4 july 2013

EIB cleans up its energy lending policy

By Sonja van Renssen Energy Post 4 July 2013

The European Investment Bank (EIB) intends to place stricter CO2 emission standards on coal power plants that it finances, but not as strict as the standards president Obama recently proposed in the US. The EIB is also considering investing in shale gas projects, according to a draft of its new energy lending policy. NGOs accuse the EIB of a “missed opportunity to politically reject coal”. With the EBRD and World Bank also mulling new investment criteria, the battle to “green up” Big Energy Money is heating up.

The EIB has long been criticized by environmental groups for its investments in fossil fuel projects, including coal-fired power plants. In a draft review of its investment criteria made public last week, and which the bank’s Board of Directors is expected to approve on 23 July, the EIB is responding to those criticisms by redefining its priorities in the energy sector. The review comes at a critical time as the European Bank of Reconstruction and Development (EBRD) and the World Bank are currently also analysing their energy lending policies. At the same time in the US President Obama has just come out with a Climate Action Plan that aims to put limits on CO2 emissions of coal-fired power plants.

The EIB spends about €14bn a year on energy projects, a fifth of its €70bn portfolio. Under its current energy lending policy, created in 2007, about a third has gone to fossil fuel projects, a third to renewables and just a few percent to energy efficiency, calculate campaigners at CEE Bankwatch, a network that monitors the activities of international financial institutions in Central and Eastern Europe. The bank’s support for fossil fuels – especially coal – is a growing liability, they argue.

The bank certainly seems aware of the problem. It kicked off a review of its energy lending policy last October with new draft guidelines publicised last week and due to be approved later this month. The review “redefines the EIB’s priorities in the energy sector”. In the draft, the bank recognises that energy efficiency, renewables and energy networks will account for about 90% (or €200bn a year) of energy investment needs in the EU in the coming years. It says these sectors will make up “the majority of the EIB’s investments in the EU energy sector”.

The EIB also recognises however, that the world has changed since 2007, when “global economic growth was buoyant and the key energy sector challenge for many policymakers was adapting their economies to the realities of climate change.” “Today policymakers face additional economic challenges, just as pressing.” The EIB’s shareholders – EU member states – increased its funding in 2013 for it to do more to build growth and jobs. Energy projects are an “important” opportunity in this context, the bank says.

So how does the EIB reconcile strong economic pressures with a decarbonisation agenda? First, it will continue to focus on renewables: “[The] EIB’s continued prioritisation of RES projects is… fully justified.”

Second, the EIB aims to increase its activity in energy efficiency. It will try to develop tailored approaches to investments in buildings and industry. It will also try to tackle the barriers typically associated with efficiency investments, namely small projects, limited project development capacity and limited incentives. Investing in energy efficiency “remains the most cost-effective way for the EU to meet its energy and climate objectives” recognises the bank.

But most interesting of all is what it intends to do with its lending to fossil fuel-based generation. The bank mirrors the EU’s “technology neutral” approach but also wants to ensure that projects financed by it “do not ‘lock in’ carbon emissions above the level consistent with EU climate targets”. To achieve this, the EIB is proposing an emission performance standard (EPS) of 550gCO2/kWh: projects emitting more than this would not be eligible for EIB funding unless they are projects “which ensure security of electricity supply”. The level of the threshold “reflects the EU’s… existing commitments to limit EU carbon emissions as established currently in the EU Emissions Trading System (ETS)”. The EPS would be adjusted if the ETS became more restrictive, the bank adds.

On nuclear, the EIB takes an extremely cautious approach, calling it “one of the most potentially harmful sources of energy” even while recognising it as “an abundant low carbon energy source”.

The EIB would also apply a carbon price to project assessments and require plant operators to comply with EU laws on non-CO2 pollution, the ETS and carbon capture and storage (CCS). The latter demands “capture-readiness” for new plants (i.e. the plants should be built with the possibility of applying CCS to them in future).

Fossil fuel operators outside of Europe wanting access to EIB funds, would face the same 550gCO2/kWh standard but with exceptions possible “where it can be demonstrated that projects with carbon emissions… will have a significant and material positive impact on poverty alleviation and economic development”. Operators would also have to comply with the EU anti-pollution laws listed above.

The EIB sees a continuing role for it to invest in “gas networks and indigenous hydrocarbon production and refining… to ensure access to secure supplies of oil and gas at competitive prices – an important EU objective”. If circumstances are right, the bank will also consider investment in unconventional hydrocarbon production (i.e. shale oil and shale gas), it says.

