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Financing Green Growth – Part of the Solution for the Economic Crisis?

Financing Green Growth – Part of the Solution for the Economic Crisis?. Tilman Seibert. Copenhagen, 30 April 2009. THE EUROPEAN INVESTMENT BANK. The European Union’s financing institution ...

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Financing Green Growth – Part of the Solution for the Economic Crisis?

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  1. Financing Green Growth – Part of the Solution for the Economic Crisis? Tilman Seibert Copenhagen, 30 April 2009

  2. THE EUROPEAN INVESTMENT BANK • The European Union’s financing institution ... • Created by the Treaty of Rome in 1958, to provide long-term finance for projects implementing the EU’s policies • Subscribed capital: EUR 232.4bn as of 1.4.2009 • EIB shareholders: 27 Member States of the European Union • 2008: Lending EUR 57.6bn Borrowing from the Capital Markets EUR 59.5 bn • Priority Lending Activities • Environment + Energy • R&D Knowledge Economy • Trans-European Networks for Transport and Energy (TEN) • Small and Medium-sized Enterprises (SMEs) • Economic and Social Convergence of Member States EIB and the Policy Context

  3. EIB CONTRIBUTION TO THE EUROPEAN ECONOMY RECOVERY PROGRAMME • EIB to maintain rigorous focus on priority lending areas and funding of viable investments in a sustainable environment • Additional financing of investment of EUR 15 bn p.a above pre-crisis trend scenario • 2009 : EUR 66.4 bn • 2010 : EUR 67.7 bn • Additional lending of EUR 15 bn p.a. in 2009 and 2010 to focus on : • energy, carbon capture, infrastructure, clean transport : EUR 6.0 bn • small and medium sized companies : 3.5 bn • convergence areas : EUR 2.5 bn • “flexibility reserve” : EUR 3.0 bn EIB and the Policy Context

  4. ENVIRONMENTAL SUSTAINABILITY • Climate change initiatives, sustainable development and social welfare • Minimising the adverse environmental impact in all projects • Direct loans of EUR 15.7 bn in 2008 for • mitigating climate change • promoting waste management and sustainable use of natural resources • improving the urban environment • reducing pollution • protecting biodiversity • Total lending for these investments of EUR 68 bn since 2004 EIB and the Policy Context

  5. GREEN GROWTH THROUGH COMPREHENSIVE APPROACH • EIB has a broad definition of environmental projects: • tackling climate change, including energy efficiency and renewable energy • protecting and enhancing biodiversity • safeguarding the environment and health (e.g. reduction of industrial pollution, provision of water and wastewater treatment) • promoting the sustainable use of natural resources and waste management, including minimisation, recycling, re-use and disposal of domestic, commercial and industrial waste • improving the quality of life in the urban environment, particularly through urban renewal and regeneration • sustainable urban transport projects, and health and healthcare projects.

  6. ENERGY AND ENVIRONMENT: EU POLICY CONTEXT Environmental sustainability • Energy accounts for 80% of greenhouse gas emissions in the EU (European Environment Agency) • EU Commitment: 20% reduction of GHG emissions by 2020 compared to 1990 • EU target: Renewable Energy to account for 20% of EU energy mix by 2020 (up from less than 7% in 2005) Security of supply • Diversification of energy sources • Securing geographical diversification Lisbon Agenda • Employment and competitiveness in the low carbon economy EIB and the Policy Context

  7. ENERGY INVESTMENT TRENDS IN THE EU • EU energy objectives will lead to a substantial expansion of energy investments, notably in Renewable Energy and Energy Efficiency • Policy uncertainties can impede the realisation of these investments • Renewable Energy investments expected at around EUR 600-800 bn up to 2020 • Potential investments in Energy Efficiency probably larger than for Renewable Energy • Large investment needs to replace/modernise existing power stations and grids • EIB energy lending target for 2008 : EUR 6.5 bn • EIB effective energy lending in 2008 : EUR 10.2 bn • EIB energy lending target for 2009 : EUR 12.0 bn EIB and the Policy Context

  8. RENEWABLE ENERGY EU POLICY CONTEXT • Long term political commitment to develop Renewable Energy (Energy package of 2008) • Binding objective for Renewable Energy to account for 20% of EU energy mix by 2020 (up from less than 7% in 2005); minimum 10% of biofuels in petrol and diesel. • Support for emerging Renewable Energy technologies. EIB LENDING ACTIVITY • Strong increase of EIB lending for Renewable Energy investments from EUR 0.5 bn in 2002 to EUR 2.2 bn in 2008 DEVELOPMENT OF NEW INSTRUMENTS Energy Efficiency Finance Facility Wind energy facilities to be developed for small scale on shore sector Roll out to the photovoltaic and solar power sector in due course Renewable Energy

  9. Renewable Energy Financing in 2008 amounted to EUR 2.2 bn EIB’S ENERGY FINANCING IN 2008 4 Renewable Energy

  10. Wind Energy projects accounted for 34% of EIB’s Renewable Energy Financing in 2008 EIB’S RENEWABLE ENERGY FINANCING IN 2008 Renewable Energy

