New and refurbished coal-fired power plants will not be eligible for funding unless they emit less than 550 grams of carbon dioxide per kilowatt-hour (gCO2/kW), the EIB said on Wednesday, which could be met either by a combined heat and power plant or one that also burns biomass.
"Adoption of the new lending criteria represents an important step forward in the European Investment Bank's commitment to energy investment that supports EU policy and reflects the urgent investment challenges currently facing the energy sector," Mihai Tanasescu, EIB vice president responsible for energy lending, said in a statement.
The EU lender also said it could tighten the emissions standard in the future to ensure its lending criteria are consistent with EU climate policy and create jobs across Europe.
The EIB decision follows moves by other multilateral financial institutions such as the Washington-headquartered World Bank to fund coal-fired power stations only in "rare circumstances".
Since the start of 2007, the EIB has loaned around €11bn ($14.5bn) to fossil fuel-fired plants, most of it to gas rather than coal, out of its total lending for power of €83bn.
"The vote to introduce an emissions performance standard represents a step-change in the EU's fight against climate change and puts the bankers ahead of politicians in terms of tangible action," said Ingrid Holmes, of environmental think tank E3G in a statement.
She added: "With several directors pushing for 450 gCO2/kW at the meeting, I'd expect to see it tightened further over the next 12 months as the politics of the EU's broader approach to 2030 (carbon emissions) targets is settled."
An emissions cap of 450g/kW would mean that older, inefficient gas plants would also not be eligible for funding. The cap would have to be 150g/kW to force all gas plants to deploy largely unproven carbon capture and storage technology.
Berber Verpoest, co-ordinator of EIB pressure group Counter Balance said: "Despite the introduction of stronger emissions standards, the EIB keeps the door open to all fossil fuels including the possible financing of shale gas and also makes it easier to lend to large dams with negative social and environmental effects. More can and should be expected from a self-declared climate champion."
According to some observers at the meeting, Germany's director on the EIB board, which is made up representatives of EU member states and the European commission, had urged that the bank should continue to finance coal-fired projects but was outnumbered.
Germany relies on coal and lignite for around 45% of its power generation as it speeds up the shutdown of its nuclear power stations by early in the 2020s in the aftermath of 2011 Fukushima nuclear disaster in Japan.