Even before new European Commission President Ursula von der Leyen stood before the European Parliament in July 2019 to seek approval from Members of the European Parliament (MEPs) for her mandate, it was clear climate change would have to be high on her programme. Not only had unprecedented protests and youth strikes put the climate emergency on the agenda, but a green wave had swept a record number of green MEPs into office and forced others to up their climate demands. Her response was to promise a Green Deal For Europe.
A key element of this deal is the proposal to transform part of the European Investment Bank (EIB) into Europe’s Climate Bank. The idea was not hers alone. In 2018, figures such as former EU trade commissioner Pascal Lamy and former EU President Romano Prodi had already called for a European Bank for Climate and Biodiversity. French President Emmanuel Macron picked this up during the recent EU elections, while the Socialist and Democrat groups in the European Parliament also proposed to house a European Climate Bank within the EIB.
Having a European Climate Bank as part of the EIB, a bank-within-a-bank, begs one important question, however, what happens to the non-climate part? Will EU citizens be left with a dirty bank run in parallel with the climate bank?
The EIB does not have a promising track record when it comes to reducing reliance on fossil fuels. It decided in 2013 to effectively end support to coal projects, but it has since continued to spend billions financing fossil fuel projects such as gas pipelines.
Between 2013 and 2017, it spent €11.8 billion supporting gas projects. Just last year, and a little more than two years after the Paris climate agreement, the bank provided €2.4 billion in loans to the Southern Gas Corridor. This highly controversial pipeline transporting gas from Azerbaijan to Italy is projected to operate for 50 years, decades after the International Panel on Climate Change says the world needs to reach net-zero emissions. Meanwhile, the Bank has continued to fund coal-heavy utilities such as Poland’s Energa and PGE even while they continue to invest in new coal plants.
To continue to lend to projects that accelerate climate change while claiming the mantle of Climate Bank would be inconsistent, financially futile and would compromise the future of our planet. It would also fail to deliver on Article 2 of the Paris agreement which commits signatories to align all financial flows with the deal’s goals.
Fortunately the EIB has now recognised this. In a potentially ground-breaking move, the bank this summer proposed to: “Phase out support to energy projects reliant on fossil fuels: oil and gas production, infrastructure primarily dedicated to natural gas, power generation or heat based on fossil fuels’ and will ‘stop lending to fossil-fuel energy projects by the end of 2020.” This would apply to “all intermediated operations of the bank, including through commercial banks and investment funds”.
The EIB argues that many energy projects it supports will potentially be operating beyond 2030 and need to be aligned with the Paris agreement. Recognising the risks of fossil fuel lock-in, it proposes to focus on infrastructure needs over the long term to help meet the investment challenges associated with EU 2030 climate targets and beyond, most notably achieving net-zero carbon. It sees that demand for fossil fuel infrastructure will fall. The bank has decided that its resources are best spent meeting the net-zero challenge and is unwilling to risk the creation of unnecessary new fossil fuel infrastructure.
In short, the EIB has seen the writing on the climate wall and has improved on von der Leyen’s and Macron’s ideas by proposing that no part of the bank continues to hedge its bets on fossil fuels and that it instead concentrates on solutions to the climate crisis such as renewable energy and energy efficiency. It is up to EU member states through their nominees on the Bank’s Board of Directors to decide what happens next.
If the proposal is carried through, it will give greater credibility to the push for the EIB to be the EU’s climate bank, while boosting the credibility of von der Leyen’s Green Deal. It will also be an important signal to markets, governments and other banks to follow suit. Failure to back the policy would be a stinging rebuke to the burgeoning climate movement and a setback to the new Commission President’s first green efforts.
Following another summer of record temperatures the board now has to make up its mind, either back a fossil free future or continue to fund climate breakdown and see thermal and political temperatures soar.
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