By Ewa Krukowska
On its face, the move on Thursday by the lending arm of the European Union will choke off access to hundreds of millions of dollars of funds for building new plants and pipelines that would help the industry’s expansion continue.
Instead, the lobby group representing gas utilities and producers sees the EIB’s new terms as an opening to gain funding for some of the cutting-edge technologies it has identified to keep the industry relevant in an era when policymakers are moving to zero out carbon emissions.
“The bank’s new lending rules will support the deployment of carbon capture and storage, power-to-gas, hydrogen and biogas,” said James Watson, secretary general of the Brussels-based gas industry lobby Eurogas. “Investments in the gas infrastructure will deliver these technologies that all support the achievement of the 2050 carbon neutrality target.”
Europe’s natural gas industry is starting to worry about what happens to its pipelines, power plants and distribution networks if the EU makes good on its ambitions to cut fossil fuel emissions to zero by 2050. The coal industry already is shutting down production and power plants fed by that fuel, and gas industry is looking for a future for its assets in a world where clean energy is preferred if not required.
The EIB is one of the most important sources of financing for big infrastructure projects in Europe.
The board of the Luxembourg-based lending arm of the EU decided at a meeting on Thursday to approve a new energy policy that includes increased support for clean-energy projects. From 2021, the bank will not consider new financing for fossil fuels, including natural gas, that are “unabated” — a term that suggests it would back projects fitted with technology to capture carbon.
For the gas industry, the terms of the EIB’s new mandate signal that the bank will help support its favored view of how the region’s energy system transitions to clean energy. With carbon capture and storage, even coal plants theoretically could continue to work past 2050 since their emissions would be stuck underground by CCS, or “abated” in the jargon of the trade.
Currently, those technologies are still immature, or expensive, or both. The process of getting them ready, and cutting costs, will have to get underway in the decade just about to start, according to BloombergNEF. Without the new technologies, a sharp cut in emissions needed to meet the objectives of the global Paris Agreement on climate looks unlikely.
Energy is a big target in Europe’s effort to zero out emissions. The power generation system is based predominantly on fossil fuels and nuclear, with renewables still growing. The neutrality goal may require an extra 175 billion euros ($190 billion) to 290 billion euros a year in investment for energy systems and infrastructure from 2030, and the EIB’s decision is a powerful signal to private investors on how they can avoid their assets becoming useless.
The bloc’s leaders are under pressure from the voters: 93% of Europeans see global warming as a serious problem, according to a recent survey by the EU Commission. In response, the incoming Commission President Ursula von der Leyen set it as a top priority and announced she wants the EIB to become a climate bank and help unlock 1 trillion euros to green the economy.
For the gas industry, the EIB’s financing is most useful in backing frontier technologies or projects in locations where commercial banks fear to tread. Traditional gas projects have a long track record and can be financed through regular channels.
“The EIB, like many other financial institutions, is increasingly worried about being left with stranded assets on its balance sheet,” Andrew McDowell, the bank’s vice president in charge of energy, told Bloomberg Radio on Friday. “Assets, that will be overtaken by new technologies and can no longer compete.”
The EIB’s move reflects a drift toward greater concern about the climate from Europe’s top financial institutions. The European Central Bank is following suit, considering adding climate-related risks to its stress-test scenarios and buying green bonds. The Bank of England earlier this year asked U.K. insurers to test their portfolios against three climate related scenarios.
For the EU climate strategy to work, national governments must now act to policy more investment in the new technologies, said Eurogas’s Watson.
“Clearly the best way to underline the need for these new gas technologies would be to introduce EU-wide binding targets for renewable and decarbonised gas, such as countries like France have done with a 10% target for renewable gas by 2030,” he said. “This is now a time for action and delivery.”