Q: How would you summarise EBRD’s climate strategy?
A: Our mandate is to promote a market-oriented economy in our countries of operation, and we take the view that a market-oriented economy is necessarily one that is green and sustainable. Economies need to be on a trajectory, broadly speaking, to halve emissions by 2030 and reduce emissions to zero by 2050. So, our strategy is to deliver that impact in our countries of operation.
More specifically, we have two pillars to that strategy. One is that more than half of our finance should be green. What’s important to understand is that more than half of our finance volumes, probably three-quarters to four-fifths of our projects, are at least partially green. That means that three out of every four projects are having a significant green element in them.
The other pillar is that, by the end of this year, all of our operations should be aligned to the goals of the Paris Agreement, which is a pretty fundamental systemic shift.
Q: How do you define what is ‘green’? What is your methodology?
A: It’s a very good question. We publish the Green Economy Transition handbook: an internal set of guidelines as to what’s green.
We really try to not make it up on our own, so the handbook draws on a lot of references. When it comes to climate finance, there’s something called the Joint Multilateral Development Bank (MDB) Principles, which defines what counts as climate finance. It’s a collective effort by all MDBs and is validated by some external bodies.
But that doesn’t cover everything. So, we then look around for an industry standard. Increasingly we’re looking at something like the EU Taxonomy, either the substantial contribution or the ‘Do No Significant Harm’ criteria. Then when we really can’t find any external reference, we develop our own approach.
There are some circumstances where a hydrocarbon project can count as climate finance and that is typically when you are replacing a much more polluting fuel on the same site for the same purpose. One example is if you replace district heating currently running on coal with gas.
But there are only very limited circumstances. A new gas-fired power plant, for example, will not be counted as green, even though we do in specific circumstances think that such a project can make an important contribution to decarbonisation.
Q: Are there plans for the EBRD to phase out from oil and gas projects?
A: So, the way this works is that these principle positions are typically set out in the energy sector strategy, and that runs for five years. We did the last one in 2018 — when we formally ruled out coal and said that we will only do oil and gas in rare and exceptional circumstances. That one expires at the end of next year.
We didn’t change the strategy last year; but what we said is, from a management perspective, we don’t see any role for EBRD in upstream oil and gas. That was prompted by two considerations — one is that upstream companies typically earn lots of money and we just don’t see them coming to us. But also, we really took on board the International Energy Agency (IEA) Net-zero Roadmap, which said that there is no need for any new oil and gas fields.
The IEA says you can still use oil and gas all the way up to 2050, but what we have found and developed now is enough for those needs. We said that makes sense to us and therefore there can be no more upstream investments.
We think it’s pretty important to preserve the capacity to invest in midstream gas. There are two main areas. One is cleaning up existing infrastructure. The classic example is old Soviet-era gas-transmission infrastructure, which leaks a lot of methane. One of the best ways to reduce emissions really quickly and effectively is simply replacing the old valves with ones that don’t leak and compressors that work properly.
The second area is new gas infrastructure and that is much more challenging. But we do think that there are a couple of things that we can do, and that there is a potential role for gas in displacing coal and keeping the system stable while you build renewables.
Q: Do you see a future for gas?
A: First of all, we have to talk about more than just natural gas. So, I think that low-carbon gases will be a very important part of the future, meaning low-carbon hydrogen and biomethane. There are clearly some applications which can’t be electrified — high-quality heat, heavy transport, aviation and shipping — it’s really difficult to see them being electrified.
That means you need a combustible fuel — and that means gas, whether it’s blue or green hydrogen. My bet is now on green hydrogen.
Is there a role for EBRD investment in methane assets? Maybe. There are certain countries where the answer would be clearly no. Some countries have good alternatives. But there are some countries that have really difficult situations. There’s no way right now I can sit and tell you there’s no role for gas at all. It’s just too difficult. It’s too complicated.
Q: Do you think the war in Ukraine will accelerate the sustainability transition of EBRD countries?
A: I do. What are the impacts of the crisis? One is that prices have gone up and the second is we’ve been reminded just how volatile prices are.
Gas and oil prices will come down, and they will be cheap again. It’s a cycle. Probably not for a couple of years, because there’s some pretty fundamental structural [issues], but they will be cheap again.
But volatility is a problem, as well as high prices. It’s very hard to plan a business if one of your key inputs can treble or quadruple in price, but also fall by 75%. Then you’ve got energy security, availability of supply and politics. Countries will increasingly not want to be in a position where they are compelled to pay very significant sums to certain other countries. The very best way to address all of those problems is to not find a new supplier of gas — it’s getting off gas.
The truth is, we know how to do a lot of that. The end of decarbonisation — the last bit of the pathway — is unclear. Will carbon capture and storage become commercial? Will small modular reactors live up to the hype? We don’t know. But the next steps, what we need to do right now, are clear.
Q: How will you support your member countries to be less dependent on Russian gas?
A: We may see opportunities for specific investments that reduce a specific dependency, but we don’t have any of those on the books right now. Countries themselves have to figure out exactly what they need, and how they’re going to do this.
There’s no one targeted product. But across the bank, we have a mandate to promote electrification and promote clean electricity that, by definition, reduces reliance on Russian gas and hydrocarbons.
Q: What are your plans for renewable energy projects?
A: We want to do even more. We keep saying that the challenge for us is to stop talking about megawatt (MW) projects and start talking about gigawatt (GW) projects. We’re really happy when we do these, but we still do 250MW wind farms.
In the days when we used to finance thermal projects, if someone mentioned a 250MW thermal, you’d ask why you’re doing such a small project.
We did the Benban Solar Park project in Egypt, which is a 1.5GW complex split into smaller projects. But apart from that, the biggest single renewable energy project we’ve done is 250MW.
Renewables has been the biggest excitement of the last 10 years. It’s a product that was seen as niche, expensive and done in order to demonstrate your green credentials. Then market forces worked so that it became the cheapest and the ‘no regrets’ option.
