Time to gear up European climate diplomacy in Beijing
June saw the first annual meeting of the Asian Infrastructure Investment Bank (AIIB) in Beijing.
Set up with $100 billion in funding at the end of 2015, under the leadership of the Chinese government and the sanctioning of President Xi Jinping, in order to finance transport, energy and industrial routes development between Asia and Europe, under the pharaonic ‘One Belt, One Road’ initiative.
Several European governments joined after China announced its decision to set up the AIIB, flying in the face of resistance from the United States and Japan to the new, China-led, kid on the block of international economic cooperation.
As claimed by its first president, Jin Liqun, the AIIB is set to be “lean, clean and green”.
The new bank will closely resemble the Luxembourg-based European Investment Bank (EIB) in its governance and set-up, which appears to reassure European governments when it should ring alarm bells.
The AIIB has no plans to install a resident board of directors, it will have a relatively small management and staff and will primarily act as a multilateral public investment bank with no explicit aspirations of fulfilling a proper ‘development bank’ role.
Its specific focus on infrastructure is similar to the priority focus of the EIB’s, the self-styled ‘EU bank’, which has helped realise a range of mega-infrastructure projects within the framework of European integration.
With a 30 percent share in the AIIB, China will call the shots as the main shareholder.
However, for the first time, Eurozone governments have shown that they are prepared to speak with one voice in a multilateral financial institution by pooling their 10 percent of shares from the euro constituency.
Their share will be led by the German chair of the bank’s board in the first two years of operations.
European values flawed
The Eurozone countries have been quick to claim that their participation has influenced the bank, since its establishment, to adopt international best practice in certain areas such as environmental protection, public procurement, transparency and integrity.
Yet with a critical eye, civil society observers have already spotted flaws with environmental safeguards and public information policies, casting doubt on how fit for purpose the AIIB actually is.
As with the EIB, sectoral policies will be central to shaping the AIIB’s portfolio as well as permitting a certain amount of influence from different stakeholders on economic, environmental and social grounds.
The coming weeks should give us a flavour of AIIB intentions as bank management begins drafting an energy strategy.
A finalised policy is scheduled for approval in mid-2017.
The formulation of this strategy will be a test case for clarifying how ‘clean and green’ the AIIB aims to be.
Will European governments have the necessary diplomatic muscle in Beijing to be able to wield sufficient influence over the bank’s strategic decisions?
While it is still unclear what will be the actual impact of Trump’s presidency on climate diplomacy.
At the recent climate conference in Marrakesh, the Chinese government made clear that it is ready to lead world’s climate efforts.
However, early indications from an issue note on the energy strategy by the AIIB show the bank has not yet mainstreamed such directions.
A test case for green commitments
In particular the bank has not ruled out the possibility of financing coal projects, fossil fuel infrastructure - in particular gas projects - and large dams, the very projects most criticised by civil society and local communities for their environmental and health dangers.
Looking again to the EIB, the bank adopted a relatively ambitious climate-energy policy in 2013, introducing an emissions performance standard for thermal coal power plants financed by the bank set at 550 kg/KWh.
This new standard rules out EIB support for most coal power projects around the world, although ad hoc derogations still make financing possible in specific cases.
Stricter standards have been adopted by other European institutions in the meantime.
Nevertheless both the EU, through the EIB, and China, through the AIIB, believe that gas should be the “transitional fuel” of the next decades.
They do not take into account how long-term investment in gas infrastructure will have a very negative lock-in effect for future energy and climate policies.
Sending a clear message
In this regard, the AIIB has recently made public its interest in financing the EU-led Southern Gas Corridor, set to bring Azerbaijani gas into Southern Europe, with $600 million.
Based on their own climate commitments as well as coherence with the EIB’s approach, Eurozone governments should gather around a strong common position in Beijing and propose that the AIIB lead in financing mitigation away from fossil fuels, going beyond what the EIB has achieved so far.
This is an opportunity for a clear invitation to the Chinese leadership to walk the walk, and for the standards bar at the AIIB to be raised.
It would be a mistake if European governments were satisfied with AIIB’s backing for their own gas projects, such as the Southern Gas Corridor, and give a green light to a carbon-intensive energy approach of the new multilateral bank.
Antonio Tricarico is a member of Re:Common, a public organisation challenging the financialisation of the natural commons and advocating for democratic public financial institutions at national and global level to promote the commons