16 minute read
WERNER HOYER
EIB president Werner Hoyer photographed at the bank’s headquarters in Kirchberg.
Fresh challenges in energy and sustainability
The EIB is the world’s largest multilateral lender and the EU’s Climate Bank. Delano sits down with president Werner Hoyer to see how the bank will honour its green bank promise at a time of precarious gas supply to Europe.
Interview JOSEPHINE SHILLITO Photo GUY WOLFF
Werner Hoyer has just come off a transatlantic flight when we meet. Although president of the European Investment Bank for over ten years, with political responsibilities as well as financial, he cuts a surprisingly unintimidating figure dressed in his casual clothes for flying.
Yet Hoyer presides over a powerhouse of a multilateral bank which, at the end of 2021, was responsible for a portfolio of €556.4bn in outstanding loans in Europe and worldwide. And on top of its already considerable heft, the EIB, as the EU’s Climate Bank, has the responsibility of being one of the world’s main financiers of climate action.
In 2019, the bank’s board of directors took the decision to increase the EIB’s climate ambition, including ending the financing of unabated fossil fuel energy, aligning all financing activities with the goals of the Paris Agreement by the end of 2020, dedicating at least 50% of EIB financing to climate action and environmental sustainability by 2025 and supporting €1trn of green investment in this decade.
“I remember vividly the day when we presented the new energy lending policy to the board of directors in 2019… it caused a certain shock and awe,” said Hoyer. “They did not really comprehend, so we had a full-day discussion about this and later on, on the climate bank roadmap [“Climate Bank Roadmap” 2021-2025 sets out how the EIB will deliver on this]. And I remember that board meeting, I had a practically [constant ringing] telephone line with some heads of government to try to convince them.”
Headroom for the EIB Meeting net-zero greenhouse gas emissions by 2050 requires, amongst other things, the phase-out of unabated fossil fuels. Hoyer himself has been vocal on the EIB’s climate plans, quoted at the January 2021 press conference of the EIB’s 2020 financial results as saying, “gas is over.”
But in 2022, with Russia’s war in Ukraine, how does Hoyer see the challenge of balancing that previous comment with investing in gas-importing infrastructure to secure Europe’s energy supply?
“We have to see that [this is] the biggest challenge which we have in front of us right now,” said Hoyer. “So, when I hear transition, then I look very precisely: are we really talking about transition, or are we talking about the perpetuation of old technologies, old energy sources?”
“We will need gas for a transition which will be not short.”
The EIB Group’s (which includes the European Investment Fund) Climate Bank Roadmap prohibits the EIB from investing
EU’S CLIMATE BANK
Green Bonds The EIB issued the world’s first green bonds on the Luxembourg Stock Exchange in 2007 and, since then, has issued over €48bn of green and sustainability bonds across 21 currencies.
Activity since 2012 Since 2012, the EIB has provided €197bn of finance for green investment, supporting over €670bn of investment to deliver climate action and environmental protection.
Activity in 2020 In 2020, the EIB invested €24.2bn in climate action, representing 37% of all EIB financing in that year. in facilities dedicated to the transport and storage of fossil fuels.
When asked, following the interview, if there were any investments planned in this area, for example, new liquefied natural gas import facilities or charters of floating storage and regasification units at ports or maritime facilities in Europe, the EIB said no.
Nonetheless, the bank’s Energy Lending Policy, approved in 2019, leaves headroom for the EIB to support the gas sector in a transition to low-carbon gas, ranging from the production of low-carbon gases, transportation and distribution to integration within the power and heat sector alongside a phaseout of support to energy projects reliant on ‘unabated’ (in the case of gas-fired power plants, defined as fossil fuels resulting in GHG emissions above 250g CO2 per kWh of electricity generated).
However, Hoyer pointed out in the interview that any gas infrastructure financed now need not retain a fossil fuel focus in the future.
The green hydrogen question European countries are exploring the conversion of liquefied natural gas (LNG) facilities to transport green hydrogen in order to reconcile the present gas procurement emergency with their longer-term net-zero plans.
