EU finance arm to decide on curbing loans to coal-fired power

LONDON/WASHINGTON July 23 Tue Jul 23, 2013 7:30am EDT

LONDON/WASHINGTON July 23 (Reuters) - The EU's main lending arm, the European Investment Bank, will later on Tuesday decide whether to stop financing coal-fired power stations to help the 28-nation bloc reduce pollution and meet its climate targets.

Directors of the EIB, who are nominated by member states, will make a decision following moves by other multilateral lenders such as the Washington-headquartered World Bank to fund coal-fired power stations only in "rare circumstances".

Since the start of 2007, the EIB has loaned around 11 billion euros ($14.5 billion) to fossil fuel-fired plants, most of it to gas rather than coal, out of its total lending for power of 83 billion euros.

A decision to end EIB financing of coal power in Europe could influence other lenders as well, Ingrid Holmes of think-tank E3G said.

"If the EIB votes in favour of tougher lending criteria for coal-fired power stations, it is a very clear message that coal has a limited shelf life in Europe. But in developing countries the message is much less clear cut," she said.

U.S. President Barack Obama said earlier this month that financing to coal-fired power should be curbed to all but the world's poorest countries.

The EIB is proposing that new fossil-fuelled power plants would have to emit 550 grams of carbon dioxide per kilowatt hour (gCO2/KWh), which would effectively rule out new hard coal and lignite power plants but would enable some new plants to burn the fossil fuel if they mix it with biomass.

On Thursday, the European Bank for Reconstruction and Development, which finances projects mainly in former communist countries and lends more to coal-fired projects than the EIB, will also discuss new lending criteria aimed at slowing development of the sector.

Last week the U.S. Import-Export bank said it would refuse to lend to a coal-fired power project in Vietnam, the first clear example of a project that has been rejected by a major western lending institution since Obama's speech.

The move by public sector lenders in the United States and Europe is likely to pressure private sector banks and investment funds to shrink the amount of money lent to coal both at home and abroad.

Already banks including Hong Kong's HSBC, Germany's West LB, Dutch lender Rabobank and Norwegian finance provider Storebrand have all said they will refuse to lend money to projects that burn the fossil fuel.

"My view would be that the World Bank's lending plan should send a rather large red-flag message to the private sector about its involvement in the coal sector," said Tom Sanzillo, head of the Institute for Energy Economics and Financial Analysis.

But the risk is that state-owned investors in countries such as China and Abu Dhabi will simply fill the gap by allocating more lending to build coal-fired plants in countries such as Turkey, Botswana, Indonesia, Malaysia, Pakistan and Thailand.

Vietnam's government said earlier this month it would raise its coal-fired power capacity five-fold by 2020 to 36,000 megawatts.

Energy demand in the Asia Pacific region is on track to double by 2030, according to the International Energy Agency. African countries without access to gas are also turning to coal to fuel economic growth and lift populations out of poverty.

($1 = 0.7580 euros) (Reporting by John McGarrity in London and Valerie Volcovici in Washington; editing by Jane Baird)

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