Energy efficiency strategy, standards and investment

Energy efficiency financing   

Realising energy efficiency potential is one of six guiding principles of the Bank’s Energy Sector Strategy. However, the document does not outline how this principle is operationalised through the Bank’s approach to the energy sector and associated operations. The strategy goes as far as to state that the AIIB is “keenly aware of the wide scope of measures to improve energy efficiency” and is working to advance this, without reference to specific examples or actions. The AIIB has historically prioritised the increase of energy access among its members over clean energy or energy efficiency.[1] As such, there is no evidence to suggest that AIIB applies any form of “energy efficiency first” principle across its operations.

That being said, the AIIB Paris Alignment Assessment (PAA) methodology does include energy efficiency options as part of mandatory consideration of lower-carbon alternatives for projects not considered universally aligned. However, this is not equivalent to considering them as the first option (even for universally aligned projects), including on cost-efficiency grounds.

Transport

The AIIB’s Transport Sector Strategy (published in 2018, and not updated since) makes explicit reference to the “Avoid–Shift–Improve” principle as guiding the consideration of environmental and social sustainability as part of transport sector investments. Accordingly, the strategy states that the Bank will assist clients in implementing this framework as part of project design, although the document does not provide concrete details regarding how this is operationalised in the project cycle.[2]

Relevantly, the AIIB has also outlined support for investments enhancing urban mobility as a priority area for infrastructure investments in its Sustainable Cities Strategy (also published in 2018 and not updated since). This includes specifying low-carbon mobility infrastructure and developments in public transport as priority areas for investments.

Buildings

The AIIB’s Climate Action Plan recognises green building technology as an opportunity to contribute to long-life infrastructure that integrates climate considerations. The Bank also states it will support electrification and GHG emissions reduction in “relevant infrastructure sectors, in particular transport and buildings”. However, there are no concrete details regarding how this will be operationalised. The AIIB’s Energy Sector Strategy similarly recognises the importance of higher energy efficiency codes and standards for buildings, but does not specify any minimum energy efficiency standards applied to AIIB-funded new or renovated building projects.

The AIIB follows the joint MDB list of activities considered universally aligned with the Paris Agreement. Building projects are considered universally aligned, provided they meet the green building certification criteria established by individual MDBs (for example the IFC’s EDGE certification). However, as of yet the AIIB does not outline any specific green building criteria in its PAA methodology, stating instead that MDBs are currently working on an approach to assess the Paris alignment of buildings.

Financial intermediaries

In outlining support for energy efficiency measures across its infrastructure investments as part of the Energy Sector Strategy, the AIIB commits to “develop more tailored financial instruments as it engages with partners, national energy efficiency agencies, project aggregators and financial intermediaries”. To address environmental and social aspects in these investments, the AIIB commits to apply the safeguards of its Environmental and Social Framework, including verifying capacity for environmental and social management, and screening of subprojects financed. The Bank will also apply the energy efficiency related criteria of its PAA methodology (depending on the use of proceeds) to operations involving financial intermediaries (FIs). However, there is no concrete evidence across either of these documents that the AIIB mandates FIs to follow any specific energy efficiency standards. Given the lack of clear standards established for direct investments, this is unsurprising.  

Recommendations: 

• The AIIB could benefit from adopting a systematic approach of considering energy efficiency as a first option to optimise energy supply and expand reach across contexts. Such an approach has the potential to support both mitigation and resilience efforts in the context of the energy transition. To operationalise this, the AIIB should explicitly commit to and adopt an “energy efficiency first principle” across its operations. This should include consideration of the transition risks relating to supply-side energy efficiency investments in fossil fuel infrastructure.[3]
• The AIIB should consider establishing minimum standards for transport investments to be considered energy efficiency. For this purpose, it could draw on leading practice by the EBRD, which dictates projects must achieve at least 15% GHG savings compared with the baseline “no project” scenario, as well as setting a minimum emissions performance standard (<50 g/km CO₂) for light-duty vehicles, heavy-duty vehicles and rail.

[1] See the “Non-fossil to fossil energy ratios and climate finance” and “Fossil fuel exclusion policies” metrics for further evidence of this approach.

[2] Discussions with the AIIB have suggested that the ASI framework is reviewed as part of project due diligence and its application is project specific (e.g. that depending on the type of project, a different part of the framework might be more applicable). While the nature of project origination may limit the extent to which the AIIB is able to determine project type in many cases, in general the ASI framework should also feature at an earlier stage in the project cycle. Before the project type determines the portion of the ASI framework that applies, the framework is itself a tool for informing project selection and investment decisions.

[3] See the “Fossil fuel exclusion policies” metric for further details.