UPDATE 1-EU finance arm curbs loans to coal-fired power plants

Wed Jul 24, 2013 12:09pm EDT

* Revised lending criteria rule out regular coal plants

* Board can tighten thresholds as EU climate policy evolves

* Latest in series of moves by multilateral banks on coal

By John McGarrity

LONDON July 24 (Reuters) - The European Investment Bank, the EU's finance arm, said it would stop lending to most coal-fired power stations to help the 28-nation bloc reduce pollution and meet climate targets, a move that may put pressure on other lenders.

New and refurbished coal-fired power plants will be ineligible for funding unless they emit less than 550 grams of carbon dioxide per kilowatt-hour (gCO2/KWh), the EIB said on Wednesday, a threshold that could be met either by a combined heat and power plant or one that also burns biomass.

"The vote to introduce an emissions performance standard represents a step-change in the EU's fight against climate change and puts the bankers ahead of politicians in terms of tangible action," said Ingrid Holmes, of environmental think-tank E3G in a statement.

The EIB said it could tighten the emissions standard in the future to ensure its lending criteria are consistent with EU climate policy and create jobs across Europe.

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, a fraction of its total lending for power of 83 billion euros.

The EIB decision follows moves by other multilateral financial institutions such as the Washington-headquartered World Bank to fund coal-fired power stations only in "rare circumstances".

RECONSIDERING COAL

The pullback by multilateral banks comes as more private sector lenders are already reconsidering their exposure to coal-related assets.

"New coal power plants are no longer viewed as the low-risk, low-cost option for electricity, so we would expect that private finance for coal will stop flowing," said Athena Ronquillo-Ballesteros of Washington-based think tank the World Resources Institute (WRI).

U.S. President Barack Obama said earlier this month his administration would impose tougher standards on coal-fired power stations at home and urged multilateral lenders to curb finance to the sector abroad, except for the poorest countries.

A report published by pressure group Bankwatch last year listed Barclays, Deutsche Bank, Royal Bank of Scotland, BNP Paribas and Credit Suisse as the main European private sector lenders to the coal mines, transport and power stations between 2005 and 2011.

In an answer to emailed questions from Reuters, RBS said its lending to the power sector was "continually under review" and that as of end-2012 its total lending to coal-related assets was 1.2 billion pounds, or 0.2 percent of its total lending.

In the United States, JP Morgan Chase, Citigroup , Bank of America and Morgan Stanley were the main financiers for projects that mine and burn the fossil fuel, according to the WRI report. Bank of China, Industrial and Commercial Bank of China and China Construction Bank have been the main private-sector Asian lenders to coal.

Some observers have questioned whether private and state-backed lenders in Asia and the Middle East will cut investments in coal, given the high returns that mines and power plants could yield in power-hungry developing countries and the earnings at stake for suppliers of coal-related technology.

In the past year, Abu Dhabi state-owned energy company TAQA signed a $12 billion deal with Turkey to mine and generate power from lignite, the dirtiest form of coal, while the China Development Bank agreed to lend Ukraine around $3.6 billion to develop the gasification of coal, a technology deemed to be emissions-intensive.

Although China and India are expected to record the biggest growth in energy demand in the coming decades, other large developing nations are likely to build hundreds of new coal-fired power stations in order to fuel economic growth, according to WRI.

Last year the International Energy Agency said coal could overtake oil as the world's primary energy source, making it even more difficult to slow the pace of long-term climate change.

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