Indeed, on 23 August 2022, German chancellor Olaf Scholz signed an agreement with Canada’s prime minister Justin Trudeau to import green hydrogen to Europe as early as 2025. This could be a credible approach to avoiding stranded assets, Hoyer said. That is, assets that are devalued or have become a liability.
“If one wants to bring credibility to the justifying idea of transition, then you must make
THE EIB GROUP’S CLIMATE BANK ROADMAP
Four messages
sure that the gas infrastructure that you set up now, for instance, liquefied natural gas terminals, is able one day also to transport green hydrogen,” he said.
Furthermore, Hoyer believes that to produce green hydrogen at a much lower cost than today, Europe needs to develop and export its technologies, in particular to the developing world.
“If we want to produce green hydrogen in enormous amounts, which the chemical or steel industry and our households will need, then we will need to produce hydrogen at a much lower cost than today with huge amounts [of] absolutely top technologies,” he said.
The proposed conversion of LNG terminal facilities to carry green hydrogen has come under some criticism in the press as the technology to do this is untested. Storage tanks are not designed for hydrogen molecules, and not all pipelines can handle pure hydrogen as it can weaken the metal structures and cause leaks, to paraphrase Bloomberg. And, at present, no LNG terminal in Europe has yet been adapted to import or transport green hydrogen.
Following the interview, the EIB commented that “the green hydrogen sector is still in its very early stages… when we look at hydrogen, it is in the context of bringing down the cost curve of hydrogen production. And in order to scale it up… not all pipelines are equipped to do it. I think the sector expects a lot of innovation.”
The Climate Bank Roadmap 2021-2025 For Hoyer, development, climate and innovation run right through the EIB’s roots.
“The bank is financing the political objectives of our European societies for almost 70 years, and at the beginning of the exercise, it was, of course, reconstruction after World War II, providing necessary infrastructure for everything and with a specific focus on those projects which otherwise would not come about,” he said.
“And today… more towards sophisticated products and innovation. So climate is, of course, a particularly important path here, because the achievement of the climate objectives of the United Nations and the EU requires an enormous input into innovation.”
The EIB has historically supported projects or investments that reach policy goals but might not otherwise find private sector backing.
An example is the EIB’s investment in a floating wind farm off the coast of Portugal. The technology of WindFloat Atlantic’s floating platforms allows the turbines to operate much farther away from shore where wind supply is more powerful and constant.
“For some of these [sustainable and climate] projects, it is extremely difficult to find private-sector partners… to [offer] the loan,” said Hoyer. “When they [see] that the EIB… has checked the projects, it helps to make the project
1
To substantially increase climate adaptation efforts, with specific actions, prioritisation and initiatives.
2
To increase investment in innovative green technologies--from early-stage research through to pilot demonstration of technologies, complemented with support for new business models (battery storage, demand response, low-carbon hydrogen, e-charging).
3
Driving down the long-term cost of capital in capital-intensive green infrastructure--urban public transport, rail and energy networks, waste and water networks as examples.
4
The importance of aggregation, scalability and replicability in ensuring investment at scale; this is particularly relevant for adaptation, energy efficiency.
bankable. Then it might be interesting for private sector financiers to join as well. Then we arrive at what is very, very desirable: a combination of private and public financing.”
And the scale of the climate change problem requires private market participation.
“It is simply a total illusion to believe the sustainable development goals of the United Nations could be financed by public money. So we are a ‘crowding-in’ [encouraging the participation of private sector financing] institution. That makes it so interesting for me, as somebody who is a convinced and confessed market economy man, to see exactly where the market economy needs a little bit of help.”
Hoyer highlights that the EIB is not only active in financing of projects through the participation of investors. It is also active in mobilising money on the capital markets.
In 2007, the EIB issued the world’s first green bond. The global green bond market has since surpassed the threshold of €1.5trn in cumulative issuance and is supplemented by around €720bn of social and sustainability bonds.
“[Green bonds] were first seen as a lunatic idea,” said Hoyer. “So, this is why… our colleagues in the financial department did not only invent the idea, the product green bonds, but also developed with more and more outside partners, the so-called green bond standards, making sure that the investor who entrusts us with her or his money would know that… this bond is not only labeled green, it contains green.”
