CLIMATE RELATED RISKS IN EIB PORTFOLIO FIRST FINDINGS SCIENCES PO - PowerPoint PPT Presentation

CLIMATE RELATED RISKS IN EIB PORTFOLIO FIRST FINDINGS SCIENCES PO GROUP PROJECT - EIB INSTITUTE

EIB EXPOSURE AT A GLANCE The total outstanding volume of signed loans as of end-2015  amounted to EUR 563.5bn (2014: EUR 549.1bn), of which 89% Hungary was for projects within the EU (2014: 89%) Czeck Republic 1.9% Around 50% of the exposure concentrates in 4 EU countries 2.0%  Austria 2.9% and in 4 main sectors 3.2% 18.1% EU Scandinavia 3.3% Greece 4.1% EU Benelux 4.2% Portugal Transport 5.7% 12.8% EU other Global loans 0.5% 2.7% Poland 3.6% 5.7% Energy UK 7.2% 28.5% 6.8% Industry Non-EU 9.0% Heath and education 7.3% France 8.2% Water, sewerage Germany 8.9% 8.5% 7.5% Italy Misc. Infrastructure Spain 23.2% 14.2% Services Telecommunications Agriculture, fisheries, forestry Source: EIB Activity Report 2015

EIB IS A LONG TERM LENDER AND DOES NOT DIVEST

CLIMATE RELATED RISKS IN EIB PORTFOLIO % CHANGE IN MEAN RUNOFF 1981-2000 VS 2081-2100 (IPCC SRES A1B) Physical Risks 2 distinct families of risks  Transition Risks Source: Potential Impact of Climate Change on Financial Market Stability, South Pole Group, Oct.2016

The physical risks cause by Climate Change are extremely localised : Example - the different physical risks predicted for North and South of Spain, even though it is part of one country.

CLIMATE RELATED RISKS – PHYSICAL IMPACTS VARY ACROSS SEASONS Model Results Seasonal Changes of River Run-off in Europe ( 2071-2100/1961-90; SRES A2 ) 6 Source: EEA, 2008

EIB FINANCED PROJECT – METRO MALAGA (DECEMBER 2016)

EXPECTED CLIMATE CHANGE TRENDS IN EUROPE The expected climate change risks in the Europe have been stated based on the following categories : - Arctic - Coastal Zones - North Western Europe - Mediterranean Region - Northern Europe - Central and Eastern Europe - Mountains

EXPECTED CLIMATE CHANGES IN OTHER REGIONS Latin America more extremes, desertification and reduced water availability • Caribbean islands will experience more extremes and sea Level rise and lower fish catch • Pacific will experience more extremes, but sea level rise is an even bigger problem than • in the Caribbean. Sub Saharan Africa will get dryer, in particular southern Africa, also negatively affecting • food security but will experience more extreme rain i.e. floods. Asia : Heat stress, extreme precipitation, drought and water scarcity, longer and more • intense heat waves, flooding in combination with cyclones e.g extremes

CLIMATE RELATED TRANSITION RISKS The more rigorously the 2° Celsius limit is  targeted, the greater the transition required by CO2 intensive industries. Unexpected, massive regulatory  interventions to reduce CO2 emissions could lead to abrupt price drops in assets, and impact entire industries. Source: Potential Impact of Climate Change on Financial Market Stability, South Pole Group, Oct.2016

ENERGY TOTAL SIGNED END 2015 – EUR 105 BN EXPOSURE END 2015 – EUR 85.9 BN (20% OF TOTAL EXPOSURE) AVERAGE LOAN TENOR – 16 YEARS

EN ENER ERGY – GE GENE NERAL TREN TRENDS 2°C Scenario = severe reductions of GHG emissions The EU 2030 Energy Strategy 40% cut on GHG emissions (compared to 1990 levels) • At least 27% share of renewable energy consumption • At least 27% energy savings (compared with the business-as-usual scenario) •  Operation & consumption of oil and gas represents 39% of anthropogenic GHG = most affected by regulations & transition

EN ENER ERGY – EIB PO EIB PORTF RTFOLIO OVERVIEW Main sub-sectors 1% Petroleum & natural gas production 4 main sectors: 6% Electricity generation Electricity gen = €40.8B • Energy Power transmission and • 37% distribution = €38.8B Heat production 39% Petroleum & natural gas • Heat transmission & distribution production = €5.9B Oil & natural gas transmission Oil & Natural gas • 12% transmission = €13B Power transmission and distribution 1% 1% 3%

ENER EN ERGY – SECTO SECTOR O R OVER VERVIEW Main sources of risks Sub-sectors Electricity generation (€ 40.8 B) Power transmission and distribution (€ 38.8B) Oil and natural gas transmission and distribution (€ 13B) Petroleum and natural gas production (€ 5.9B) Heat production (€ 3.5B)