On nuclear, in contrast, it takes an extremely cautious approach, calling it “one of the most potentially harmful sources of energy” even while recognising it as “an abundant low carbon energy source”. Nuclear projects face additional appraisal criteria related to issues such as safety and radioactive waste management.

Underpinning all of the above, the EIB says it will “continue to provide substantial financial support” to energy infrastructure projects. These could range from cross-border interconnections to energy storage to other balancing technologies such as demand-side management. Gas transmission projects, especially interconnections, are “critical”, the bank says. It also seeks to play a role in boosting R&D and innovation.

Environmental groups are not too pleased with the EIB’s new plans. CEE Bankwatch and fellow campaign group Counter Balance, a coalition of NGOs created in 2007 specifically to challenge the EIB, are disappointed that the EIB continues to fund coal projects. “It’s a missed opportunity to politically reject coal,” says Anna Roggenbuck, Bankwatch EIB coordinator. The new constraints on fossil fuel lending are a step in the right direction, but too weak: “[Under the new draft lending policy] still every energy project will be eligible for EIB funds.”

In the years from 2007-11, the EIB spent some €2bn on 9 coal plants in Germany, Poland, Italy, Greece and Romania. Most recently it gave €550m to a coal plant in Slovenia to cover almost half the costs of building it. But coal is not compatible with the EU’s low-carbon future, the NGOs argue, and the EIB should not fund it.

They want an EPS set at 350gCO2/kWh, which corresponds to a best-in-class gas plant. They point out that in any case the 550gCo2/kWh standard is weaker than a 420gCO2/kWh standard in Canada and a 440gCO2/kWh standard proposed by US president Barack Obama last week (and equivalent to that in place in the UK).

The worry for campaigners is that EIB will set a precedent, for example by opening the door to funding unconventional (i.e. shale) gas projects

But the NGOs’ main concern is over the “loopholes” or exemptions from the EPS criterion for reasons of security of supply, poverty alleviation or economic development. “These [exemptions] are not specific enough to ensure EIB lending will be in line with climate science and decarbonisation by 2050,” says Roggenbuck. All previous coal projects in Europe were justified exactly on the security of supply criterion and all EIB projects abroad are supposed to contribute to poverty alleviation and economic development in any case, she explains. More specific definitions could limit new coal deployment to specific areas such as a post-war or natural disaster zone, the NGOs suggest, while poverty alleviation would need to be proven in the short term.

As efficiency, renewables and smart grids projects tick all three pillars of EU energy policy – sustainability, competitiveness and security of supply – rather than only the security of supply pillar for example, they should be given preference, the campaigners say.

Separately they criticise the EIB for loosening the selection criteria for hydropower projects by allowing large hydropower projects to receive funding for the first time.
Setting an example

The EIB is not the only public bank to be reviewing its energy lending policies at present. The same process is underway at the European Bank for Reconstruction and Development (EBRD) and the World Bank. The EBRD is much smaller than the EIB, with an annual budget of some €8-9bn, but about half its energy spend also goes to fossil fuels. The worry for campaigners is that EIB will set a precedent, for example by opening the door to funding unconventional (i.e. shale) gas projects, that others will follow. In a report also released last week, CEE Bankwatch, SEE Change Net and WWF argue that heavy investments in fossil fuels by international financial institutions in the Western Balkans are hindering these countries’ compliance with EU accession requirements on the climate front.

But the same NGOs who can be so critical are also appreciative of the fact that the EIB is taking a step in the right direction with its new draft policy. It clearly references the EU’s 2050 decarbonisation objectives and a 2030 climate and energy package. It recognises the need to increase energy efficiency investments, reflects on the barriers to these and draws up plans to overcome them. It also recognises the central role of renewables and concludes the EIB needs to be heavily involved in them. It tries to limit lending to fossil fuel generation projects through technical criteria. “If it closes the loopholes, we would say the policy is going in the direction,” concludes Roggenbuck.

In an article published in April, European Commission for Climate Action Connie Hedegaard said she expected the EIB, EBRD and World Bank to “take a lead role in eliminating public support for fossil fuels”. According to Hedegaard, “multilateral lenders can lead by example by restricting conditions for public financing of coal, the most damaging fossil fuel, and by pressing for greater transparency in reporting on emissions.”


Norwegian pension fund divests from ‘financially worthless’ fossil fuel firms

Blue&Green Tomorrow Friday, July 5th, 2013 By Alex Blackburne

Storebrand, a major Norwegian pension fund and life insurance firm, has divested from 19 fossil fuel companies to ensure “long-term stable returns” – as these stocks, it says, will be “worthless financially” in the future.

In total, it has pulled out of 13 coal extractors and six firms that are heavily exposed to oil sands – arguably the most energy intensive form of fossil fuel.

