EIB to end fossil fuel financing

The European Investment Bank (EIB) has agreed a new energy lending policy under which it will end financing for fossil fuel energy projects, including gas, from the end of 2021.

Also confirming its ‘increased ambition in climate action and environmental sustainability’, the EIB said it would ‘unlock €1tn of climate action and environmental sustainable investment in the decade to 2030’ in a bid to ‘accelerate clean energy innovation, energy efficiency and renewables’ development. In addition, it stated that the EIB Group ‘will align all financing activities with the goals of the Paris Agreement from the end of 2020’.

‘Climate is the top issue on the political agenda of our time,’ said EIB President Werner Hoyer. ‘Scientists estimate that we are currently heading for 3-4°C of temperature increase by the end of the century. If that happens, large portions of our planet will become uninhabitable, with disastrous consequences for people around the world. The EU bank has been Europe’s climate bank for many years. Today it has decided to make a quantum leap in its ambition. We will stop financing fossil fuels and we will launch the most ambitious climate investment strategy of any public financial institution anywhere.’

The new energy lending policy details five principles that will govern future EIB engagement in the energy sector:

• Prioritising energy efficiency with a view to supporting the new EU target under the EU Energy Efficiency Directive.
• Enabling energy decarbonisation through increased support for low or zero carbon technology, aiming to meet a 32% renewable energy share throughout the EU by 2030.
• Increasing financing for decentralised energy production, innovative energy storage and e-mobility.
• Ensuring grid investment essential for new, intermittent energy sources like wind and solar as well as strengthening cross-border interconnections.
• Increasing the impact of investment to support energy transformation outside the EU.

Commenting on the implications for the gas sector, Wood Mackenzie Research Director Nicholas Browne says: ‘The EIB's new financing criteria will make lending to gas projects very difficult. It highlights that gas is also increasingly in the spotlight of the climate debate.’

He continues: ‘When burnt, gas releases less carbon dioxide, nitrogen and sulphur oxides than coal and oil. Furthermore, coal-to-gas replacement has had a profound impact on air quality in northern China to the huge benefit of public health. It also has significantly lower full life-cycle carbon emissions than coal. However, while the comparative combustion benefits are undoubted, the sector may not be able to rely exclusively on this argument to make the case for gas and LNG. The benchmark looks like it will be set higher. Gas and LNG may be better but are they good enough?’

‘Methane and carbon dioxide are lost to the atmosphere by creating LNG, through a combination of vents, flares, liquefaction, regasification and pipeline leakage. Currently, there is no consistent method of assessing the data through the value chain for how much gas is lost by the time it reaches a consumer. However, media reporting and political scrutiny of this issue will intensify. This might increase the risk that the popular and political tide turns on natural gas like it already has on coal in most countries. If this does occur, it may slow the rate of growth of gas and LNG demand. In turn, this would be a major strategic challenge for companies that have identified gas as the key driver of future growth.’

'There is no industry consensus on how or whether companies should act to mitigate this risk. There are some industry bodies such as the Oil and Gas Climate Initiative that are seeking voluntary reductions through their members. Additionally, several governmental bodies are seeking to introduce more data transparency to this question. However, if voluntary measures don’t prove enough, more restrictive environmental measures could be introduced due to shareholder pressures, such as what we’ve seen with the EIB guidelines.’

Browne concludes: ‘Beyond financing, it is possible that the debate could start to impact procurement decisions from carbon-intensive projects and portfolios, likely accelerating carbon capture, carbon offsetting and electrification of liquefaction. This year already saw the first carbon neutral LNG cargoes delivered, while several companies are implementing or investigating using renewable power to drive the liquefaction process.’