The European Bank for Reconstruction and Development will no longer finance thermal coal mining or coal-fired electricity generation, the bank confirmed Wednesday.
The announcement is in line with the bank's new energy sector strategy for the next five years, which was approved by the board of directors on Wednesday, according to a statement on the EBRD's website.
The bank will also stop funding any upstream oil exploration, and will not finance upstream oil development projects except in rare and exceptional circumstances, where such investments reduce greenhouse gas emissions.
According to the statement, the strategy for the next five years emphasizes the scaling-up of investment in renewables, supporting the integration of energy systems, promoting the switch to cleaner and more resilient energy sources and facilitating electrification as a means to clean the economies where the bank invests, which include some of the least energy-efficient and most polluting economies and cities in the world.
The bank will continue to support the gas sector where it is consistent with a low-carbon transition that is both secure and affordable, it said.
Nandita Parshad, managing director of energy and natural resources, underlined the need for "urgent and decisive steps" to address the challenges posed by climate change and poor air quality.
"This requires a fundamental shift away from hydrocarbons to cleaner energy sources. That means the electrification of economies, including industry, transport and heating, with that electricity generated overwhelmingly from renewable sources.
"This is the goal that we have placed at the center of our new energy sector strategy: to decarbonize the power sector with a decisive shift away from the most polluting fuels,” she said.
Parshad added that achieving this goal requires smart, integrated and resilient networks and reliance on competitive, regionally integrated and resilient markets to deliver this change.
"Our dual role as investors and facilitators of policy reform, coupled with our commitment to promoting environmentally sound and sustainable development, means we are ideally placed to deliver this transition," she said.
From January 2019, the EBRD is also adopting a Shadow Carbon Pricing Methodology for use in EBRD projects with significant greenhouse gas emission footprints.
When considering such projects, the bank will undertake an economic analysis that will account for key externalities, including the cost of greenhouse gas emissions.
The EBRD's approach, including the range of shadow prices it intends to use based on the high-level commission on carbon pricing, will be made available in early 2019.
By Hale Turkes