The Weakest Link Progress in Greening EBRD Energy Portfolio (2010-16) Still Undermined by Lending for Fossil Fuels

The weakest link Progress in greening EBRD energy portfolio (2010-16) still undermined by lending for fossil fuels

November 2017

For more information contact The European Bank for Reconstruction for new coal power plants in its and Development, founded in 1991, new Energy Strategy.2 Civil society Pippa Gallop [email protected] is mandated to promote market groups responded positively to this economies in countries of the former development, but measuredly, as this Fidanka McGrath Eastern Bloc and at the same time, step alone is insufficient to address the [email protected] environmental sustainability in all its herculean reality of reigning in climate 1. CEE Bankwatch Net- activities. A very significant part of change, which has only become more work: Tug of War: Fossil this work necessarily involves using its urgent since the adoption of the fuels versus green energy at the EBRD, May investments to tackle climate change. strategy. 2012, https://bankwatch.org/sites/default/ CEE Bankwatch Network has for many If the Paris Agreement’s goal of limiting files/EBRD-energy-tug- of-war.pdf years monitored EBRD investments climate change to 1.5 degrees Celsius 2. EBRD: http://www.ebrd. in the energy and natural resources is to be achieved, no more fossil fuel com/what-we-do/ sectors and urged the bank to support electricity generation facilities can be sectors-and-topics/ ebrd-energy-strate- demand-side energy efficiency and built at all after 2017, according to a gy-switch-coal.html, sustainable forms of renewable energy, 2016 Oxford University study.3 accessed 8.10.2017 rather than fossil fuels. In 2012, we 3. Alexander Pfeiffer, Richard Millar, Cameron published a report showing that there These findings are supplemented by Hepburn, Eric Bein- had been some welcome developments an Oil Change International study that hocker: The ‘2°C capital in the bank’s energy portfolio, such finds that not only can no new fossil stock’ for electricity generation: Commit- as increased investment in energy fuel power stations be built, but also no ted cumulative carbon efficiency and new renewablesnew fossil fuel infrastructure as well. emissions from the between 2006 and 2011. However This is because the potential carbon electricity generation sector and the these gains were undermined by the emissions from the oil, gas, and coal transition to a green fact that almost half (48 per cent or in the world’s currently operating economy, Received 11 EUR 3.26 billion) of the bank’s energy- fields and mines would already take us September 2015, Re- vised 16 February 2016, related lending supported fossil fuels beyond 2 degrees Celsius of warming, Accepted 18 February during the same period.1 and even excluding coal, the reserves 2016, Available online in currently operating oil and gas fields 24 March 2016, http:// www.oxfordmartin. In 2013 the EBRD took a step would take us beyond 1.5 degrees ox.ac.uk/publications/ forward by virtually halting support Celsius. view/2119

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19% RES Fossil Fuels 13% Large Hydropower Figure 1 EBRD energy related Energy E ciency investments 2010-2016 8% T&D 8% 41% Unclear Other unsustainable energy

As a result, the report recommends Methodology halting permitting for new fossil fuel extraction and transportation We used a methodology similar to our infrastructure and closing some 2012 study, which includes not only fields and mines – primarily in richer those investments the EBRD classes countries – rather than fully exploiting as energy, but also its energy-related their resources. It points out that a natural resources investments. This transition to clean energy is possible time we have also included some but must be managed to ensure projects that the EBRD counts in the a just transition for workers and transport sector but which almost communities.4 entirely benefit the oil and gas industry. The data on the projects was obtained At the same time, the cure must not be from the EBRD on request, but we used worse than the disease. Investments in our own classification of the project renewable energy must prioritise those categories. forms which have the fewest impacts on people and the environment, In our previous study we attempted to and which bring real reductions in screen out particularly unsustainable greenhouse gas emissions. They renewable energy projects from the must account for possible biodiversity ‘new renewables’ category, however damage and other impacts such as with the growing number of projects those on drinking water, irrigation, this is less and less feasible to do. the expropriation of land, decreased Therefore the ‘renewables’ category sedimentation or increased coastal excludes large hydropower projects erosion and the vulnerability to but includes other forms of renewable extreme climatic conditions. energy whether they are likely to be sustainable or not. This means that In 2018 the EBRD is due to review a larger share of renewable energy its Energy Strategy. Therefore investments is neither an explicitly this briefing updates our previous positive or negative development in analysis to examine whether the itself, but depends on the type and 4. Oil Change Interna- bank’s investments are headed in a siting of the projects, an issue which is tional et al: The Sky’s direction that is likely to contribute to explained more below. Limit: Why the Paris Climate Goals Require a sustainable energy transformation. a Managed Decline We have not been able to capture of Fossil Fuel Pro- the EBRD’s complete portfolio of duction, September 2016, http://priceofoil. renewable energy and especially org/2016/09/22/the- of energy efficiency. For renewable skys-limit-report

