renewable energy investment plans are launched at national scale, the financing gap immediately becomes evident.

In a number of European countries, community-led renewable energy projects are just in their early stages and access to funding is still uncertain. While many commercial banks lack know-how and interest in this type of financing, it represents a real opportunity for the EIB to develop unique expertise in supporting these kinds of initiatives and demonstrate that what currently appears as an economic niche could represent a promising sector for responsible investors.

Such projects demonstrate the enormous potential for the EIB, guided by a robust Climate Policy, to lead the way in weaning Europe from its dependence on fossil fuels and contribute to both the continent’s energy security and its decarbonisation.

[1] Former conservative Prime Minister of Luxembourg, Jean-Claude Juncker was appointed to head the European Commission in 2014 following the European elections of May 2014.
[2] JESSICA (Joint European Support for Sustainable Investment in City Areas) is an initiative of the European Commission developed in co-operation with the EIB and the Council of Europe Development Bank. It supports sustainable urban development and regeneration through financial engineering mechanisms.
[3] ELENA (European Local Energy Assistance) was launched by the European Commission and the European Investment Bank (EIB) in December 2009 to provide financial and technical assistance to help local and regional authorities attract funding for sustainable energy projects.
[4] See the European Commission’s “Community Power” Programme: http://ec.europa.eu/energy/int...