However, Hoyer cautioned that the role of the EIB is not to do the work of the private sector. “It’s not our job if the private sector can do something then the private sector should do it. But there are issues where it is riskier or more difficult.”
No significant harm The EIB has committed 50% of its financing to green finance with the remaining 50% to its other policy goals by 2025. As the EIB acknowledges itself, the two cannot be in conflict.
“As the EU Climate Bank, the EIB group cannot support the [Paris agreement] with 50% of green finance if, at the same time, it undermines the goals with the remaining 50%. In line with the principles of sustainable finance, the EIB group needs to ensure that all its activities do no significant harm to the low-carbon and climate-resilient goals of the agreement,” it says in its Climate Bank Roadmap.
However, the EIB’s climate plans have come under scrutiny, most infamously, from global campaigning network Greenpeace, who, in November 2021, erected a banner at the EIB headquarters in Luxembourg accusing the bank of greenwashing.
Among the criticisms levelled at the bank were its recent investments in transport projects and fossil fuels. At the time, the EIB welcomed the peaceful protest and responded with a statement that set out its alignment to the EU Taxonomy to avoid greenwashing and said it will support the European Green Deal using criteria established under the EU Taxonomy.
How does the EIB meet the challenge of investing in fossil fuels or in transport networks?
“We don’t invest in new airports anymore,” said Hoyer. “But, on the other hand, when it comes to efficiency measures at airports, of course, we are [participating] in that. [In terms of] making airports more efficient, there are a couple of airport projects that target exactly this efficiency, so not airport capacity, but their efficiency to make the airport more functional.”
Hoyer’s comments are supported by the Climate Bank Roadmap, which says that “the EIB group will therefore focus on improving existing airport capacity including safety, security, rationalisation, resilience and decarbonisation investment. Support will be withdrawn from investment in airport capacity expansion and conventionally fuelled aircraft.”
However, the EIB’s €90m financing of Italy’s Bologna Airport development plan, signed on 28 December 2021, was met with dismay by non-governmental organisations. The project is described as “intending to create additional airport capacity to accommodate future traffic growth at Bologna Airport, as well as increasing operational resilience, passenger service standards and improving safety and security performance” in the EIB’s project summary sheet.
When asked about the alignment of the Bologna Airport project with the EIB’s climate goals, the EIB commented that “the Bologna
Airport operation entered the EIB pipeline in April 2020, before the Climate Bank Road Map was adopted, and therefore as such it is covered by the transitional provisions.”
In terms of highways, the EIB signed two projects for highways in Poland in 2022. One, concerning a €400m EIB financing for the construction of the S1 Expressway sections between Pyrzowice and Dabrowa Górnicza and between Kosztowy and Bielsko-Biala, including the Óswiecim bypass, is described as going through an environmentally sensitive area.
Meanwhile the other, the construction of the sections of the S3 expressway between Swinoujscie and Troszyn as well as between Brzozowo and Szczecin, crosses several environmentally sensitive areas classed as Natura 2000 sites.
In a general comment about the financing of highways in the interview, Hoyer said: “So I would say freeway introduction itself is not a bad thing. You have to prove that this contributes to the improvement of [emissions]. For instance, emissions have a price. This is why the CO2 price that we calculate will go up exponentially until 2050.”
When asked following the interview about the two Polish highway projects and how they contribute to the improvement of emissions, the EIB commented: “At the EIB, road capacity expansion projects are subject to an adapted economic test consistent with the 2050 climate neutrality target for the transport sector. Therefore, we continue to support road investments that remain justified under the EU 2050 decarbonisation scenario and that
European Investment Bank president Werner Hoyer is seen with Microsoft and Breakthrough Energy founder Bill Gates and European Commission president Ursula von der Leyen during the UN Cop26 climate conference.
deliver sufficient benefits to society. This is the case for the above-mentioned Polish projects.”
For the environmentally sensitive areas bisected by the proposed highways, the EIB said that a full environmental impact assessment had been done and that particular attention will be placed on compliance with the environmental and social standards and impacts on specific conservation objectives.