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600 RES Figure 2 EBRD energy related 500 investments 2010-2016 Fossil Fuels 400 Large Hydropower 300 Energy E ciency 200 T&D 100 0 2010 2011 2012 2013 2014 2015 2016 energy this is because some small In addition, we did not include projects projects are financed through financial that have been cancelled, even if they intermediaries that do not disclose had previously been signed by the their portfolios, even though they are bank. financed from public money. For energy efficiency, the same issue exists but Findings it is even more complicated as there are energy efficiency components The EBRD lent just under EUR 10 billion throughout the EBRD’s portfolio, even (EUR 9.96 billion) for energy-related in non-energy sectors. Therefore we projects between 2010 and 2016. have counted only energy sector- The proportion of the investments related energy efficiency projects and dedicated to fossil fuels declined do not presume to give a full picture of somewhat to just under 41 per cent the EBRD’s energy efficiency lending. between 2010-2016 (EUR 4.05 billion) compared to 48 per cent from 2006- Another challenge is classifying 2011. cases where the EBRD has provided financing for large, often state-owned As mentioned above, this does not electricity companies which have a include projects that support fossil mixed portfolio but rely heavily on fuel-heavy utilities – and we have noted unsustainable energy forms such as several of these, including support for coal for electricity generation. We Elektroprivreda Srbije (EPS) in Serbia, classified these as ‘unclear,’ but it Bulgarian Energy Holding (BEH) in should be borne in mind that they Bulgaria, Samruk Energy in Kazakhstan represent additional support for fossil and Aksa in Turkey. fuels which is not captured by the statistics. The proportion of the bank’s portfolio for renewables excluding large hydro

1% 4% Figure 3 EBRD electricity 10% generation investments 1% Wind 2010-2016 Solar 6% Biomass 11% Biogas Small hydropower 67% Geothermal Unclear

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500 Millions 400 Figure 4 EBRD electricity RES generation investments Fossil Fuels 300 2010-2016 Large Hydropower 200 Unclear

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0 2010 2011 2012 2013 2014 2015 2016

has increased, from 11 per cent in fuels with no less than EUR 774 million. 2006-2011 to 19.4 per cent in 2010- 2016. This is examined in more detail At the same time, after a steady below. Large hydropower support increase from 2010-2015, there made up 8 per cent of investments and was an alarming fall in support for includes both the construction and renewable energy in 2016. In 2015 rehabilitation of existing plants. This support peaked at EUR 489 million amount would have been larger had but in 2016 it was down to EUR 222 the controversial Ombla and Boskov million. This may be partly related Most plants gone ahead in Croatia and to the increasingly unfavourable Macedonia respectively. environment for renewable energy in Poland, where the EBRD had previously As mentioned above, the energy supported several projects.5 efficiency investments captured here do not represent the EBRD’s entire Some improvement is visible in terms portfolio but only those in the energy of the bank’s support for fossil fuels sector, which we found to consist in new electricity generation capacity. mainly of energy efficiency measures This peaked in 2012 but has been and not for example mixing energy relatively low since the EBRD’s 2013 efficiency measures with exploitation Energy Strategy was developed. of new oil or gas fields. What this means in practice is that However, absolute investments in fossil most of the fossil fuel investments are fuels have actually increased. Between either supporting the extraction of oil 2010-2015 annual investments in fossil and gas or its transportation. Figure 5 EBRD renewable fuels averaged around EUR 540 million, energy investments 2010- but in 2016 the bank supported fossil Over the whole period, almost 65 2016

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250 5. Agnieszka Bartec- Millions zko and Anna Koper: 200 Wind INTERVIEW-EBRD cuts financing for Polish re- Solar 150 newables as regulations Biomass tighten, Reuters, 13 100 Biogas April 2017, https://www. Small hydropower cnbc.com/2017/04/13/ reuters-america-in- Geothermal 50 terview-ebrd-cuts-fi- Unclear nancing-for-polish-re- 0 newables-as-regula- 2010 2011 2012 2013 2014 2015 2016 tions-tighten.html

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Millions 1000 SEE Figure 6 EBRD energy Turkey investments by region 2010- E. Europe and Caucasus 2016 800 Central Asia Mediterranean Russia 600

