The European Union's investment bank and nonprofit lending arm put forward a climate-oriented proposal on Friday that would prevent it from providing any new financing for fossil fuel-based power projects.
Though its proposed policy has not yet been approved, the more than 60-year-0ld European Investment Bank is sending a strong signal to policy-makers, energy markets and suppliers.
"This is the result of several months of work and it's also a reflection of the views that we've heard from hundreds of stakeholders across Europe as to what the priorities of the E.U. bank should be when it comes to supporting energy in the future," said EIB Vice President Andrew McDowell.
"This is a draft proposal," he said. "The next step of this process is that this proposed energy lending policy goes to our board of directors, to begin discussions on the document in September and ultimately it will be for the board of directors, the representative of the E.U. member states, to approve the bank's energy lending policy."
The aim of the bank's draft 46-page policy is to help fulfill the Paris Agreement’s goal of preventing average global temperatures from rising more than 2 degrees Celsius above pre-industrial levels, or 1.5 degrees C. if possible. Last December, almost 200 nations adopted a rulebook for the United Nations-brokered accord that sets out how nations must report their carbon emissions and pay for climate action.
"Focusing on this long-term investment represents an ambitious challenge for the bank. As a result, the bank will phase out support to energy projects reliant on fossil fuels: oil and gas production, infrastructure primarily dedicated to natural gas, power generation or heat based on fossil fuels," the bank said in its draft policy.
"These types of projects will not be presented for approval to the EIB board beyond the end of 2020," it said. "As a result, all the bank’s activities in the energy sector will be fully aligned with the Paris Agreement."
EIB was set up in 1958 under the Treaty of Rome, which led to the creation of the European Economic Community, later named the European Community, and is one of two accords that underpins the E.U.'s draft European Constitution.
The EIB Group contains two divisions: the European Investment Bank and the European Investment Fund, which specializes in finance for small businesses and mid-caps.
Meeting E.U. energy and climate targets
The policy change would help fulfill the Paris Agreement by accomplishing the E.U.'s 2030 climate and energy framework, first adopted by the European Council in 2014 and upwardly revised in 2018, that includes E.U.-wide targets and policy objectives.
The E.U.'s key targets include cutting greenhouse gas emissions by at least 4o% below 1990 levels, improving energy efficiency by at least 32.5% and increasing reliance on renewable energy for all power needs by at least 32%.
The EIB's board of directors was scheduled to discuss the draft energy lending policy on September 10. If it is adopted, the bank said, the final version will be published on EIB’s website.
"The global energy sector is set for profound change. The European Union is at the forefront of this transformation. It has adopted measures to deliver ambitious climate and energy targets for 2030 and a new energy rulebook called Clean Energy for All Europeans," the bank said in a statement.
The draft energy lending policy was published after what EIB called an extensive public consultation during the first quarter of this year. As the world's largest multilateral financial institution, the Luxembourg-based bank also is one of the biggest providers of climate finance.
"The public consultation solicited views and input from the public on how the bank can best support E.U. energy policy and long-term climate and energy targets," it said. "The EIB received 149 written contributions from organizations or individuals. Feedback and suggestions were rich and diverse. Three petitions were received, signed by over 30,000 people in total."