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Home Interviews Huge opportunities for green investments - interview with EBRD's Harry Boyd-Carpenter

Huge opportunities for green investments – interview with EBRD’s Harry Boyd-Carpenter

At the beginning of the year, financing under the European Bank for Reconstruction and Development’s (EBRD) Green Economy Transition (GET) approach hit a record 4.6 billion euros, underscoring the EBRD’s strong contribution to the global sustainability agenda.

CEENERGYNEWS spoke with Harry Boyd-Carpenter, Director, Head of Energy EMEA, at the EBRD about the major trends in the region and the most appropriate tools for the European Union’s post-COVID economic recovery efforts.

The Global Sustainable Investment Alliance reported that at least 30.7 trillion US dollars of funds are currently used in sustainable or green investments. A number that is valid mainly for anglophone countries, like the United States, Canada and Australia. But although Europe’s order of magnitude has not been calculated yet, the trends are clear.

“We haven’t produced our own forecast of green investment needs or opportunities,” Mr Boyd-Carpenter says. “However it’s clear that the needs are huge. When you consider that in renewable energy, for example, the EU is expected to have more than 50 per cent of electricity from renewables we have quickly to start thinking of gigawatts (GW) scale investments, not megawatts (MW).”

In particular, when it comes to Central and Eastern European countries, Mr Boyd-Carpenter sees a huge activity in renewables, especially in Poland, as well as regarding industrial energy efficiency. And due to the current unprecedented situation, sustainable finance could step in as an opportunity to rebuild national economies and help the transition into a greener and low-carbon future.

The European Commission is expecting to raise 750 billion euros under the new recovery instrument named Next Generation EU. This new instrument sets out a five-fold increase of the allocations to the Just Transition Fund (JTF), established to guarantee the fairness of Europe’s energy transition.

“The EU Green Deal accelerates a trend that was already underway,” comments Mr Boyd-Carpenter. “A combination of sound economics and investor and consumer preference has been tilting investment towards green for several years now. The Green Deal reinforces that, for example by signalling more ambitious renewable targets, higher carbon prices and so on.”

But when we talk about green investments, not all EU Member States are on the same page. Early in December, a provisional agreement on the taxonomy (a tool to help investors, companies, issuers and project promoters navigate the transition to a low-carbon, resilient and resource-efficient economy) was reached. But since the outbreak of the coronavirus pandemic, some things might have changed. Especially in Central and Eastern Europe, where some countries urged to focus on fighting the pandemic instead of climate change.

“The taxonomy is a very useful tool for investors, especially portfolio investors, to signal their preferences and for policymakers to structure their recovery plans with a bias towards green and sustainability,” Mr Boyd-Carpenter says. 

However, there is no single tool but rather a multiplicity of incentives, regulation, information and so on. As Felicia Jackson, member of one of the UN Environment technical expert groups, said: “a sustainable taxonomy doesn’t mean sustainable investment per se”.

“If I had to pick one [tool] I would emphasise the critical importance of carbon pricing,” underlines Mr Boyd-Carpenter. “EBRD is a Bank founded on the premise that well-regulated markets harness the diversity and innovation of the private sector to deliver public goods efficiently. What we have seen is that where environmental costs are properly charged this has a huge impact on private sector economic activity and investment decisions. The fact that the European CO2 price is at a meaningful level since 2018 has completely changed the relative economics of coal versus renewable power for example.”

We also have to consider the fact that some CEE countries are afraid they won’t be able to finance nuclear and/or gas projects because they do not fall into the ‘do not harm’ principle, according to which economic activities must not significantly harm the environment. In a recent interview, Hungary’s Ambassador-at-Large for Energy Security Pál Ságvári said the supply of gas may be downscaled as development and commercial banks are increasingly becoming reluctant to finance oil and gas upstream projects in line with new EU policies.

On nuclear EBRD only finances nuclear safety so Mr Boyd-Carpenter says they are not well qualified to comment.

“On gas, this is a huge question with no easy answer,” he remarks. “Like others, we are constantly thinking about this and reviewing the changing evidence but we don’t have an easy or simplistic answer: neither no gas nor all gas will work in our view.”

In fact, he reminds that on the one hand natural gas is a hydrocarbon that emits CO2 when burnt. So it is very hard to see how unabated natural gas can play a large role in 2050 in an energy sector that needs to be at net-zero emissions. 

“On the other hand there are some big decarbonisation challenges that look hard to solve without gas, at least in the medium term, including how to move off much dirtier coal while still maintaining a stable, secure energy supply, how to store energy (especially electricity) to deal with the big seasonal differences in demand and how to decarbonise sectors like heating and heavy industry,” Mr Boyd-Carpenter adds.

“It’s also important not to see gas as a binary question. It’s already possible to decarbonise partially a gas system by blending green hydrogen with it. It’s technically feasible to scale that up so that gas infrastructure becomes less and less carbon-intensive. At the moment it’s not economic but anyone who witnessed the solar photovoltaic cost revolution will know that costs and competitiveness can change very fast.”

According to him, it may be that investors will invest in a piece of gas infrastructure now with a clear roadmap that it will be less and less carbon-intensive over time, whether because it shifts increasingly to green hydrogen or because it becomes more and more of a standby asset that is used very infrequently when renewable energy is not available.

“So the best approach would be to look at the energy system as a whole, be open-minded to all possible solutions and structure the regulatory framework so that costs (especially carbon costs) and benefits (such as security) are properly priced and imposed,” he states. 

And in fact, when it comes to gas, the EBRD has financially supported the construction of the Southern Gas Corridor. Mr Boyd-Carpenter confirms that the bank will continue to invest in fossil fuels where this is consistent with a low carbon transition.

“The [2019-23 Energy Sector] strategy sets out the safeguards we use to test this, including the application of a shadow carbon price,” he concludes. “The strategy will be renewed again for five years in 2023, at which time our Board will consider what is the appropriate engagement for EBRD in this sector.”

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