* Fossil fuels 48 pct of EBRD energy lending in 2006-11-Bankwatch
* Urges EBRD to cut coal, other fossil fuel lending;up renewables
* Acknowledges significant boost in renewables lending since 2006
By Sujata Rao
LONDON, May 17 (Reuters) - The European Bank for Reconstruction and Development is lending excessively to polluting fossil fuel projects, especially coal, undermining its own sustainable energy strategy, NGO Bankwatch said in a report released on Thursday.
Lending to fossil fuel projects, coal, oil and gas, accounted for 48 percent of the bank's energy-related investments between 2006 and 2011, said the report by Bankwatch, an agency that monitors international financial institutions.
"Firstly the EBRD's continued support for fossil fuel projects, starting with coal, needs to be halted," Bankwatch said on the eve of the EBRD's annual meeting.
"Secondly there is a need for an increase in the quantity and sustainability of the EBRD's investments in new renewables."
The EBRD, set up in 1991 to invest in the ex-communist states of eastern Europe, in 2006 unveiled a sustainable energy initiative (SEI) to focus on renewables or energy efficiency projects. The plan was to reduce carbon emissions across the region, considered one of the world's least energy efficient.
The strategy looked set to gather pace in 2007 after the EBRD quit Russia's Sakhalin gas project which was criticised for potentially harming endangered whales' habitat.
Bankwatch praised the EBRD for its efforts but urged it to do more. It noted renewables lending rose to 272.9 million euros in 2011 from 6.8 million euros in 2006 while investment in power sector efficiency quintupled to 394 million in this period.
Bankwatch also said the EBRD had almost quadrupled energy efficiency investments since 2006 to 1.7 billion euros. But it questioned the sustainability of many of these projects, saying some had actually extended the working life of potentially polluting developments such as coal mines.
In response, the EBRD says its involvement raises environmental standards at big projects. Josue Tanaka, EBRD managing director for energy efficiency and climate change, told Reuters the SEI now accounted for a third of EBRD business and the net carbon effect of its activities was negative.
The EBRD last year invested 100 million euros in fossil fuel-based power generation projects but 1.1 billion euros had gone to renewables, Tanaka said, adding: "Since the SEI was launched, we have managed to fulfill our business and development mandate and been able to be carbon negative over this period."
The Bankwatch report said of the 6.7 billion euros the EBRD had invested in energy and energy-related sectors, fossil fuels received 3.26 billion euros or 48 percent of funding.
It said 70 percent of EBRD's energy lending goes outside the European Union to countries such as Russia and Ukraine, but the new EU states such as Poland and Hungary account for around 80 percent of its renewables lending.
"A phase-out of fossil fuel lending (by the EBRD) would send a clear signal to those countries which have so far been unenthusiastic about new renewable energy that they should start to take it more seriously," Bankwatch said.
Bankwatch expressed disappointment that the EBRD's new draft mining law did not exclude coal, widely considered one of the most polluting sources of power generation. Lending to coal projects diverts resources away from renewables, it argues.
It said support for coal projects had risen to 262 million euros last year from 60 million euros in 2006. (Editing by James Jukwey)