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0 RES Fossil Fuels Large Hydropower Energy E ciency T&D

per cent of investments in new EU countries have received the most electricity generation capacity were support for renewable energy. The for renewables, with just under 24 per southeast European countries aspiring cent for fossil fuels (see figure 3 on to become EU members have received page 3). This is quite a large change very little, although our monitoring from 44 per cent renewables and 45 suggests that this is not due to a lack per cent fossil fuels in 2006-2011. of willingness from the EBRD but rather due to barriers within the countries. Taking a closer look at the renewables Some renewables support has taken investments, the main change is the place in Turkey and the Mediterranean, appearance of geothermal and solar but this is heavily exceeded by fossil in the mix. The rise in geothermal is fuel investments. mainly due to investments in Turkey. However these projects have unusually Fossil fuel support has also been high CO2 emissions by geothermal heavy in Central Asia – mainly for standards, which can be comparable the extraction and transportation of even to coal-fired power plants.6 The oil and gas – and in Eastern Europe rise in solar is presumably due to and the Caucasus, including for dropping prices as well as increased example support for Ukraine to secure EBRD investments in Mediterranean its gas supply. The heavy support 6. Erik B. Layman: countries. for fossil fuels in Central Asia and Geothermal Projects the relatively heavy support in the in Turkey: Extreme Greenhouse Gas Emis- There also appear to be fewer small Mediterranean is problematic not only sion Rates Compa- hydropower plants receiving financing from a climate point of view but also rable to or Exceeding than during the 2006-2011 period, from the perspective of economic Those from Coal-Fired Plants, PROCEEDINGS, however this is difficult to tell as it diversification. 42nd Workshop on may just be that a higher proportion Geothermal Reservoir have been financed through financial What is perhaps most surprising is that Engineering, Stanford University, Stanford, intermediaries and therefore do not the EU was the third largest recipient California, February 13- show in these figures. of fossil fuel financing over the period. 15, 2017, https://pan- gea.stanford.edu/ERE/ db/GeoConf/papers/ Regarding the geographical spread The only slight consolation is that SGW/2017/Layman.pdf of the investments, it is clear that lending for fossil fuel projects within

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Millions 700 600 Figure 7 EBRD fossil fuel Overall financing by region 500 2010-2016 400 EU 300 200 100 0 2010 2011 2012 2013 2014 2015 2016 the EU has generally decreased, particularly CO2 intensive. although it increased again in 2016. The bank has made steps forward in Conclusions financing wind and solar projects in recent years: 67.5 per cent of renewable Bankwatch has analysed EUR 10 billion electricity investments were for wind, in support from the EBRD for energy- while solar grew from virtually nothing related projects between 2010-2016 in 2006-2011 to more than 11 per cent to see how the trends have changed of its renewables investments in 2010- from the period 2006-2011 and 2016. However these positive trends whether the bank is on the right are threatened by developments such track to support a transition towards as the legislative changes in Poland sustainable energy. that have led to the EBRD’s renewables investments dropping there. Overall we found that just under 41 per cent of the bank’s financing still Another issue in the electricity sector supported fossil fuels, while 19.4 per is indirect support for unsustainable cent supported renewable energy energy like coal through loans for excluding large hydropower plants. companies like Elektroprivreda Srbije Most of the fossil fuel financing took and Bulgarian Energy Holding. This place in Central Asia, eastern Europe has not been possible to quantify but and the Caucasus, and, surprisingly, represents a loophole in the bank’s the EU. EBRD fossil fuel support in the commitments to limit coal financing to EU decreased during the period, in “rare and exceptional circumstances”. contrast to its overall support across its whole region of operations, where In conclusion, the EBRD has somewhat this amount increased. decreased the proportion of fossil fuels in its energy-related investments The picture looks quite different in new between 2011-2016 compared or additional electricity generation to the 2006-2010 period, but the projects, where just under 65 per absolute fossil fuel investments cent of financing went to renewables increased, especially in 2016. This is and just under 24 per cent went to unacceptable given the increasing fossil fuels. Renewables investments evidence by Oxford University, Oil here exclude large hydropower but do Change International and others that include other problematic investments no new fossil fuel generation capacity such as small hydropower plants and or other infrastructure can be built if geothermal plants in Turkey, which are we are to have a chance of meeting the

6 THE WEAKEST LINK 1.5 degrees Celsius goal set within the • Either commit to avoid financing Paris Agreement. for fossil-fuel heavy utilities (for example those with over a certain Its increased renewable energy lending percentage of electricity generated has mainly been positive but has tailed from fossil fuels) or come up with off in 2016. This has also included a convincing strategy to accelerate some unsustainable renewable energy their transformation through its projects as well, such as the CO2- investments. intensive geothermal projects in Turkey • Avoid support for unsustainable and hydropower projects for example renewable energy projects like the in the Balkans and Georgia. CO2-intensive geothermal projects in Turkey and hydropower projects Recommendations with impacts on sensitive areas.7 • Ensure that sustainability is not The EBRD needs to: sacrificed as it looks to make up for lost business in its renewables • Use its Energy Strategy review portfolio in places like Poland. in 2018 to commit to halting all • Pay particular attention to support for new fossil fuel projects ensure that it contributes to or those which expand the lifetime the diversification of economies or capacity of existing facilities. in sectors other than natural resources and avoids indirect fossil fuel financing through transportation and other projects.

7. For more details on Bankwatch’s proposed hydropower sustainability criteria see: Sustainability criteria for hydropower development, December 2016, https://bankwatch.org/ publications/sustainability-criteria-hydropower-development-0

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