Physi sical ris risks in t n the he energy rgy sector tor

ENER EN ERGY – PHYS YSICAL R L RISKS KS Exposure to chronic or accute weather events Water Wind Heat Air T° Water T° Sea Level Floods Storms availability Speed waves Coal Oil Natural Gas Nuclear Hydropower Solar PV Solar CSP Biomass Wind T&D Grids

ENER EN ERGY Climate change risks for the Energy sector: overview Sub-sectors Electricity generation (€ 40.8 B) Power transmission and distribution (€ 38.8B) Oil and natural gas transmission and distribution (€ 13B) Petroleum and natural gas production (€ 5.9B) Heat production (€ 3.5B)

ENER EN ERGY – TRANSI SITI TION ON RISKS Carbon intensive loans 2 Carbon intensive sectors: 1% Petroleum & natural gas production • Petroleum & natural 6% Electricity generation gas production = €5.9B Energy • Oil & Natural gas 37% Heat production tranmission = €13B 39% Heat transmission & distribution + Specific sub-sectors in Oil & natural gas transmission • Electricity Generation 12% Power transmission and distribution • Heat production 1% 1% 3%

FOSSIL FUELS ENERGY PORTFOLIO Crude petroleum and natural gas  production – EUR 4 833.7 m Oil and natural gas transmission and  distribution – EUR 10 922.7 m Power and heat generation from fossil fuels  – EUR 8 236.0 m = EUR 24 bn (5.4% of total exposure) (of which, EUR 10.6 bn signed in the last five years, compared to EUR 14bn RE signed in the last five years)

EN ENER ERGY – TRANSI SITI TION ON RISKS Transition risks: carbon intensive loans Carbon Intensive loans are concentrated in 3 countries: Italy , Spain and the UK … … All bound by the EU INDC of 40% GHG reduction by 2030 ! • Policy impacts : strict regulations on GHG emissions, … • Economic impacts : increase of Carbon price on the ETS (€17 in 2020, €30 in 2030) • Reputation impacts : divestment campaigns, naming & shaming Gaz represents nearly 90% of Carbon Intensive loans: • Stranded assets : gas production & transmission infrastructure • Contamination risks (flares & leaks) => strict liability for cleanup & remediation

EN ENER ERGY Transition risks vs Opportunities 120 30% 35% 120 Amount invested (€ bllions) Amount invested (€ bllions) 30% 100 25% 100 25% 80 20% 80 20% 60 15% 60 15% 40 10% 40 10% 20 5% 20 5% 0 0% 2017 2022 2027 2032 2037 0% 0 Renewable assets Total invested in Energy Total invested in Energy Carbon Intensive assets 2017 2022 2027 2032 2037 % Assets in renewable

EN ENER ERGY Other opportunities Several opportunities with the 2°C transition scenario: • Energy efficiency: CHP, power grid efficiency, circular economy… • Carbon capture (risks ?)

TRANSPORT TOTAL SIGNED END 2015 – EUR 196 BN EXPOSURE END 2015 – EUR 159 BN (36% OF TOTAL EXPOSURE) AVERAGE LOAN TENOR – 23 YEARS

TRANSP SPORT ORT Setting the Scene The reliance on fossil fuel-based transport systems has a very high local and global environmental price tag. • Transport in the EU still depends on oil for about 94% of its energy needs. (2016) • The transport sector produces roughly 23% of global CO2 emissions and is the fastest-growing source globally. (OECD) • Without further policy action, CO2 emissions from transport could double by 2050. • Transport is fundamental to our economy and society. Mobility is vital for the internal market and for the quality of life of citizens as they enjoy their freedom to travel.

TRANSP SPORT ORT - REDUCTI CTION ON TA TARG RGET ETS COP21: Paris Process on Mobility and Climate Avoid (reduce unnecessary travel: land use • EC Strategy for low-emission planning, logistics redesign, halt mobility (2016) counterproductive regulation that EC White Paper on incentivizes travel by individual motorized Increasing the efficiency of the Transport (2011): • vehicles) transport system. Growing transport and supporting mobility Shift (shift movement of goods and people Speeding up the deployment • • while reaching a 60% to the most efficient modes, by scaling up of low-emission alternative emission reduction by good practices) -> some modes of transport energy for transport. 2050 cannot be substituted Moving towards zero- • Improve (improve environmental emission vehicles. • performance of fuels and powertrains, intermodality and transport management)

TRANSP SPORT ORT Classification Passenger Freight Infrastructure Vehicle

TRANSPORT PORTFOLIO BY SUBSECTOR AND INSTRUMENT

TRANSP SPORT ORT Climate change risks for the Transport sector: overview Sub-sectors Roads and Motorways (€ 67.7B - 34.4%) Railways (€ 56.0B - 28.5%) Urban Transport (€ 48.7B - 24.8%) Air Transport (€ 13.1B - 6.7%) Sea Transport (€ 10.3B - 5.2%)