New EBRD Environmental and Social policy needs climate muscle and tightened safeguards for protected areas

If there is one sector in which the EBRD has been causing particular controversy in recent years, it is the energy sector. From lignite in Slovenia to hydropower in Georgia and nuclear in Ukraine, the bank has financed a series of projects that have incurred opposition from various quarters. Now that the EBRD is revising its Environmental and Social Policy it's time to take a look at what needs to be learned from these projects.

This article is from Issue 56 of our quarterly newsletter Bankwatch Mail

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The EBRD has long since recognised that it needs to be in the lead in guiding its region of operations in the transition to an energy-efficient, low-carbon economy. Since 2008, when the bank's last environmental policy was approved, taking action against climate change has become even more urgent, as prominently pointed out this year by Lord Nicholas Stern. While the bank's definition of a ‘low-carbon economy’ does not seem to be the same as ours (it seems to still include financing coal power plants, for example), there at least appears to be a shared understanding that the bank needs to involve more efficient use of energy and a higher share of renewable energy.

However, this apparent shared understanding has not led to any significant degree of consensus in reality. Indeed, out of the 11 complaints that have been registered with the EBRD's Project Complaint Mechanism (PCM) since it began operation in 2010, six have been for energy projects, and numerous new issues continue to pop up. While the complaints are limited by the PCM's rules of procedure to issues which are already covered by the policy but not properly implemented, our scrutiny of these projects has also raised several issues which are not well covered by the policy.

The EBRD and the EIB are currently reviewing their energy lending policies. We call for an end to coal subsidies.

Data, demands and expert comments

First of all, the EBRD does not seem to know how the “environmentally sound and sustainable development” that it is mandated to promote actually looks and how progress towards that goal is measured. Last year the bank's municipal infrastructure strategy made a step forward by including social and environmental indicators for its own sector, but the new Environmental Policy now needs to show how these will be systematically used in the bank and for what end goal.

The climate aspect of sustainability is particularly sparse in the EBRD's current environmental policy. It recognises the importance of addressing climate change but is ambiguous regarding the level of CO2 emissions that the EBRD is willing to accept in projects it finances.

There is a commitment to prioritise projects with a positive climate impact, but no clear commitments on avoiding projects which either increase greenhouse gas emissions or decrease them by a marginal amount –an amount not sufficient to make a proportional contribution to a country's GHG reductions commitments. The bank's initiatives, such as the Sustainable Energy Initiative represent a step forward, but have too lax criteria for inclusion and as a result end up defining ultimately unsustainable projects like the Sostanj lignite plant in Slovenia as ‘energy efficiency investments’.

Given the importance of this issue, the new policy needs to develop a new section dedicated to climate issues and declare which emissions reductions trajectory the EBRD intends to follow. CO2 reduction targets need to be introduced – for absolute rather than relative emission cuts – along with specific requirements for investments across all sectors.

An alternative or complementary approach would be to expand the EBRD's exclusion list to avoid financing projects with high levels of GHG emissions, such as coal projects, along with those which are likely to cause significant harm in other ways. At the moment the EBRD prefers to take a case-by-case approach, but it would be much more motivating for governments to find alternatives to coal projects if they knew they couldn't get financing from the EBRD for coal projects per se, rather than waiting until a project is highly developed and then continuing to push it through lack of a better idea.

Better criteria for renewables

Where there should be more agreement between civil society groups and the EBRD is on the need for investments in renewable energy. A rapid but sustainable uptake of renewable energy is essential if we want to address climate change and unstable fuel prices, and offers other important benefits such as job creation.

However, as renewable energy by definition has to be situated where the renewable resources are located, experience is showing that anything can cause problems if it is in the wrong place or on the wrong scale. Unfortunately mistakes are already leading to public backlashes around poorly planned renewable energy projects. This danger will only increase in the future with an increasing number of investments.

In the last few years hydropower has been particularly controversial in southeast Europe (see this issue’s article on the Ombla project in Croatia) and Georgia. As investments in this sector expand, problems are also now appearing with small hydro plants in Ukraine, Georgia and Armenia. The key problem is biodiversity destruction in protected areas, but also local populations are coming under threat from potential flooding or lack of water in some cases. The EBRD needs to adopt publicly available sustainability criteria for renewable energy investments in order to screen out damaging renewable energy projects at an early stage and also set a good example for other investors.

Of course it is not only renewable energy projects which are harming areas of important biodiversity or cultural value. However, due to the need to carefully guide such investments to ensure that renewable energy flourishes in the EBRD's countries of operation, Bankwatch has singled these out for detailed sustainability criteria. For all other projects, projects like the Oyu Tolgoi mine in Mongolia and the Kumtor mine in Kyrgyzstan have shown the necessity of establishing ‘no-go zones’ consisting of protected areas, other high conservation value areas, areas important for food security and traditional livelihoods and territories of indigenous peoples where full, free, prior and informed consent has not been obtained.

The current environmental policy has provisions for projects that impact critical habitats and protected or designated areas. Yet implementation depends too much on state authorities and the bank's clients, and the current policy has not proven to be sufficient. Areas of high biodiversity value, water sources or culturally important areas also often lack protection status in the bank's countries of operations and need an additional level of scrutiny in this crucial EBRD policy.

It may be only a few years since the EBRD's 2008 Environmental and Social Policy was approved, but in practice it is clear that a more decisive stance is needed by the bank if it is to avoid financing environmentally and socially harmful projects and select only those which bring us closer to a really sustainable society. The question now is whether the EBRD is set on rigorously addressing these problems, or whether it is content to do the minimum it believes it can get away with.