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EBRD exits coal and puts decarbonisation at centre of new energy sector strategy

On December 12, the Board of Directors of the European Bank for Reconstruction and Development (EBRD) approved a new energy sector strategy that targets the creation of an energy sector which delivers clean, secure and affordable energy for all. The approval strategy confirms that the EBRD will no longer finance thermal coal mining or coal-fired electricity generation.

On December 12, 2018, The EBRD has approved a new energy sector strategy that confirms that it will no longer finance thermal coal mining or coal-fired electricity generation. It will also cease funding of any upstream oil exploration, and will not finance upstream oil development projects except in rare and exceptional circumstances, where such investments reduce greenhouse gas (GHG) emissions. The EBRD will also introduce Shadow Carbon Pricing Methodology on projects.

According to a statement, the new five-year strategy emphasises the scaling-up of investment in renewables, supporting the integration of energy systems, promoting the switch to cleaner and more resilient energy sources and facilitating electrification as a means to clean the economies where it invests, which include some of the least energy-efficient and most polluting economies and cities in the world.

Consistent with this direction the strategy confirms that the EBRD will no longer finance thermal coal mining or coal-fired electricity generation. The EBRD will also stop funding any upstream oil exploration, and will not finance upstream oil development projects except in “rare and exceptional circumstances, where such investments reduce greenhouse gas (GHG) emissions.”

However, it will continue to support the gas sector where it is “consistent with a low-carbon transition that is both secure and affordable.”

Urgent and decisive steps are needed to address the challenges posed by climate change and poor air quality. This requires a fundamental shift away from hydrocarbons to cleaner energy sources. That means the electrification of economies, including industry, transport and heating, with that electricity generated overwhelmingly from renewable sources. This is the goal that we have placed at the centre of our new energy sector strategy: to decarbonise the power sector with a decisive shift away from the most polluting fuels. Achieving this goal requires smart, integrated and resilient networks and reliance on competitive, regionally integrated and resilient markets to deliver this change. Our dual role as investors and facilitators of policy reform, coupled with our commitment to promoting environmentally sound and sustainable development, means we are ideally placed to deliver this transition, said Nandita Parshad, EBRD Managing Director, Energy and Natural Resources.

The new strategy sets the strategic direction of the EBRD’s investments and policy dialogue in the energy sectors of the 38 economies where it works for the period 2019-23. It covers the Bank’s activities in two areas:

  • electricity generation, transmission, distribution, storage, and supply;
  • hydrocarbon extraction, processing, transportation, distribution, storage, and supply.

The strategy focuses on the generation and supply of energy and thus complements the EBRD’s efforts in demand-side energy efficiency.

Shadow carbon pricing

The EBRD has a long history of investments, directly and through local financial institutions, and policy activities that aim to improve energy efficiency in buildings, transport systems, industry, and agriculture. Rapid reduction in energy and carbon intensity in these sectors is crucial to accelerate the shift towards low-carbon and resilient development pathways.

From January 2019, the EBRD is also adopting a Shadow Carbon Pricing Methodology for use in EBRD projects with significant GHG emission footprints. When considering such projects, the EBRD will undertake an “economic analysis that will account for key externalities, including the cost of GHG emissions.”

The EBRD’s approach, including the range of shadow prices it intends to use based on the high-level commission on carbon pricing, will be made available in early 2019.

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