FINANCE

Development bank stops giving loans for fossil fuel projects

The European Investment Bank will cease lending for fossil fuel projects in two years, officials announced late yesterday.

The EIB board of directors adopted the plan after heated debate, with some countries objecting to the inclusion of natural gas in the lending ban. The shift is the boldest measure taken against fossil fuels by a development bank to date, and it may pressure other financial institutions to follow, such as the World Bank and the Asian Development Bank.

The new policy means that EIB will cease issuing loans for projects aimed at coal, oil and natural gas infrastructure. The move takes effect at the end of 2021, officials said, allowing enough time for projects underway to be completed.

EIB's board said the decision is meant to align the bank with efforts to fight climate change. Money previously spent on fossil fuel projects will instead be directed to promoting "clean energy innovation, energy efficiency and renewables."

Environmentalists cheered the decision. Leonardo Martinez-Diaz, director of sustainable finance at the World Resources Institute, said in a release that the decision marks "a breakthrough" and puts the onus on other financial institutions.

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"The decision today by the European Investment Bank to stop all unabated fossil fuel financing in 2021 sets a key precedent for other development banks to follow," he said.

Banks in the private sector have begun to turn away from coal lending, though such policies usually include caveats permitting coal project loans in special circumstances. Natural gas and oil projects have been generally exempt from such bans.

Large financial institutions in Japan and Singapore have recently announced new guidelines to steer their financing away from coal (Energywire, May 24).

The Institute for Energy Economics and Financial Analysis estimates that more than 100 financial institutions globally are moving away from coal lending, "including 40% of the top 40 global banks and 20 globally significant insurers."

EIB says it will "align all financing activities with the goals of the Paris Agreement."

Aside from shunning fossil fuels, EIB says it will aim its loans at supporting grid modernization and technologies meant to mitigate against the intermittence of wind and solar. Loans will also be extended to "decentralized energy production, innovative energy storage and e-mobility."

The bank also promises to spend cash on E.U. member countries heavily reliant on fossil fuels and less capable of rapidly expanding the share of renewables on their grids. A "Just Transition Fund" is to be established with the mission of funding up to 75% of project costs in at least 10 E.U. countries deemed facing "specific energy investment challenges."

EIB says its new practices will be aimed at seeing the European Union reach 32% of its energy from renewable sources by 2030.

"While the EIB could have agreed to phase out fossil fuel financing earlier, this is an important step for the financial sector broadly," said WRI's Martinez-Diaz.

The Asian Development Bank is supporting the construction of a combined-cycle coal-fired power facility in Vietnam but has begun to shy away from coal project lending in Indonesia.

The World Bank has long been criticized for publicly supporting action on climate change while continuing to steer capital to coal projects. But officials there have signaled a shift in favor of alternative energy sources.

Late last year, the World Bank announced a partnership with Canada and the United Kingdom to provide financing and technical support to developing countries "that have decided to transition away from coal and accelerate the uptake of cleaner sources of energy."

The bank said it is also in the midst of a transition to "mainstream climate considerations into all development projects" including "a shift to low-carbon resilient economies."

WRI says the aggressive EIB decision shows that it's time for the World Bank and other international lenders to stop providing loans for fossil fuels.

"We strongly encourage the boards of the other multilateral development banks to match or exceed this level of ambition and leadership," Martinez-Diaz said.

Email: ngronewold@eenews.net

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