We won! After months of lobbying by Energy Cities and the Fossil Free EIB campaign, Europe’s public bank has adopted a new funding policy. It is good news! But what will it bring for cities’ energy transition?
On the 14th of November 2019, the European Investment Bank (EIB) finally published its new energy lending policy after long and tough negotiations with Member States and the EU Commission. Energy Cities analyzes the key pillars of the EU bank’s energy policy and highlights its implications for the local energy transition.
In a bid to boost stagnant renovation rates in Europe, the EIB has also announced a new “European Initiative for Building Renovation”. Under its initiative, the bank plans to fund up to 75% of eligible capital expenditures (i.e. investment) of building renovation projects. Furthermore, the new facility is also set to reinforce the bank’s support of the aggregation of renovation projects, link financial products developed with technical assistance under the ELENA programme in particular and also “unlock new markets in energy efficiency mortgage-based lending or securitization”.
In addition to increasing funding for energy efficiency, the EIB will also make energy communities a priority in its lending to energy supply projects. The bank will thereby “support the development of energy communities and microgrids, enabling investment in new types of energy infrastructure, including in small isolated systems”. The provisions on energy communities in the EU Renewable Energy Directive are explicitly mentioned as a strategic focus in the bank’s new lending policy.
As of January 2022, the EIB will no longer support coal, oil and natural gas. Initially, the EIB would have stopped funding fossil fuels in January 2021 under its first proposal, but due to lobbying from the gas-friendly Energy-Directorate of the EU Commission and Germany in particular, the bank had to postpone this decision for one more year.
The EU Commission pushed for the delay, in order to force the EIB to continue financing the EU Projects of Common Interest by the end of 2021, which are mostly gas projects. Germany on the other hand, counts on gas as a “transition fuel” as it phases out coal in the next decades. It should be noted that alongside Germany, other Member States (Poland, Romania, Hungary, Estonia, Lithuania, Malta and Cyprus) also pressured the EIB to continue to back gas infrastructure. It is expected that these EU countries especially will flood the bank with funding proposals for gas until the end of 2021.
The EIB’s divestment includes some exemptions: under its new lending policy, it can still support “efficient gas-fired boilers as part of wider energy efficiency programmes for buildings”, gas-fired power plants with GHG emissions below 250g CO2 per kWh of electricity generated as well as gas network projects that are planned to transport low carbon gases (e.g. hydrogen).
However, even with these exemptions, it is unlikely that the EIB will be able to maintain significant funding levels for fossil fuels in the next decade. From 2013-2018, the public bank had poured more than EUR 13 billion in fossil fuels, or EUR 6,2 million per day! Now, with the new policy in place, the EIB is expected to cut funding to the gas industry by at least EUR 2 billion per year.
The EIB’s new approach should be seen overall as a good sign for divestment, in particular because the natural gas industry is already in full-fledged panic mode since the EIB’s new lending policy became public.
A limited number of Member States and their regions and cities will also benefit from additional funding through a new “Energy Transition Package” that the EIB proposes. This investment package is set to back the Just Transition, by providing extra support to Member States and territories “with a more challenging transition path”, as the EIB phrases it in its new policy. Through the Energy Transition Package, the EIB will cover 75% of the eligible project cost and also support the creation of integrated territorial development strategies. The countries and regions covered by this package are 10 lower-income EU Member States (Poland, Czech Republic, Romania, Hungary, Slovakia, Bulgaria, Croatia, Estonia, Lithuania and Latvia), as well as Greek islands seeking to decarbonize their energy mix. Furthermore, the EIB vows to support the EU’s Commission Just Transition Fund to unlock further finance and technical assistance.
With the adoption of the new EIB energy lending policy, the incoming EU Commission under president Ursula von der Leyen is set to benefit in three ways. Firstly, the EIB’s new policy pushes it further towards becoming “Europe’s climate bank”, as von der Leyen has called for previously, even though it still remains to be seen how much damage the aforementioned divestment loopholes will do in the end. Secondly, the EIB’s Just Transition investment priority could enable the Commission to propose a much higher funding envelope for its Just Transition Fund in December. And thirdly, the EIB has also promised extra funding through its Energy Transition Package to exactly those countries that still resist the adoption of an ambitious EU 2050 target of net-zero GHG emissions (Hungary, Poland, Czech Republic), a move which could be key in finally ending their opposition.
November 20, 2019