Green finance gets messy in a world where oil makes big profits
“ The world is not investing enough to meet climate goals. The estimates vary on the exact sum, but the gap is on the order of trillions of dollars annually.”
By John Ainger and Akshat Rathi
Green finance gets messy in a world where oil makes big profits
The world is not investing enough to meet climate goals. The estimates vary on the exact sum, but the gap is on the order of trillions of dollars annually. Meeting that will need all kinds of financial institutionsto step up.
One of the institutions helping fill that hole is the European Investment Bank, which was created in 1958 to fund infrastructure projects but has since morphed into one of the biggest backers of green finance. More than half the money that it lends today is for climate and environment, with a goal to support €1 trillion ($1.1 trillion) in green investments by 2030 crucial for the European Union to meet its climate goals.
EIB is meeting that goal by primarily raising money through AAA-rated bonds, which many private investors can buy, and then lending money to government entities or private companies building an offshore wind power plant, public-transit infrastructure, or the like. In 2007, EIB became the first institution to issue a green bond, where the money it raised would explicitly be spent on activities tied to climate and environment goals.
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But working to promote the energy transition means adjusting to a constantly changing landscape. Even as global climate goals are steady and clear, where exactly bodies like EIB should focus their spending is changing as existing green technologies become cheaper and new ones start to become economically viable. That’s been further complicated by the Russian invasion of Ukraine and subsequent energy crisis in Europe, which turbocharged efforts to speed up the deployment of clean energy and replace Russian fossil fuels with other sources.
After years of campaigns from green groups, the EIB said from 2021 it would stop lending to fossil-fuel projects. Now campaigners want to push harder to ensure EIB’s lending is as green as it can be. That’s brought into focus a recent EIB loan to oil company Repsol.
In December, EIB announced that a €120 million loan will go toward the construction and operation of Repsol’s first advanced biofuels plant that will use food waste, such as cooking oils, to produce fuels for transport. The use of these biofuels could cut lifecycle carbon-dioxide emissions by as much as 90% compared to fossil fuels. Repsol has committed to investing €200 million and estimates that will avoid about 900,000 tons of CO2 each year.
The announcement hasn’t been sitting well with campaign group Bankwatch, which argues that an oil company making soaring profits should not need public financing for green projects. In the first nine months of 2022, Repsol reported a net income of €3.2 billion.
In response, EIB said “oil and gas producers are in a strong position to invest in particular types of innovative low-carbon projects which are critical to the achievement of net zero emissions.” EIB also said all of their borrowers must produce credible decarbonization plans. Repsol, for example, has committed to net zero by 2050. Though Carbon Tracker has said Repsol’s climate plan has a lot more room to be fully aligned with the Paris Agreement’s climate goals.
Crucially, however, Bankwatch points to the timing of the deal. While the lending agreement was signed in December, Repsol confirmed that construction had already begun in March. The decision to build the plant had been made as far back as 2020, raising the question of whether the EIB loan was necessary to fund the project at all — an idea known as additionality. “EIB’s loan does not contribute to the company [undertaking] new investments in favor of decarbonization,” said Anna Roggenbuck, EIB policy officer at Bankwatch.
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An EIB spokesperson said that, even though the loan was made in December, the bank was involved in the project at “a sufficiently early stage.” Apart from helping construction and operation of the plant, “the EIB loan also supports the research programmes toward advanced biofuels technologies.”
While there is no disagreement that more money is needed for green projects, there are different views on the most effective use of the resources that can be deployed. Expect more such fights, especially when public money or institutions are involved.
Akshat Rathi writes the Zero newsletter, which examines human progress on a warming planet. You can email him with feedback.