  11. ENERGY EFFICIENCY LENDING • Most EIB projects lead to energy ‘savings’ – energy efficiency as a side effect • Projects targeting Energy Efficiency averaged EUR 2.2 billion per annum (8% of total EIB lending) • Includes demand side and supply side projects • Power production has focused on combined heat & power and district heating (EUR 405 million in 2007 – 4.8% of energy signatures) • Smaller demand side projects (principally benefiting SMEs) supported through dedicated energy efficiency global loans (EUR 917 million in 2007) • Significant investment in automotive R&D, almost exclusively for improved energy efficiency and CO2/NOx reduction • Many examples of energy efficiency investments as components of industrial or accommodation investments Energy Efficiency

  12. ENERGY EFFICIENCY: INDUSTRIAL PROJECTS • Modernisation of critical equipment • e.g. replacement of boilers in Pulp & Paper industry, 10-20% gains in EE • Replacement (and expansion) of existing capacity • e.g. process improvements in the chemical sector allowing 15-30% gains in EE • Use of residues (biomass) for power generation • e.g. food industry • R&D aimed at product / process improvement • e.g. automotive sector, 3-5 % EE gains Energy Efficiency Energy Efficiency

  13. NEW COURSES OF ACTION • An EU Sustainable Energy Financing Package • Energy Efficiency, Renewable Energy, Technical Assistance, Smaller Actors, Municipalities, SMEs • Maximise leverage effect of EU financing • Financial Support of EU SET (Strategic Energy Technology Plan) • Objective to accelerate deployment of low carbon demos • 1st gap analysis; 2nd implement financing measures e.g. CCS • European Clean Transport Facility • Ensure sustained Research & Development in all modes of transport equipment despite slowdown • Hybrid, electric, hydrogen New Courses of Action

  14. EIB LOAN PRODUCT Large-Scale Projects (typically > EUR 50m investment cost) • Corporate Loans and Project Finance • Project could consist of single or multiple sites • Comprehensive loan appraisal justified by project size • Where EIB takes full project risk, loan may fall under SFF => EIB loan amount capped at 200m € (maximum amount could be lower depending on riskiness of project) Small-to-Medium Scale Projects (typically < EUR 50m investment cost) • Programme or Framework loan to corporate or intermediary • Traditionally, intermediaries were financial entities – global loans • EIB now aslo provides loan facilities to developers for bundling small-scale projects • EIB Strategy: • Increase exposure to small-to-medium scale wind energy projects through: • - Intermediated loans on a risk-sharing basis; and • - Facilities for developers. Financial Instruments

  15. CONCLUSIONS • Lending to the energy sector one of the EIB’s top priorities • Nordic and Baltic Sea area clients amongst the lead borrowers in the energy sector, particularly renewable energy • EIB to expand its lending programme by EUR 15 bn p.a • Additional activity to focus on investments in sustainable growth and cohesion of European regions • Credit demand fully taken up by European industry and infrastructure providers, but especially by SMEs

  16. CONTACT Adam Bruun, Senior Loan Officer, Denmark Bruun@eib.org Michael O’Halloran, Head of Division, Nordic and Baltic Countries Halloran@eib.org Tilman Seibert, Director, Baltic Sea Department Seibert@eib.org

  17. Annexes

  18. Climate Change Initiatives • Mainstreaming climate change issues in all investments • Compliance with EU environmental principles and standards enshrined in the European Principles for the Environment (EPE): www.eib.org/epe The EIB can finance up to 75% of the costs of projects and offer other attractive financing features Other EIB climate change initiatives include: • Carbon Funds with partner institutions • EUR 10m Climate Change Technical Assistance Facility (CCTAF) • EUR 3bn Facility for Energy Sustainability and Security of Supply – for projects in partner countries • Global Authorisation Mechanism, for small and medium-scale projects outside the EU • Studies on climate change

  19. Climate Change Technical Assistance Facility • Supporting preparatory work for CDM and JI mechanisms • EUR 10m managed by the Bank – EUR 5 million from the EIB, EUR 5m from external resources • EIB project development expertise, combined with that of consultants • Conditional funding reimbursed once the project has yielded carbon credits • Activities include: • Carbon credit feasibility studies • Preparation of carbon credit documentation • Validation of the Project Design Document • Registration of the project • Carbon credit commercialisation activities

  20. Carbon Funds in Partnership with IFIs Developing carbon markets while promoting environmental lending • Acquiring carbon credits on behalf of participants in the funds, both private and public • Acting as a carbon credits sales outlet for EIB project promoters • Stimulating and complementing the private sector in the carbon market • EIB Funds: • Multilateral Carbon Credit Fund (MCCF) with the EBRD – EUR 190m • Carbon Fund for Europe (CFE) with the World Bank (IBRD) – 1st tranche EUR 50m • The EIB/KfW Carbon Programme with KfW – EUR 100m • Post-2012 Carbon Credit Fund, with Caisse des Dépôts, ICO, KfW and NIB – EUR 100m • Fonds Capital Carbone Maroc with Caisse des Dépôts et de Gestion, France's Caisse des Dépôts – EUR 26.5m (target size)

  21. EIB’S PARTICIPATION IN EQUITY FUNDS • Strategy to also support Equity Funds for Renewable Energy (RE) • Investment of Funds to be counted eligible for EIB have to comply with economic benchmark (and other criteria)

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