Its decision to divest comes after the publication of UK-based thinktank Carbon Tracker’s latest Unburnable Carbon report, which said some 60-80% of fossil fuel reserves need to be left in the ground if the worst effects of climate change are to be avoided.


Click here to read The Guide to Climate Change 2013

The study, which Carbon Tracker produced alongside the London School of Economics’ Grantham Research Institute, therefore calls the bulk of reserves “unburnable”. It says investors that currently have high exposure to high-carbon assets are at risk of possessing “stranded assets” – a term used to describe financially worthless investment stocks.

Quoted in a press release, Storebrand head of sustainable investment Christine Tørklep Meisingset said the firm had gone down the divestment route “to reduce fossil fuel and CO2 exposure and ensure long-term stable returns.”

She added, “[As] the stated climate goals become reality, these resources are worthless financially, but it is also true that they do not contribute to sustainable development in the extent and the pace we want.

“Exposure to fossil fuels is one of the industry’s main challenges, and for us it is essential to work purposefully to take our share of responsibility.”

Meisingset went on to say that Storebrand has no dedicated ethical funds, but instead, applies the same “high standards” across all of its products. Its decision to divest was done on purely financial grounds.

Dutch bank Rabobank recently took the extraordinary step of enforcing a blanket ban on loans to firms involved with oil sands and fracking for shale gas. In both cases, it claimed the financial and environmental risks were too great for it to lend money.


United Church of Christ is first national church group to divest from fossil fuel investments

Associated Press July 03, 2013

PITTSBURGH – A group of Protestant churches has become the first U.S. religious body to vote to divest its pension funds and investments from fossil fuel companies because of climate change concerns.

The United Church of Christ, which traces its origins back to the Pilgrims in 1620 and has about 1.1 million members in 5,100 congregations, voted on Monday to divest in stages over the next five years. But it left open the possibility of keeping some investments if the fossil fuel companies meet certain standards.

"Implementing the multiple strategies outlined in this resolution will demand time, money and care — but we believe creation deserves no less," United Church Funds President Donald Hart said in a statement. The affiliated group has managed church investments since 1909.

Harvard University professor Theda Skocpol, who has written about the politics of the climate change movement and divestment efforts, called the move significant.

Skocpol said she doesn't think the divestment movement is "going to bring the fossil fuel industry to its knees" but that it is symbolically significant, since action by a national church group brings the debate over climate change "into the heart of American communities."

"This is definitely part of changing community and elite opinion" in America, she said.

The Rev. Jim Antal, who is president of the Massachusetts Conference of the United Church of Christ and who helped lead the divestment campaign, said that they have a model "that other institutions can follow." Antal said he worked with the groups that manage the institution's investments to come up with a resolution they could accept, and the compromise included "an out" that could let the church hold some fossil fuel stocks that are "best in class."

The resolution calls on the institution to divest from fossil fuel companies by 2018, and to create investment funds that don't contain fossil fuel companies within 18 months. It also urges leaders and individual members to "make lifestyle changes to reduce the use of fossil fuels" and "highlight the dangers of climate change."

"I am close to 100 percent confident that within five years we will hold no fossil fuel stocks," Antal said. The Associated Press left messages for pension fund leaders, who did not immediately respond.

Antal said the group was motivated by the 350.org climate change campaign, which is also urging colleges and universities to divest from fossil fuel companies. The final vote came during a national convention in Long Beach, Calif.

The founder of 350.org, Bill McKibben, wrote in an email that the UCC vote "may be the most important moment yet in the divestment campaign" since the church has led many past campaigns for social progress. McKibben added that the vote doesn't just acknowledge the overwhelming scientific evidence about climate change threats, but makes clear that there is "also a profoundly moral argument: if it's wrong to wreck the climate, it's wrong to profit from the wreckage."

Last week, ExxonMobil company spokesman Alan T. Jeffers told The Boston Globe that the divestment campaign is "a symbolic measure that does nothing to reduce emissions" and added that fossil fuel makes modern life possible.

Jeffers told the AP in an email that "ExxonMobil believes the risk of climate change warrants action" and that their strategy to reduce emissions focuses on increased energy efficiency in the short term and "developing breakthrough, game-changing technologies for the long term."

The United Church of Christ, which is based in Cleveland, noted that debate on the issue included members from Montana, Wyoming and Kentucky who spoke of the potential impacts on people who are employed in the fossil fuel industry.

"I'm glad to hear that they also highlighted the issue of the workers in the industry," Skocpol said, since acknowledging the complexities of the issue may be a "more realistic" way of inspiring action on global warming that simply painting fossil fuel companies as the culprits.

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