EBRD chief: Some gas projects 'not incompatible' with Paris Agreement

One of the most sensitive issues in Europe’s relationship with the rest of the world today is climate change. Why, some leaders and analysts ask, can Germany reactivate coal-fired power plants, but the European Union cannot use its development budget to support fossil fuel infrastructure designed to alleviate energy poverty in Africa? European Investment Bank President Werner Hoyer said early last month that EIB was “on the right side of history” when it decided in 2019 to stop funding all fossil fuel infrastructure, including gas. But for a country such as Senegal, which recently discovered oil and gas, that’s a problem. Addressing a panel at last week’s inaugural EIB Forum in Luxembourg, Devex asked whether, given its relentless focus on green and digital investments, Europe was in fact not listening to African needs as closely as it claimed. The response indicated that not all multilateral development banks think exactly alike when it comes to aligning with the Paris climate agreement. “Over the past few decades, we've basically, as a donor community, largely withdrawn from the hard infrastructure.” --— Koen Doens, director-general of the development department, European Commission “I think we need to acknowledge that you need a base load and that renewables — at [this] point of time at least — present some challenges in terms of intermittency and so forth,” said Odile Renaud-Basso, president of the European Bank for Reconstruction and Development, or EBRD, the 73-shareholder lender still pondering its own expansion into sub-Saharan Africa. “So that’s something we all need to acknowledge, that base load is probably necessary, at least for the time being …” So should MDBs finance gas? Renaud-Basso said that EBRD is “a bit more flexible” than EIB. “I think there are some cases where you can prove that gas is not incompatible with the Paris Agreement, but you need to avoid creating stranded assets,” the Frenchwoman said, referring to fossil fuel resources that cannot be exploited before the end of their economic lifespan due to regulatory or demand changes. “I think we need to acknowledge that … first of all there is an issue of fairness worldwide and indeed Africa has not been part of the emitters, so that creates a fairness issue. But also a question of being sure that the decisions taken are not putting at risk something which I think is of very high value, which is making the best efforts to reach the objectives of Paris.” The two-day EIB Forum was an experiment in creating a kind of European precursor to the World Bank-IMF spring meetings. Many of the European development finance habitués were there for the event, which sought — perhaps too optimistically — to cover EIB’s role both inside and outside the European Union. The latter made up €9.18 billion (about $9.8 billion) of the bank’s €72.45 billion in financing last year, and with its experience in sovereign lending in particular, EIB is emerging as a key player in the European Commission’s Global Gateway investment strategy to get back into financing hard infrastructure around the world. Here are our takeaways: EIB ❤️ Post-Cotonou Agreement: Don’t worry if you’ve never heard of this deal between the EU and 79 African, Caribbean, and Pacific states — we are not sure the prime minister of Luxembourg — an EU member state — has either, judging from his vague response when we asked him why Post-Cotonou still has not been signed two years after the European Commission and the ACP states finished negotiating it. The partnership agreement no longer governs trade relations or development spending between the two blocs, but it does provide the legal basis for EIB to lend in those 79 countries — see page 184 here for the nerds among you. Should the deal go off a cliff at the end of June, when the current extension of the previous Cotonou Agreement expires, then the EIB’s lawyers might have to cancel their summer holidays. Cotonou can always be extended for what would be a fourth time, but the commission will be hoping EIB’s skin in the game helps get the deal over the line by convincing the holdout, Hungary, to sign. Hoyer ❤️ development subsidiary: EIB President Werner Hoyer has a crusade of his own: Breaking off the bank’s lending outside the EU into an EIB-controlled subsidiary. Hoyer, whose second term as president ends this year, has lobbied for the idea of a separate legal entity with greater risk appetite throughout the past decade and confirmed last week that he still thinks the same. That’s despite a 2019 expert report — much loathed in Luxembourg — that argued that any such effort would need a different “culture, management and governance structure” to EIB proper — i.e. don’t do it. Hoyer used his opening speech to the forum last week to argue that EIB Global — the bank’s new department for lending outside the EU that emerged at the end of the 2019 expert review process — needs to grow into a fully-fledged subsidiary. “Hopefully together with partners from the European Commission and the national development institutions and banks”, Hoyer added in seemingly off-the-cuff remarks that were absent from the official transcript of the speech. It’s probably wishful thinking. The 27 EU states that make up the EIB’s shareholding are likely more interested in seeing EIB Global focus on the bank’s promise to deliver more impactful lending. Appointing a full-time managing director — 18 months after EIB Global launched — would be a good start. Commission ❤️ EIB? It wouldn’t be an EU development conference these days without ample mention of the much-promoted, much-maligned Global Gateway — the European Commission’s promise to generate €300 billion in investments around the world by 2027. Much of the €300 billion target is based on projections of private sector investment. But of the relatively small share of public money involved it is clear — including from the list of 87 priority projects for 2023 that Devex reported last week — that much depends on loans passing the EIB board. “Over the past few decades, we've basically, as a donor community, largely withdrawn from the hard infrastructure,” Koen Doens, director-general of the commission’s development department, said at a panel event Tuesday. “It's all been about regulatory frameworks, the soft side of things, and so on. We need to move back into the hard infrastructure. Without the hard, we're missing the core.” This raises some questions: Is the €26.7 billion guarantee from the commission to the EIB for the 2021-2027 period to support its public lending outside the EU enough to meet Brussels’ ambitions to be a player, not just a payer? The Gateway was launched in December 2021, but the commission’s 2021-2027 budget was first proposed in 2018. At what point did the commission decide on this renewed infrastructure push? And is the current budget structure — including legally-binding geographic and thematic spending targets — compatible with the nakedly geopolitical aims of the Global Gateway? NGOs are already worried that staples such as health and education are being neglected under the Global Gateway. The commission's foreign aid proposal — still some years away — for the 2028-2034 funding period will be a key test of how it sees the role of the EU — and EIB Global — in the world. Editor’s note: The reporter’s travel to Luxembourg was supported by EIB. Devex maintains full editorial control over the content.