Fossil fuel exclusion policies

Explanation

In its 2019 Energy Lending Policy, the EIB committed to phasing out support for  energy projects reliant on unabated fossil fuels. This made the EIB the first MDB   to have done so, setting a transformational precedent. Among other PDBs assessed by E3G’s Public Banks Climate Tracker Matrix, the EIB was only the second, following the AFD.

The EIB committed to phasing out support to energy projects reliant on unabated fossil fuels, namely:

1. The production of oil and natural gas.
2. Traditional gas infrastructure (networks, storage and refining facilities).
3. Power generation technologies resulting in GHG emissions above 250 gCO₂/kWh of electricity generated, averaged over the lifetime for gas-fired power plants seeking to integrate low-carbon fuels. (This replaced the previous Emissions Performance Standard of 550 gCO₂/kWh and effectively excluded coal, oil and unabated natural gas).
4. Large-scale heat production infrastructure based on unabated oil, natural gas, coal or peat.

The Bank further committed to phasing out support for energy infrastructure directly associated with unabated fossil fuels, coal mining, infrastructure dedicated to coal, oil and natural gas networks, and liquefied natural gas terminals and storage.

While this is in line with the principle to “do no significant harm” of the EU Taxonomy (270 gCO₂/kWh), this is significantly above the “substantial contribution to climate change mitigation” criterion, which sets the bar at 100 gCO₂/kWh, reducing to 0 g by 2050. Considering the need to go beyond doing no significant harm the EIB should consider revising its emission standard in line with the “significant contribution” criterion.

Notably, there are some caveats to the Bank’s phase-out commitment.

Firstly, fossil-fuel-related projects that had already been under appraisal in November 2019, including projects under the EU 4^th list of Projects of Common Interest, were maintained and could still be approved by the end of 2021, thereby setting the date for phase-out. The EIB’s 2023 Energy overview report affirms this target has been achieved and no fossil fuel projects were supported in 2022. This has also been confirmed by external stakeholders.

Secondly, the EIB will continue supporting gas network projects which will transport low-carbon gases (i.e. e-gases, biogas or hydrogen), including retrofitting existing infrastructure for this purpose. To receive funding, projects must present a “credible plan” to gradually increase low-carbon gas blending over their economic lifetime to meet the EIB’s emission standard of less than 250 gCO₂e per kWhe on average. However, the criteria for what constitutes a “credible plan” remain unclear, raising questions about how these plans are defined and enforced. Insufficiently stringent criteria could increase the risk of carbon lock-in, stranded assets, and limited adoption of low-carbon gases.

Finally, the EIB will continue to finance efficient gas-fired small boilers for buildings or SMEs, provided they comply with the EU Eco-Design Directive – a basic legal requirement for selling boilers within the EU market – or with appropriate standards in non-EU countries. This is a missed opportunity, as the wide availability of private capital for this technology suggests that EIB financing is not necessarily critical. Instead, the EIB could enhance its impact by prioritising areas where its involvement offers clear additionality, such as supporting innovative or higher-risk projects that align more closely with decarbonisation goals, such as the larger-scale deployment of heat pumps, to achieve rapid compliance with the EU’s REPower Action Plan.

The 2023 mid-term review of the Energy Lending Policy introduced no changes to the 2019 Energy Lending Policy, apart from technical adjustments to align with  the adoption of the EU Taxonomy. This continuity underscores the EIB’s commitment to its established energy transition goals. Building on this commitment, the EIB demonstrated leadership by signing the Statement on International Public Support for the Clean Energy Transition at COP26 in 2021. Through this statement the EIB commits to “end new direct public support for the international unabated fossil fuel energy sector by the end of 2022”, with exceptions only for clearly defined cases consistent with the 1.5 °C warming limit and the Paris Agreement goals.At the time of this assessment, the EIB remains the only MDB to have signed this statement.

Supply-side energy efficiency 

As stated previously, the 2019 EIB Energy Lending Policy sets out an emission performance standard of 250 gCO₂/kWh for power generation. This enables the EIB to finance very efficient combined heat and power projects while ruling out coal-to-gas switching, unless gas-fired power plants provide a credible plan to blend increasing shares of low-carbon gas over the economic lifetime of the project as presented above. 

In line with the EU’s Energy Efficiency Directive, cogeneration projects must fulfil the following requirements to be considered energy efficiency investments:  

1. At least 50% of generated electricity must come from high-efficiency cogeneration, with Primary Energy Savings (PES) for both the cogenerated electricity and useful heat reaching a minimum of 10%.  
2. At least 5% net PES is achieved on an annual basis for the entire generated electricity and useful heat.  

For gas-fired co-/tri-generation, the project is eligible for support if it results in emissions of less than 250g CO₂/kWh in the production of power.

Recommendations:

• The Bank should consider going beyond the “do no significant harm” criteria set by the EU Taxonomy and aim to align with the “substantial contribution to climate change mitigation” criteria by lowering the emissions performance standards for power generation from 250 gCO₂/kWh to 100 gCO₂/kWh.
• The EIB should ensure that investments in gas infrastructure projects intended to transport low-carbon gases are only supported when there is a credible and imminent plan to achieve a high blend, defined with clear thresholds (e.g., a minimum percentage of low-carbon gases in the mix). Additionally, the Bank should define the origin of low-carbon gases (e.g., renewable sources for green hydrogen or nuclear for pink hydrogen) to ensure transparency and alignment with decarbonisation objectives.
• Building on its experience with Just Energy Transition Partnerships (JETPs) and learning from the efforts of other MDBs – such as the Asian Development Bank’s (ADB) Energy Transition Mechanism Partnership Trust Fund – the EIB should actively engage in coal retirement mechanisms. Collaborating with other MDBs that are testing solutions for early coal retirement would enable the EIB to identify and share best practices, support the replacement of high-emitting infrastructure, and contribute to a just and sustainable energy transition.