On December 13, the Board of the European Bank for Reconstruction and Development (EBRD) adopted a new strategy for the energy sector. The strategy will have an impact on the use of billions of Euros of public funds in the energy sector. Unfortunately, the strategy represents a missed chance to truly align all investments by the banks with the goals of the Paris climate agreement.
Although the strategy has made progress compared to the previous energy strategy, it is far less ambitious then the precedent set by the World Bank in 2017 that excludes all financing of upstream oil and gas activities. The new EBRD energy strategy is not yet sufficient to ensure a transition to 1.5°C compatible development pathways. It does thus not do justice to the supporting role for the required transformation that the EBRD aims to play.
Last week, Germanwatch, the World Resources Institute and NewClimate Institute published a comprehensive study proposing various approaches to operationalising alignment of development bank operations with the Paris Agreement. In particular, the study shows that further investment in oil production and infrastructure is not in line with the Paris Agreement and that further investment in gas must be limited to specific cases based on clearly defined criteria.
The EBRD strategy contains important steps towards Paris compatibility, for example the exclusion of direct financing of thermal coal mining, power generation from coal and the development of new oil fields. The more frequent use of the shadow carbon price and its increase to the level recommended by the High-Level Commission on Carbon Prices also represent significant improvements over the old strategy.
However, the strategy does not yet ensure a full alignment of bank operations with the Paris Agreement, an approach which the EBRD - together with other multilateral development banks – has committed to only last week at the climate summit in Katowice. At the latest when the methods for operationalizing this alignment commitment are released at the end of next year at COP25, the EBRD will have to apply much stricter criteria to its investments in fossil energy, going beyond what is contained in the energy strategy.