I’m writing beside a beautiful lagoon on the tropical South Pacific island of Espiritu Santo, not far from where I was born and spent my early years.
Working on climate change introduces a note of melancholia to such holidays: how long before my waterside bungalow gets washed away in more extreme storm surges and rising sea levels? Does that bizarre tubular jellyfish that I managed to avoid snorkelling today represent the new dominant as oceans acidify?
At least there is good news on the energy front:
- Last week the European Investment Bank (EIB) adopted a new and greatly improved energy policy. The policy sets emission performance standards that mean mew and refurbished coal-fired power plants will not get funding unless they emit less than 550 grams of CO2 per kilowatt-hour. That could be met either by a combined heat and power plant or one that also burns biomass; NGOs are now pushing to get that hurdle rate down to 350, and consigning coal to history.
Don’t get me wrong: regular readers of this blog know that I'm a big fan of the climate change-related lending of the EIB, the European Bank for Reconstruction and Development (EBRD) and other development banks. For example, the EIB is the world's biggest lender to clean energy projects - that makes it a "hero" bank for us. The EBRD for its part has pioneered lending to energy efficiency projects in Eastern Europe.
But, to varying degrees all the multi-lateral development banks have continued with substantial lending to coal. Yet climate scientists tell us that we need to urgently stop coal, and that the new plants, even when they are pitched as reducing emissions by replacing an existing belcher with a more efficient plant, they lock us into using coal for the roughly 40 year life of that plant. Given the very steep emission reduction trajectories we have to achieve, throwing public money at coal is a form of institutional madness.
- So it was great to hear the week before that World Bank President Jim Yong Kim had convinced his board to adopt a new energy policy that "restricts financing of coal-fired power plants to rare circumstances”. This is in stark contrast to the previous World Bank CEO, Robert Zoellick, who happily presided over many coal plant deals.
- To cap off the good news, the US Export Import Bank has just decided against supporting a new coal-fired power plant in Vietnam. The start of a sea-change?
Now what about the others such as the EBRD and the Asian Development Bank?
An ADB rep at a recent conference said “they had to maintain credibility” with recipient nations by continuing to fund coal-fired power while combating climate change.
We do understand that poor nations are poor, and they can’t afford subsidies like feed-in tariffs or the higher capital budgets required to build renewables instead of coal-fired power. But isn’t addressing these gaps exactly what we’d expect a rich-country funded bank to do? To make a policy call on where it will focus development capital?
Development banks should be reducing the cost of capital and even marshalling aid funds to ensure new energy infrastructure in developing countries is clean energy infrastructure. That only means funding the increasingly modest cost difference between polluting and clean energy.
Those countries then get an enormous benefit going forward: zero input costs and minimal maintenance costs.
Note - the MDB climate bonds that we wholeheartedly support, like the EIB Climate Awareness Bonds and World Bank Green Bonds, specifically exclude proceeds being linked to any fossil fuel related activities. We encourage investors to Ditch Brown and Buy Green.
