The European Union wants to lead the world in fighting climate change, but its massive and influential investment bank, which funds energy projects around the continent, is stuck as member nations debate how to care for the environment without sacrificing economic growth.
Disagreements over funding of natural gas projects led the board of the European Investment Bank this week to postpone a ruling on ending all fossil fuel funding until next month. The delay to Nov. 14 also covers making additional funding available for renewable projects.
While the bank has ceased backing coal and oil, members haven’t been able to agree on funding for natural gas projects. Some see the fuel assisting the EU in its transition to cleaner energy, at least in the short term, while countries like Germany move away from coal and nuclear power.
“It feels good to be against fossil fuels,” Michael Lynch, president and director of global petroleum service at U.S.-based Strategic Energy & Economic Research, told Karma. “The problem is that there are cases when an investment in natural gas will result in a significant reduction in emissions.”
A pivot away from fossil fuels and to renewables would bolster Ursula von der Leyen, the incoming European Commission president, who has promised to deliver a ‘European Green Deal’ in her first 100 days in office. She takes her position on Nov. 1. Von der Leyen has repeatedly said that fighting climate change is a priority, and called for parts of the EIB to become a “climate bank” that would help make $1.1 trillion available over the next decade to help the transition to clean energy.
“It feels good to be against fossil fuels.”
The investment bank has loaned $14.8 billion to fossil fuel projects since 2012, of which more than two thirds has gone to building natural gas pipelines and distribution networks, the Financial Times reported. EIB is the world’s largest multilateral lender, and its $71.1 billion in financing last year supported $254.7 billion in other investments.
Werner Hoyer, the bank’s president, first proposed the new Energy Lending Policy in July, calling for the end of support for fossil fuel projects by the end of 2020. Hoyer aims to connect more than 50% of the EIB’s lending to sustainability projects by 2025.
Some board members requested the delay of the start date and asked for the proposal to only apply to ‘unabated’ fossil fuel plans — leaving a potential opening for funding deals that include carbon capture and storage.
“The European leaders are again confirming that climate protection is an empty phrase for them,” Anna Roggenbuck, policy officer of CEE Bankwatch Network, said in a press release. “They are not making necessary decisions that should have been made a long time ago and are undermining the right proposals made by the EU’s bank, the EIB. We are disappointed by this delay but still hope that the initial proposal will be adopted in November.”
The Energy Lending Policy remains on course and will probably be approved next month, Andrew McDowell, the bank’s vice president responsible for energy, told the Guardian newspaper.
McDowell’s comments haven’t reassured climate activists who are concerned about additional delays and a weakening of the measures.
The investment bank is owned by the 28 countries in the European Union, and for a decision to be adopted as policy it needs a double majority, with the approval of both more than half of board members and a majority of the capital invested in the bank. The biggest economies in the EU, such as Germany and France, provide more capital, giving them greater influence on the bank’s direction.
Weaning Off Fossil Fuels
Germany plans to shut its nuclear plants by 2022 and wants to curb reliance on coal and Russian natural gas. Germany is looking for a site to build its first liquified natural gas terminal. Some Central European countries, including Poland and Hungary, also oppose ceasing all fossil fuel financing.
“The climate crisis requires that we stop pouring money into coal, oil and gas projects urgently,” Tim Ratcliffe, senior campaigner at 350.org, said in a statement on the environmental advocacy group’s website. “There is no time to lose.”
A fossil fuel divestment campaign has been led by 350.org. since its founding in 2008. The group says that more than 1,100 investors have agreed to eliminate or reduce fossil fuel holdings. Not everyone agrees with this strategy, with Microsoft co-founder Bill Gates saying that divestment would have “zero” impact on climate change in a September interview with the Financial Times.
“The real question that this raises is whether we can meet all incremental energy demand with new renewable electric generation.”
“This is an example of the absolute line trumping the rational,” Lynch said. “This is fashionable policy making, opposed to judging projects on their merits.”
Natural gas, mostly methane, burns cleaner than coal and oil, and is touted as perhaps the best fuel to use during the transition to renewables. Natural gas turbines can also be quickly brought on line during peak demand periods, when solar and wind might not be readily available. Environmentalists counter that methane, released during production, processing and distribution of the fuel, is a much more potent greenhouse gas than carbon dioxide.
“The real question that this raises is whether we can meet all incremental energy demand with new renewable electric generation,” Mike Jacobs, a senior analyst at the Union of Concerned Scientists, told Karma. “That would mean no more infrastructure investment for fossil fuel, and no more growth in fossil fuel. This is certainly feasible, desirable, and in most scenarios it is also the more economical path.”