In a few days, I will be leading the EIB’s delegation to the annual COP climate talks. One thing that I ‘ve learned over the past 12 years at the helm of this institution is that banking is not so different from foreign policy, where I previously spent the best part of my career. At their very core, they are both about managing risks, building partnerships, and seizing opportunities.
This balancing act between the risks of inaction, the opportunities of action, and the partnerships required for success, has also been a driver of the EIB’s climate action. And it will be guiding our interventions and policy announcements at the COP28 gathering in Dubai.
Being an unrepentant optimist, let me start with the opportunities:
The deployment of clean energy has accelerated to levels that were seen as unthinkable until recently, driven by falling costs and constant innovation. Investment in sources including wind and solar now far exceeds spending for fossil fuels and the gap is set to widen further. The “rapid, non-linear” growth in heat pumps and electric vehicles is equally impressive, beyond the most wildly optimistic estimates of the previous decade.
This energy revolution creates new opportunities. That’s why, at the EIB, we raised our green energy lending volumes to record highs, and we see an insatiable market appetite to do even more. With our decision, in 2019, to phase out support for fossil fuels we essentially called the market’s direction.
I recently spoke at a conference we co-hosted in Paris with the International Energy Agency. Its latest projections show that we may be tilting toward a “glut” in fossil-fuel infrastructure that the world will not need. In other words, what the EIB has been saying for years – that investing in fossil fuels means investing in assets that will end up stranded – is now a directly measurable trajectory.
The unfolding transition has unleashed a new wave of human innovation. At the EIB, we are financing astonishing new technologies - from green hydrogen batteries, to solar-powered perpetual flight aircraft and factories that turn used cooking oils into clean energy.
Such developments are just the beginning and a cause to celebrate. That’s especially the case in Europe. Gradually replacing fuels made from remnants of dead dinosaurs with the rays of the sun and the wind deprives foreign powers of their leverage over the European Union’s energy supply, and, in addition, it gives us the opportunity to bid farewell to energy price swings.
And it’s not just about geopolitics, or numbers. The expansion of green energy cleans up our cities, our seas, soils and the air we breathe from toxic pollutants, which have been shortening millions of lives every year. The progressive rollout of ever more stringent environmental regulation, here in Europe, but also globally, means less risk of asphyxiating in a world of fossil-fuelled smog and garbage.
Because at the end of the day, what is at stake for policymakers and business leaders gathering in Dubai is our legacy, our mark in this world, and what kind of place we leave behind for our children.
Which brings me to my second point: risks.
Like all revolutionary changes, the energy transition will dislocate established economic models. Not everyone has the financial and technical resources to ride the wave. This is true for least-developed economies, where access to financing is constrained. But it also goes for emerging economies and high-income countries, where many cannot afford the upfront investment needed. Some industries find it difficult to adapt and change their business models. If progress toward decarbonisation is uneven and – therefore – insufficient, we will all fail.
Costs and benefits
That’s why the EIB’s position at COP28 will be that a commitment to expand renewable investment is necessary and good, but not good enough. Mitigating the risks of failure requires building stable and trusted partnerships. It’s a point that we also made in a joint article with the International Energy Agency’s Fatih Birol and European Central Bank President Christine Lagarde.
First, partnerships will ensure that the costs of climate change and the benefits of the transition will be shared equitably. That means, for instance, helping poorer countries adapt to a warming planet. Multilateral development banks, including the EIB, are already doing their part, delivering on their climate finance pledges ahead of targets. And we see encouraging signs that rich countries are finally close to the goal of mobilising $100 billion in climate financing per year.
But much more is needed to finance adaptation projects for a warmer planet, and to share the wealth created from clean energy investment. In other words, climate and global development should not be seen as separate boxes for policymakers, but as part of the same, coherent policy framework.
This is not just a matter of noble intentions. When it comes to climate change, we are all in the same boat: the whole world needs incentives and tools to reach net zero, or emissions will continue, and an overheated planet will continue to propagate conflict, food and water scarcity, migration, and social unrest.
The right regulation
Second, we need a stable and efficient regulatory environment to resolutely direct resources away from fossil fuels and into clean energy, including incentives and financing for innovative new technologies that will decarbonize hard-to-abate sectors. The EIB plans to announce concrete action to support such exciting new technologies during this year’s COP. We can only convince poorer countries to scale-up clean energy and phase out fossil fuels, when the underlying technologies are affordable. So, “moving down the cost curve” is of vital importance.
The EIB’s goal is to plug financing gaps often created by regulatory uncertainty. Too often, climate policies are seen as an easy scapegoat and sacrificed for short-term political gains, hampering investment, and stripping markets of the certainty and clarity we need to succeed.
Policymakers must have the courage to defend their decisions, including the EU’s unanimous commitment to net zero. Contrary to populist slogans and fake news, the culprit for much of what troubles our economies, including the wild swings in food and energy prices, is our dependence on fossil fuels and climate change, not the policies to mitigate it. Unless we clearly explain this, the backlash against the Green Deal may derail it, or we will be stuck in a limbo of indecision, for which our planet doesn’t have time.
Finally, we need adequate carbon pricing making sure that polluters pay. The EIB’s 2023 Investment Survey shows that almost two out of three European firms are already facing damages and losses due to climate change. Such damages highlight that pollution has a cost which is not currently being paid.
Our carbon emission budget is finite and rapidly dwindling. The only reason that fossil fuels still hang around is that we allow their producers to use this finite resource for free. This comes at the expense of present and future generations and puts renewables producers, including Europe’s clean-energy champions and small and medium-sized innovators, at a competitive disadvantage.
So, the yardstick of success for this COP meeting is that it should put us on a path whereby private investors, states and multilateral institutions finally build a partnership to phase out financing and all other forms of support for fossil fuels – a power source that poisons our planet, creates toxic dependencies, and is becoming technologically obsolete and uncompetitive.
Over the next couple of weeks, we will unveil concrete initiatives showing that there is a better way. For our economies and our children, for Europe and our world. Stay tuned.