Ditching fossil fuel financing from the EIB’s remit is a pretty straightforward argument. There’s a clear political will to redirect public money toward renewable investments; incoming European Commission president Ursula von der Leyen has promised a $1.1 trillion “Green Deal” and carbon neutrality by 2050. The financial case is convincing too, given the risk of hydrocarbon projects turning into worthless “stranded assets.” The EIB has already pulled back from coal-fired power plants.
The sticking point for Berlin and other European capitals is natural gas. As an energy source, it is cleaner than coal (relatively speaking) and Germany has invested heavily in gas power plants as it phases out nuclear and coal. The country is building gas import hubs to reduce its reliance on Russian supplies, and it’s notable that the recent EIB funding of the Trans Adriatic Pipeline (transporting gas via Greece to western Europe) was pitched as a boost to EU energy security.
Yet that’s hardly a reason to delay the EIB decision on fossil fuel investment (as the chart below shows, it’s already slashing funding in this area). Europe could easily choose a cut-off date of 2020 for new proposals, giving Germany and other states an adequate interim period for gas projects. Gas today seems cost-effective and carbon-efficient but BloombergNEF estimates that new onshore wind projects will become cheaper than existing gas plants in Germany and Italy by 2020.
Concerns about energy supply and security in Europe, while important, don’t have to mean backing down on climate commitments. The need for EIB assistance in big infrastructure doesn’t seem that great. Marco Giuli, a researcher at the VUB Institute for European Studies, says there’s spare capacity in the system: In 2016, EU gas imports amounted to 310.6 billion cubic meters against 700 billion cubic meters of import capacity. For those countries or regions that can’t afford to suddenly drop gas, the EIB has already promised to roll out funds for energy transition.
Germany’s position seems driven by self-interest. In 2013 it refused to take a harder line on coal. And Berlin doesn’t even need the EIB’s cash. It could borrow at negative yields to splurge on infrastructure if it wanted. But it can probably see the writing on the wall for the value of its previous investments and its plans to become an import hub. If the EIB halts gas projects, how long before the German development bank KfW has to do the same?
Berlin has a habit of picking the wrong poison when planning its transition to cleaner energy, as my colleague Chris Bryant has written. It probably shouldn’t have phased out nuclear power before coal, and now it’s having to fight a rearguard defense of gas. Even its “green new deal” has been attacked for its lack of boldness. Whatever the reasons, Germany’s climate confusion is hurting the EU. It is undermining the bloc’s climate fight before it’s even begun.
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Lionel Laurent is a Bloomberg Opinion columnist covering Brussels. He previously worked at Reuters and Forbes.