European Investment Bank decision to stop fossil fuel financing will hurt gas-based projects: WoodMackenzie
The board of the European Investment Bank (EIB) introduced its new energy lending policy that will focus on accelerating clean energy innovations, energy efficiency and renewable power generation.
On Thursday, the board of the European Investment Bank (EIB) introduced its new energy lending policy that will focus on accelerating clean energy innovations, energy efficiency and renewable power generation. Following approval of the revised energy lending policy, EIB will no longer consider new financing for unabated, fossil fuel energy projects, including gas, from the end of 2021. In addition, the bank set a new Emissions Performance Standard of 250g of CO2 per Kilowatt/hour (KwH). This will replace the current 550g CO2/KwH standard.
Wood Mackenzie’s research director Nicholas Browne said: "When burnt, gas releases less carbon dioxide, nitrogen and sulphur oxides than coal & oil. Furthermore, coal-to-gas replacement has had a profound impact on air quality in northern China to the huge benefit of public health. It also has significantly lower full life-cycle carbon emissions than coal. However, while the comparative combustion benefits are undoubted, the sector may not be able to rely exclusively on this argument to make the case for gas and LNG. The benchmark looks like it will be set higher. Gas and LNG may be better but are they good enough?
"Methane and carbon dioxide are lost to the atmosphere by creating LNG through a combination of vents, flares, liquefaction, regasification and pipeline leakage. Currently, there is no consistent method of assessing the data through the value chain for how much gas is lost by the time it reaches a consumer. However, media reporting and political scrutiny of this issue will intensify. This might increase the risk that the popular and political tide turns on natural gas like it already has on coal in most countries. If this does occur, it may slow the rate of growth of gas and LNG demand. In turn, this would be a major strategic challenge for companies that have identified gas as the key driver of future growth.
"There is no industry consensus on how or whether companies should act to mitigate this risk. There are some industry bodies such as the Oil and Gas Climate Initiative that are seeking voluntary reductions through their members. Additionally, several governmental bodies are seeking to introduce more data transparency to this question. However, if voluntary measures don’t prove enough, more restrictive environmental measures could be introduced due to shareholder pressures such as what we’ve seen with the EIB guidelines.
"Beyond financing, it is possible that the debate could start to impact procurement decisions from carbon-intensive projects and portfolios, likely accelerating carbon capture, carbon offsetting and electrification of liquefaction. This year already saw the first carbon-neutral LNG cargoes delivered while several companies are implementing or investigating using renewable power to drive the liquefaction process."
According to a statement made by EIB, the decision to abandon fossil fuel financing will unlock EUR 1 trillion of climate action and environmental sustainable investment in the decade to 2030. EIB Group will also align all financing activities with the goals of the Paris Agreement from the end of 2020.
Over the last five years, EIB has provided more than EUR 65 billion of financing for renewable energy, energy efficiency, and energy distribution.
The Group will aim to support EUR 1 trillion of investments in climate action and environmental sustainability in the critical decade from 2021 to 2030; the EIB will gradually increase the share of its financing dedicated to climate action and environmental sustainability to reach 50% of its operations in 2025 and from then on;
EIB President Werner Hoyer said in a statement: “Climate is the top issue on the political agenda of our time. Scientists estimate that we are currently heading for 3-4°C of temperature increase by the end of the century. If that happens, large portions of our planet will become uninhabitable, with disastrous consequences for people around the world.
“The EU bank has been Europe’s climate bank for many years. Today it has decided to make a quantum leap in its ambition. We will stop financing fossil fuels and we will launch the most ambitious climate investment strategy of any public financial institution anywhere,” In recent times a large number of global financiers as well as insurers are abandoning fossil fuel projects.
AXIS, AXA SA, Allianz, Liberty Mutual Insurance Co, Munich Re, Swiss Re and Australia’s QBE and Suncorp includes 29 global insurers that have enacted formal coal insurance restrictions and associated divestments across their investment portfolios. European insurers, UNIQA of Austria and MAPFRE of Spain, and French asset manager, BNP Paribas, brought in new restrictions on thermal coal financing, insurance and investments during March 2019.