Last month, the first European Council devoted specifically to energy confirmed the need for an 80%-95% reduction in output of greenhouse gases by 2050 (compared to 1990 levels). This month, the European Commission will launch a ‘roadmap for a low-carbon economy by 2050’ incorporating this objective.
Yet, despite these ambitious statements of intent, EU leaders still fail to realise that the fate of the European energy sector and, consequently, of its 2050 climate targets is dependent on infrastructure investments made today. While emission-reduction objectives are being defined and adopted, European public banks continue to invest important sums in projects that will lock countries into fossil fuel-dependent paths.
Half of the cost of a new 600 MW block scheduled to be built at lignite-fired plant Šoštanj in northern Slovenia will be covered through loans from European public banks. Out of an estimated cost of €1.2 billion, €550 million is to come from the European Investment Bank, the EU’s house bank, and another €100m from the European Bank for Reconstruction and Development (EBRD), which has a European Commission representative on its board of directors and is majority-owned by EU states. The rest of the money will come from Holding Slovenske Elektrarne, the Slovene state-owned utility that owns the power plant, with a mere €100m syndicated by the EBRD to commercial banks.
The operation of the new Šoštanj block will result in emissions of 3.1 million tonnes of carbon dioxide a year, which represents almost all of the emissions quota that Slovenia will have under the EU-wide plan to cut emissions by 80%. In this scenario, by 2050, all transport, agriculture and industrial facilities in Slovenia would have to cut their emissions radically, and certainly disproportionately more than the energy sector. Why expect so much of all other sectors of the Slovenian economy if energy, the easiest sector to de-carbonise and the least prone to carbon leakage, is moving in the wrong direction, through the expansion of coal operations?
The Šoštanj case is serious in itself, but securing the funding from the EIB and EBRD would set a dangerous precedent. Šoštanj’s 600MW are nothing compared to Poland’s 12,000 MW of planned new or modernised coal capacities. Financial support from the EIB is merely speculated at this point for the 2,000 MW Elektrownia Pólnoc plant near Gdańsk, but due diligence is ongoing in the case of a smaller plant at Bielsko-Biała in southern Poland. The Šoštanj example represents a showcase of what can happen in Poland and other member states if coal reliance continues to be encouraged.
It is often repeated that the EU as a bloc does not define the choice of energy mix of individual states. Nevertheless, it still has a right to decide where to put its money.
Need for investment
The transition in Europe towards an energy-efficient, decentralised, renewable-energy system will require considerable investment if we are to reach our decarbonisation targets. Recent Commission estimates show that the investment need by 2020 amounts to €1 trillion.
The mandate of the EIB is to provide financing for the implementation of EU policies, and the bank should therefore be spearheading the work to achieve this low-carbon vision. In spite of this, the EIB has lent only €160m in support of energy efficiency and renewables in Slovenia since 2002 (five times less than the amount lent for the new block at Šoštanj). So why is the EIB frittering its limited resources away on lignite coal plants that prevent EU climate targets from being reached?
Replacing old coal-fired power stations with new ones is a misguided fix that will lock in high-emitting infrastructure for the next 40-50 years. Such policy choices are a huge barrier to meeting the EU’s emissions reduction goals.
The financing of coal projects by European in-house banks sends out the wrong signal about the seriousness of European climate and energy policies. By failing to enact its own policies at home, the EU risks losing its leading position in the global climate-action scene. EU institutions must start talking to each other to make sure that the bloc’s financial resources truly follow its policies. Stopping these loans would be a good starting point.
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Piotr Trzaskowski works on energy and climate issues for CEE Bankwatch.