State-owned financial institutions are bad news any day because they are the bowels in which the crackpot ideas of bureaucrats ferment. But the EBRD and the EIB have surely hit the fan with their planned 650 million euro financing of the refurbishment of Slovenia’s Sostanj lignite-fired power plant.
What is going on? The EIB proudly tells us that it is at the forefront of creating the low-carbon economy and so gets to handle the sale of 300 million EUAs for financing research and development into carbon capture and storage technology. The EBRD tells us that it “is committed to promoting environmentally and socially sound and sustainable development in the full range of our activities here at the EBRD.”
Quite. So now these people are funding a 600MW lignite-fired power station.
First, why should EU state institutions be funding a coal-fired power station when there are dozens of banks who don’t know where to put their cash? I have no idea.
Second, why would they require a Slovenian government guarantee? They require a guarantee because they know that otherwise coal-fired power is not viable because of the EU ETS and their policy to cut CO2 emissions.
The EU has an avowed intent to cut fossil fuel use. So they create, with the EU ETS, a market incentive to make coal-fired power less appealing and make low-carbon power generation more appealing. So far so good.
As a result of this the private sector says: “We don’t want to finance coal-fired plants because it is too uncertain.” Good. That’s what the scheme set out to achieve.
So now they want to build a coal-fired power plant in Slovenia. And the private sector says: “That’s too risky.”
Instead of saying “Great, our EU ETS scheme is actually working,” the European bureaucrats rub their sticky hands with glee and say: “Great, we’ve managed to squeeze out the private sector, so now we can fund the plant ourselves, but because we’ve made coal-fired power unviable, we’ll require a state guarantee.”
You can’t get more crooked than that. Creating a law which forces your clients to accept your own terms of business is what happens in a kleptocracy.
But then Günther calls. “Hold on, “ he pants. “Don’t publish that. You are jumping to conclusions. You’ve only got half the story there. This project is making the plant far more efficient. They are using supercritical technology. Surely it’s better to introduce this highly efficient technology than let the plant carry on as it is.”
“Ah,” I say to Günther. “Stop right there. It’s a pity that it’s only the technology that is supercritical. If you were supercritical, you’d see the holes in your argument.”
“Holes in my argument?” snorted Günther.
“Indeed,” I replied, offering him a glass of his favourite whisky. “You see, the point of a cap and trade scheme is that it does not matter where reductions happen. You make reductions in emissions where it costs least. In theory, all power could be generated in one country, if it had immense hydro or wind resources, and then exported to the rest of Europe. So for the EU ETS to work effectively you have to accept that not all countries will produce electricity and that electricity will be transferred between countries effortlessly.”
“Ja,” nodded Günther. “Genau.”
“So, if Slovenia can’t generate enough green power, then it needs to import it.”
“Richtig,” agreed Günther.
“So the financing effort should be not directed towards prolonging the life of lignite-fired power plants, but towards improving Slovenia’s capacity at importing electricity,” I said.
“Yes but,” said Günther. “What about Slovenia’s strategic need for its own power generation?”
“Ah,” I said. “You’re right. The EU ETS forgot about that. It assumes one big happy EU, where national interests no longer exist.”
“You see,” said Günther.
This whole episode is so fraught with contradiction, that Connie Hedegaard and the people at Climate Action must be wondering what they are actually standing for. It raises fundamental questions about the theory and practice of the EU ETS. Connie Hedegaard and her people need to make a noise about this. They should put the EIB and the EBRD in their place and certainly strip the EIB of its role in the NER300. It is wrong for the EIB to be able to flaunt “green credentials” as a CCS financier while it is funding lignite-fired power generation.
If Slovenia wants lignite-fired power for strategic reasons, that’s fine. It’s up to Slovenia. But it shouldn’t be funded by the European project.
“Günther,” I cry, “where are you when I need you?”
Yet even as the stench of burnt lignite spreads across southern Europe, and the beaches of Croatia are darkened by toxic clouds, Günther has flown to Lesotho to judge a low-carbon knitting competition organised by the Lesotho International Women’s Club and held in the calm, colonial splendour of the Maseru Hilton.