Energy is one of those policy fields that seems to creep up on you no matter what topic you’re working on. Digitalisation? Here’s the applicability to the energy field. Transport? Let’s talk about how to fuel those vehicles. Agriculture? Did someone mention biofuels…?
With important synergies across many policy areas it’s no surprise that so many sectors are affected by decisions that are made in the energy sector, particularly as a follow-up to the massive Clean Energy Package which monopolised decision-makers these past two years. The latest of these fields is finance.
From the EIB…
Last month the European Investment Bank (EIB) invited stakeholders to a public consultation meeting to discuss the upcoming revision of its energy lending policy. The Clean Energy Package has given the EU a new rulebook which EIB funding now needs to align with, particularly in relation to which plants can receive subsidies or participate in capacity mechanisms. This understandably causes concern for some of the players that will be losing out (exit coal) – and excitement for those that will now get access to bigger funds (enter demand-response, small-scale generation and storage).
… to the Sustainable Finance Package
On the other side of the finance pond, investment banks and insurers await the results of expert group discussions on the first set of criteria which will derive from the EU’s Sustainable Finance Package. The draft criteria are expected already this summer. These criteria will for the first time seek to define in EU law which activities can be considered as sustainable, starting with activities that contribute to meeting the EU’s climate change mitigation objective. The EIB has also stated that it will reflect these criteria in its own energy lending policy review. Again, fossil fuel companies are acutely aware of the fact that if their business is not defined as a sustainable activity, this may seriously jeopardise their access to finance.
Define “technology neutrality”
This is where the EU hits a bit of a wall. Ever since it imposed retroactive measures on state aid in 2014 as a result of over-subsidisation of renewable energy, the EU has been keen not to repeat the same mistakes and to avoid picking technology winners. Technology neutrality was a big buzz word during negotiations for the Clean Energy Package. However, the EU seems to still be struggling with the concept of what neutral actually means. And with cause: neutrality inevitably gives an advantage to bigger players, while supporting smaller, innovative players means not being neutral. Despite the Clean Energy Package’s best efforts, the sustainable finance taxonomy and EIB energy lending policy will create a strong bias in favour of energy players which the EU considers as contributing to its climate goals – and this implies a judgement call.
Why that’s a good thing
The US U-turn on climate commitments has put the onus on the EU to lead the charge on climate change. Yet, although the Clean Energy Package raised the overall level of ambition, final targets still fell short of what climate advocates pushed for throughout the negotiations. It is also true that despite the massive backlash which over-subsidisation caused in 2014, the overall effectiveness of picking a technology winner is indisputable – renewable energy sources can now compete financially with fossil fuels on energy markets. The EU needs to find ways of achieving similar results for new technologies, whilst enabling a just transition for the sectors that are negatively impacted. The new push for sustainable finance does to some extent contradict technology neutrality, but it’s also a means to an end all parties signed up for with the Paris agreement. After decades of oil being “the new gold”, for the energy sector the new gold seems to be… well, gold.