Project union: In April you and Josep Borrell [the EU’s high representative for foreign affairs] argued that the war in Ukraine should accelerate progress on decarbonization, which is now a “strategic imperative”. But war also complicates decarbonization efforts. The European Commission’s action plan to end Russian energy dependence, REPowerEU, includes billions of euros in investments to import liquefied natural gas (LNG) and pipeline. And critics warn that a nascent wave of fossil fuel infrastructure projects could have a stalling effect. What can be done to prevent short-term adoption of alternative fossil fuel sources from turning into long-term addiction?
Werner Hoyer: I think we risk confusing two different issues here. Yes, this horrific war and the sudden reduction in Russian gas supplies means that emergency measures are needed, to ensure that our lights don’t go out, that our homes stay warm in the winter and that we avoid an economic crisis. New infrastructure projects to diversify Europe’s gas supply are inevitable.
But if such projects will be necessary, they will only be a palliative. We must not lose sight of the situation as a whole: our dependence on fossil fuels, including gas, is the cause of our misfortunes, and perpetuating it is not a solution. This is why REPowerEU, which you mention, plans some 200 billion euros ($201 billion) of additional investments, mainly in renewable energies, energy efficiency and electricity networks. In comparison, he predicts that only €10 billion of investment in additional gas infrastructure will be needed to fully compensate for the loss of Russian gas imports. As you can see, the difference is a matter of orders of magnitude.
So the direction of travel is clear and we put our money where our mouth is. We have already been investing heavily in clean energies for many years, and we also massively support innovation in “clean tech”; floating offshore wind, battery storage and renewable hydrogen are just a few examples. We are now focusing on innovation in so-called hard-to-reduce sectors, such as steel and chemicals, where there is currently no low-carbon economic alternative to natural gas, and where dependencies on fossil fuels are particularly strong.
PS: Europe’s efforts to reduce its dependence on Russian energy have also brought countries to the doorstep of Africa. Here too, critics lament that solving short-term supply shortages could lock countries into long-term contracts, undermine global climate goals and distort Africa’s development. Last year, you highlighted some of the ways the European Investment Bank (EIB) is supporting development in Africa, including the continent’s ability to ‘jump straight into a greener future’. Amid a deepening energy crisis, is the EIB reconsidering its commitment not to finance fossil fuel projects in Africa? How can the EIB and others help ensure that European efforts to secure energy supplies do not lead to ‘forsaken futures’ in Africa?
WH: The short answer to your first question is no. At the EIB, we are not reconsidering our lending policy, which excludes the financing of relentless fossil fuel projects in Africa. The future lies in sustainable energy sources. The current crisis does not change anything.
We are currently financing access to clean and reliable energy for millions of people in Africa. For example, we support solar power in Zambia, wind and geothermal projects in Kenya, and hydroelectricity in Liberia, Ghana and Madagascar. We also support off-grid solutions that will improve energy access for households and micro-entrepreneurs.
This is also where I see huge development opportunities for Africa. The continent has the potential to become a key exporter of renewable hydrogen. The excellent sunshine and wind conditions in Africa create opportunities for a mutually beneficial partnership with Europe: we can share advanced technologies with Africa, in exchange for large volumes of green hydrogen. This win-win arrangement would allow both parties to simultaneously strengthen their energy base and decarbonize their economies. In that sense, yes, I believe we need to stand on Africa’s doorstep – not for oil and gas, but for green energy.
PS: Climate justice is inextricably linked to adaptation, which scientists say will be key to limiting the consequences of unavoidable warming, especially in vulnerable regions. The EIB has placed a high priority on supporting mitigation efforts – a topic you touched on in a 2021 commentary with [European Commission president] Ursula von der Leyen. But what is it doing to support adaptation?
WH: Some of the consequences of climate change and environmental degradation are indeed now unavoidable. That’s why we integrate adaptation considerations into all our infrastructure projects globally. All types of infrastructure – from roads and railways to hospitals – must be built to withstand more frequent extreme weather events. But, although they are generally very advantageous investments, they often do not get the attention they deserve. We must ensure that they are not forgotten.
At last year’s United Nations Climate Change Conference (COP26), the EIB launched its first dedicated adaptation plan to support projects around the world that aim to build climate resilience. By 2025, adaptation will represent 15% of our total funding for climate action, almost triple the equivalent amounts allocated during the 2015-2020 period.
We want to increase the impact of our operations not only in Europe, but all over the world. Our new development finance arm, EIB Global, supports solutions to protect people, businesses and ecosystems in vulnerable regions. An example: we hope to contribute to the Accelerating Africa Adaptation Program, created by the African Development Bank and the Global Center on Adaptation to mobilize $25 billion over five years to accelerate and scale up adaptation to climate change in Africa.
PS: What lessons does the EIB’s experience in mobilizing investment in climate-related projects and environmental sustainability draw from efforts to persuade rich countries to finally meet their financing commitments for action? change, in particular adaptation projects?
WH: I believe we have seen some very encouraging developments over the past few years. Clean technologies have become cost-competitive and support from public and private actors has increased. Although progress has often not been fast enough, I am confident that the current energy crisis will serve as a wake-up call and generate the right momentum.
The main lesson I would draw from the EIB’s experience is that the private sector must be involved in this global effort. Public coffers are simply not big enough to finance the gigantic investments needed for a global transition to net zero. Mobilizing private investment is essential. This will require some public subsidies, but above all appropriate regulatory frameworks.
At the EIB, we are doing our part by working closely with European Union Member States, our shareholders and countries and financial institutions around the world to mobilize public and private climate finance at scale. We have developed targeted financial instruments to support investments that are economically viable but do not receive sufficient commercial financing. For example, at COP26, the EIB launched the Emerging Markets Climate Action Fund, a fund dedicated to investments in climate change mitigation and adaptation in Africa, Asia and Latin America, which was recently endorsed by the G7 at its summit in Germany.
Let me also remind you that 15 years ago the EIB issued the world’s first green bond. Today, the green, social and sustainability bond market is worth trillions. Financial markets can play a key role in tackling climate change and achieving the United Nations Sustainable Development Goals.
PS: From decarbonization to climate justice, what actions or goals should be at the top of the COP27 agenda?
WH: The EIB will bring to COP27 concrete initiatives and lessons learned from projects on the ground, underlining our commitment to supporting clean energy solutions, innovation and just transition, within the EU and globally.
Let me focus here on supporting innovation – an area in which the EIB has a long track record. For example, we have supported the offshore wind industry since its inception in the early 2000s, when commercial banks considered the technology too risky. We recently financed Europe’s first lithium-ion battery gigafactory in Sweden, as well as green manure and green steel (using renewable hydrogen) production facilities in Spain and Sweden.
Supporting innovation in struggling sectors will be at the heart of our activities in the years to come. These sectors account for nearly a third of global greenhouse gas emissions and produce things we will continue to need in a net zero world. Advancing their decarbonization is therefore essential not only to strengthen the fight against climate change, but also to allow Europe to emerge from its dependence on Russian energy.
Again, tapping into private capital markets will be essential for a successful transition. In the aftermath of the 2008 global financial crisis and during the Covid-19 pandemic, the EIB showed how a public bank can mobilize hundreds of billions of euros of private capital through modern financial instruments. We are currently working on similar instruments to do the same for clean energy. We expect our partners in the international community and the private sector to demonstrate a similar commitment. What is needed is a mobilization of resources commensurate with the scale of the crisis we are facing.
Werner Hoyer is the President of the European Investment Bank.
Copyright : Project Syndicate