Europe needs to power green finance to deliver energy transition – Legarde

The President of the European Central Bank has said while the move to global energy transition is plagued with challenges the price of failure is simply too high.

Christine Lagarde made her comments as she met with the heads of the European Investment Bank (EIB), and the International Energy Agency (IEA) to call on leaders from government, finance and industry across Europe to deliver a clean energy transition which is just, swift and maintains competitiveness.

The call came as ministers, ambassadors, business leaders, central bankers and other key stakeholders gathered at the IEA’s headquarters in Paris for the high-level conference. They were told in the face of severe disruption in global energy markets, Europe must scale up funding to support an orderly transition and position itself among other industrial heavyweights in the new energy economy.

In the IEA’s pathway for the global energy sector to reach net zero emissions by 2050, annual clean energy investment in the European Union needs to rise significantly by 2030.

Lagarde said: “The green transition is a uniquely difficult policy challenge, because the stakes of failure are so high and yet the path to success is so complex. But the answer is to follow through with the transition, which means understanding the challenges it entails and ensuring the costs are shared fairly. More needs to be done to foster the market for green finance, which would reduce risk premia and help lower financing costs.”

She revealed the ECB’s second economy wide climate stress test found that frontloading clean energy investment significantly reduces medium-term costs and risks for firms and households. But besides geopolitical tension and high inflation, private sector investment faces a number of market barriers including policy uncertainty and lengthy permitting procedures that delay projects, deter investors and lead to cost overruns for developers.

European industry also finds itself at a competitive disadvantage regarding the price of energy. Compared with other regions, these prices are relatively high, and ambitious industrial programmes are being introduced in countries such as the United States, China, India, Japan and Korea to build up domestic supply chains, resource security and manufacturing capacity. Accelerating energy transition investment will help Europe limit dependence on major fossil-fuel producers and often volatile fuel markets.

The European Union has committed to spending at least 30% of its 2021-2027 budget on climate action. The IEA said development finance institutions such as the EIB have an important role to play in providing support for clean energy projects to crowd-in private sector engagement. For every euro spent by the EIB on its energy operations, it attracts a further EUR 1.4 from the private sector. The EIB has already raised its financing for clean energy projects to unprecedented levels, and recently announced an additional EUR 45 billion, on top of its regular lending volumes. This will go to supporting renewables and state-of-the art manufacturing in strategic net-zero industries to help accelerate the transition. Having already ceased all financing to unabated fossil fuels, the EU bank is well on track to support EUR 1 trillion in climate and environmental sustainability investment this decade.

“Europe’s quick response to the global energy crisis meant that it managed to pivot away from its main energy supplier, Russia, more smoothly than many could have imagined,” IEA executive director Fatih Birol said, “But now the region must learn to grow and thrive in this new reality. Last winter, I stressed that Europe needed a new industrial masterplan to keep pace with other advanced economies. Despite its large internal market, skilled workforce and world-beating research and development, we’re yet to see how Europe will put its ambitions into practice. Policymakers must take bold action, and soon, for the region to remain a global industrial power.”

“The energy transition is an opportunity for Europe and the world,” said European Investment Bank president Werner Hoyer. “It also brings a challenge, as our industries must be prompt and embrace change, or risk being left behind. Only massive and swift investment in net zero technologies will make sure that Europe remains an attractive place do business, a place where innovation thrives, where new ideas flourish, and wealth and jobs are created.”