The world's largest development bank will stop funding unabated gas and oil projects after 2023, representing a significant shift of public finance towards clean energy projects.
The European Investment Bank (EIB) decided to overhaul its fossil fuel lending policy on Thursday evening following months of negotiations along with a decision being delayed twice. A compromise was reached by the bank's board of directors, mostly comprising EU finance ministers, after an 11-hour meeting.
The bank had already agreed to phase out lending to coal projects in 2013 but may be the first multilateral bank to increase the ban to unabated natural gas projects.
Analysis by NGO Bankwatch discovered that between 2013 and 2023, the EIB passed out nearly $13bn to fossil fuel projects.
EIB president Werner Hoyer said the bank's decision was “a quantum leap in the ambition”. “We stop financing fossil fuels and we will launch the most ambitious climate investment strategy of any public lender anywhere,” he said.
In a statement a week ago, EU finance ministers called on all multilateral development banks, like the World Bank and the Asian Development Bank, to phase out financing of fossil fuel projects.
The EIB's ban can come into force annually later than initially proposed after lobbying by some EU member states to continue funding gas projects.
Under a first draft published in July, the financial institution planned to drag the plug on financing infrastructure projects focused on gas and oil after 2023.
But the proposal was met with resistance from Germany, one of Europe's biggest gas markets. The German government has committed to phase out nuclear power and end coal power by 2038 and it is relying on gas as a bridge fuel because of its energy transition.
Under the EIB's new policy, only energy projects emitting less than 250 grams of CO2 for each kilowatt hour of energy produced will be eligible for funding. Which means that gas power plants using carbon capture and storage technology could still access lending.
The delayed timing for that ban does mean projects already under appraisal for EU funding could still get financial support if authorized by the end of 2023. Recently, the EU Commission identified 32 gas cluster projects entitled to funding.
Nick Mabey, leader of think-tank E3G, said the EIB's new policy was “an important achievement”.
“The EIB is sending a message with other banking institutions that purchase of fossil fuels is drawing to an end,” he said.
Charles Donovan, executive director of the Centre for Climate Finance and Investment at Imperial College Business School in London told Climate Home News the decision was “part of the shift in the financial system, beginning with public banks, recognising that we have the various tools at our disposal for the acceleration of our energy transition”.
Donovan added that although gas were built with a role to play in the energy transition, “there is no mandate to finance these projects any more poor Europe's decarbonisation.”
Instead, he explained, the EIB wants to focus its efforts on “the technologies that'll be the backbone from the transition in the future”.
French finance minister Bruno Le Maire hailed the choice “historic” and “one step towards creating a climate bank” – a proposal first championed by French economist Pierre Larrouturou and climate scientist Jean Jouzel and backed by incoming EU Commission president Ursula Von der Leyen.
The EIB has been expanding its green investments in a bid to make half of its lending focused on climate investment by 2025. Additionally, it pledged EUR1 trillion price of investment in climate action between 2023 and 2030.
In 2023, 30% from the EIB's financing – or EUR16.2 billion ($17.8bn) – visited climate action projects, based on the bank.