Nonetheless, Greenpeace made the point in its 2021 media briefing that a new economic test and carbon pricing used during project appraisal is insufficient to meet the goals of the Paris agreement. It added that the ongoing financing of certain fossil fuel projects and the long transition period--new criteria in the EIB’s Path Framework will not apply to operations already under appraisal or approved by the end of 2022--means “the EIB calling itself a climate bank is hypocrisy.”
It’s a tough dialogue, yet as far as the demands of NGOs go, Hoyer is optimistic: “I think our dialogue with the NGOs has improved tremendously over time. I cannot expect the hardcore fundamentalists in this field to be excited about an institution like ours. But I think, when it comes to the overall objectives, we are pretty close.”
A “just transition” and a climate bank Acknowledging the need for gas, even as part of a transition to green fuels, is a difficult balancing act for a climate bank.
“I’m not naive when it comes to the next winter, for instance, and there will be huge pressures. On the politicians to say okay, in view of the fact that the standard of living is going to suffer tremendously, the increase in electricity costs for the individual households will probably make it impossible to finance the next vacation plan. So in these times, it’s very, very difficult to stay the course,” said Hoyer.
However, for Hoyer and the EIB, transitions are important. The EIB supports the EU’s Just Transition Mechanism, ensuring that “no people or places are left behind along the transition pathway,” according to the Climate Bank Roadmap. The idea is one of cohesion, to support regions that currently rely on carbon-intensive industries as a major source of local employment and income, and to those sectors and livelihoods most at risk from climate change impacts.
“The last coal miner… out of the deep… coal mine in upper Silesia [in Poland] will not be the head of a digital startup in two weeks. It will take time and help in order to make this transition possible. So, this is why the idea of the green transition always was accompanied by the commitment to contribute to the fair transition, the ‘just transition’,” said Hoyer.
This concept of transition also applies to the financial intermediaries and partners with whom the EIB works, including technical assistance through its climate action support
facility to support financial intermediaries to engage in green lending and build capacities enabling sustainable lending.
And Hoyer clearly expresses his view on those intermediaries that do not fulfil requirements: “If you don’t have a credible path towards transition, then it’s over.”
In terms of its own transition, the EIB has an emission-reduction pathway in place to align its internal operations with the goals and principles of the Paris Agreement, which aims to restrict the global warming scenario to 1.5°C by achieving net zero by 2050.
However, while some global banks have committed to an earlier target for net-zero emissions in their own operations--for example, HSBC is targeting 2030--the EIB has not committed to an earlier target than 2050 for its own operations. When asked about this comparison following the interview, the EIB said: “It comes down to the definition of the net zero and what emissions are measured. For [other banks], we do not know what emissions they are measuring (if all or a part), and it is unclear if they are compensating their emissions. We aim to compensate significantly.”
A review of policies The EIB was due to make a mid-term review of its energy lending policy in early 2022 in order to discuss the implications of the EU sustainable finance taxonomy and further policy developments in the context of the European Green Deal and the EU external action. It remains to be seen what changes, if any, take place in the policy in view of the changing face of Europe’s energy mix.
The bank already reviewed its transport lending policy in July 2022 following a public consultation with over 3,500 individuals and organisations. Revisions included, among other things, an adapted economic test for large road capacity expansions of €25m or greater, incorporating carbon prices and traffic profiles compatible with the 2050 climate neutrality target. However, it stopped short of ending the financing of large road capacity expansions and port expansions in Europe as demanded by a group of NGOs including BioWatch, Counterbalance and the Global Forest Alliance in January 2022.
The increased demand for transparency and the high stakes of meeting net zero by 2050 will continue to put the EIB under scrutiny to walk the walk as it operates as the EU Climate Bank, both in the projects it finances and in its own operations. How does it feel about getting not just net zero, but net positive?
“I think in an environment, political environment in which we live, we must in this respect stay the lighthouse not on ideological grounds, but on economic grounds,” Hoyer said. “This is why pricing is so important. If things don’t have a price, if emissions are cost free, then we are going to ruin the world within a couple of years.”
