The Covid-19 pandemic is making us rethink how to build resilient economies across the world. Questions over economic growth, access to energy and energy security and climate resilience are key metrics for public finance institutions investing in the Global South. Gas infrastructure has become symptomatic of the complexity of investing in a resilient and fair future.
Our analysis of the intersection between gas, climate, and development, published here explores the case for ending public finance for fossil gas. It provides a foundation for understanding the relationship between fossil gas and climate change, the drivers behind public finance for gas, and outlines the risks associated with gas.
Our analysis explores the case for ending support to fossil gas infrastructure by public finance institutions. It looks at some of the common drivers behind PFI investments in gas and what alternatives may exist.
We conclude that expansion of gas demand in the long term is not compatible with a 1.5-degree pathway. It is more, many parts of the supply chain are also exposed to significant financial risk or come with development or social disbenefits. And in most cases, alternatives exist or are emerging. This means that for many parts of the gas value chain it is increasingly hard to make a case that gas use is Paris-aligned or supports economic development – this includes upstream, most midstream, and end uses such as power generation and heating in buildings.
We recommend that PFIs
- cease to invest in gas altogether and instead focus on enabling alternative, “best-of-a-kind” solutions to come forward
- develop capacity to adopt
“whole system” approaches to energy investments/plans
- Improve methodologies on greenhouse gas footprint assessments.
- Pursue hydrogen and biogas as niche, premium solutions and not a “silver bullet”.
So what’s the state of play? Emerging momentum behind Public Financial Institutions excluding gas
When looking at the current and expected gas policies, we find that most of the nine multilateral development banks (MDBs) already have limited gas financing – be it only upstream gas and with exceptions or conditions. Only the European Investment Bank (EIB) has announced a commitment to exclude all fossil fuel investments, including upstream and downstream gas, from end 2021. Conversely, the Asian Infrastructure Investment Bank (AIIB) views gas a ‘transition fuel’ and permits upstream gas exploration, despite recognising such projects as ‘higher risk’.
|EIB||Full value chain excluded from end 2021 with exceptions: (1) projects on 4th PCI list; (2) 250g CO2/kWh lifetime average; (3) networks with plans for low-carbon; (4) small boilers for buildings and SMEs.||November 2019|
|World Bank Group||Upstream gas excluded, but exemptions by economic status:upstream in the “poorest countries”. Exclusion does not apply to technical assistance. ||2017|
|EBRD||No exclusions: projects must (1) not displace less carbon-intensive source or lead to carbon lock-in or stranded assets, (2) be subject to shadow carbon price and other externality costs, and (3) be consistent with NDCs and the Bank’s Environmental and Social Policy.||December 2018|
|AfDB||Upstream gas excluded.||2011|
|ADB||Upstream gas excluded. ||2009|
|AIIB||Upstream gas projects recognised as “higher risk” and needs “thorough assessment”. Gas “part of transition”.||2017|
|IDB||Upstream gas excluded with exemptions: if projects demonstrate a clear benefit in terms of energy access for the poor and where GHG emissions are minimized, consistent with national goals on climate change, and risks of stranded assets are analyzed||September 2020|
|IsDB||Upstream gas excluded, from IsDB green finance||November 2019|
We also examined a select number of national development financial institutions. Amongst the group, we find that the Nordic Investment Bank has a blurry policy and KfW, the German state-owned development bank, has no exclusions because gas is considered important for energy transition and security supply.
|AFD||Conditions: Gas power generation in Least Developed Countries and fragile states; gas for domestic cooking and heating in Africa and Asia; gas hybrid mini-grids and energy intensive industries.||2019|
|FMO||Upstream gas excluded. No specific guidance on other types of investments (downstream and power plants)||End of 2020|
|Nordic Investment Bank||Unclear – LNG investments included based on anecdotal evidence.||Unknown|
|CDC (UK)||Exclude upstream gas exclusion. Pursue gas midstream projects if they fulfil the requirements of our emerging guidance tool to demonstrate alignment with countries’ pathways to net zero emissions by 2050. ||July 2020|
|KfW||No exclusions. Gas considered important for energy transition and security of supply.||July 2017|
Methodology, data sources, future updates
Our analysis brings together datasets from Oil Change International, International Energy Agency, and Carbon Tracker, supplemented with E3G analysis of public finance commitments and policy developments.
The accompanying slides provide some ‘spotlight’ insights that highlight and analyse new and emerging trends from 2020. We aim to update our analysis as new data becomes available, either on an annual or biannual basis. We are also working with partners to develop additional data visualisations that can be used more widely.