By Marc Champion
Charged with promoting a green recovery from the Covid-19 recession in the 37 nations where it operates, the EBRD knows the strain that carbon-cutting policies can place on emerging economies. But it’s also a firm believer in the value of carbon markets.
Without that mechanism for reflecting the costs of carbon emissions in the prices of products, “you have a distorted market and it is much more difficult to have a bankable project,” said Renaud-Basso, speaking by video link from the annual meeting of the International Monetary Fund and World Bank, in Washington DC.
Set up in 1991 to help former communist bloc nations remake their centrally planned economies into markets, the EBRD is mandated to work with the private sector and turn a profit. Finding bankable projects — to date it has invested 150 billion euros ($174 billion) in 6,000 of them — has long been a challenge.
Under policies adopted last year, the bank now also has to make a least 50% of its financing green by 2025 and ensure that all new projects comply with the 2015 Paris Agreement on climate change.
Carbon markets can help the bank square that circle, according to Renaud-Basso. While the European Union set up the world’s first carbon emissions trading system in 2005, others have been slow to follow. There are now national or sub-national systems operating, or under development in Canada, China, Japan, New Zealand, South Korea, Switzerland and the U.S., according to the European Commission.
The falling cost of solar and wind power has been a boon for the bank’s agenda, improving the business case for renewable energy. But with a clientele ranging from Turkey — which this month became one of the last nations to ratify the Paris Agreement — to Mongolia, which World Bank data identifies as the world’s most coal-dependent economy, not all are convinced of the bank’s green prescriptions.
While the bank’s client economies account for only about 6% of carbon emissions, even the smallest countries have an interest in cutting, Renaud-Basso said. In addition to pollution and health benefits, she said, it will also ensure their economic competitiveness. Already, foreign investors are looking at CO2 emissions as a critical factor, while multinationals want clean supply chains.
With the EU also discussing a carbon adjustment tax at its borders, reducing CO2 is especially important for countries like Turkey and Ukraine.
“They have a lot of companies exporting to the EU,” said Renaud-Basso. “They have to factor in these kinds of possible developments in order to ensure their long term competitiveness.”