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New allies for the renewables

Finance opens the way to energy decarbonization.

by Sabato Angeri
19 October 2020
6 min read
by Sabato Angeri
19 October 2020
6 min read

Slowly but surely, even the world of economics and finance is realising the need to decarbonize. Now financial analysts are joining the conversation, strengthening the conviction that another way is possible. Almost unanimously, they are pointing out how traditional sources of energy are becoming less lucrative.

Not more coal in Great Britain

Britain was the cradle of the Industrial Revolution where gargantuan amounts of coal were first burned to fuel the factories and usher in modernity. But that is an epoch which has come to a close. Indeed, during the two-month lockdown brought about by the recent Coronavirus pandemic, Britain did not burn a single lump of coal to feed its national electricity grid. This was a startling piece of information provided to the BBC at the end of lockdown by the spokesperson for the National Grid, multinational electricity and gas utility company headquartered in London. As a result, the British Government has decided to invest on offshore wind farms.

Berlin's turning point

On the other side of the North Sea, the German Government is trailblazing the road to change. Indeed, it has decided not to fast-track the closure of the old coal-fired power plants but rather to have them decommissioned or else converted by the end of 2020. Berlin is obviously aware of the imminent backlash on businesses and jobs in the areas affected. For this reason, it will adopt counteractive measures in the form of a multi-billion euro compensation plan, specifically, 2.6 billion euros for the power stations in the west of the country and 1.7 billion euros for those in the centre and the east. The central European powerhouse has gone further and bucked the trend of widespread fears over the resilience of the international credit and banking system. At the end of summer 2020, the German Government issued their first green bonds, which were an astonishing success.


Giving up coal is a big step in the process of energy decarbonisation

The federal government  has placed a ten years bond of 6.5 billion euros and has already announced a new issue to the tune of 4.5 billion euros for the fourth quarter of 2020. Germany is not concealing its intention to become a leader in green government bonds. Despite the fact that it has some catching up to do with respect to other EU countries: Poland issued its first ones in 2016, France at the beginning of 2017, followed by Ireland, the Netherlands and Sweden. Chancellor Angela Merkel’s executive has said that these funds will be used expressly for decarbonization, so as to meet the limits laid down by the European Green New Deal. A year has already passed since the European Investment Bank (EIB) initiated its support for investments targeted at environmental protection.

Indeed, from the end of 2021 it will shun all finance for projects whose aim is to produce energy from fossil sources. The EIB’s policy statements set out five guidelines which clearly summarise the strategies of the Commission headed by Ursula von der Leyen. In the rest of Europe, too, financial institutions are adjusting accordingly. As can be seen on its website, the Italian insurance company Generali was among the first to announce that it would “no longer provide insurance cover for the construction of new coal-fired power plants… without any exception”. The Italian banking group UniCredit has likewise undertaken “to abandon coal mining projects completely for energy production by 2023”.

The decarbonization in the rest of the world

But Europe is not alone in its decision to move in this direction. Canada, the fourth-biggest oil producer in the world, has decided this year to halt the construction of new tar sand mines in the state of Alberta. As well as taking into account the increasingly enormous costs of mining in that type of terrain, the decision has been officially presented as a measure to safeguard communities of indigenous peoples. China and India, which, from an environmental standpoint, are paying a very high price for their extraordinary industrial growth rates, are always somewhat cautious when it comes to signing international climate agreements.

China accounts for a third of total global emissions and is hence the largest polluter in the world. To decrease its emissions, Beijing needs to invest at least 14 thousand billion dollars over the next ten years. In the meantime, the governmente has instituted a series of green credits to ensure industries –and the banks financing them– protection and necessary incentives in order to stimulate development of renewable energy: wind and solar power, research into non-polluting fossil fuels, and reforestation.


A solar power plant built on top of a mountain in Fujian, China

The sinergy of change

In the energy industry, going green is now a tangible reality for companies of the energy sector. Eni for instance, has long been investing in research and development of new energy sources, such as offshore wind farms, blue and green hydrogen, and solar power on new mounts other than the classical silicon panel. To conclude, where industrial interests, ethical issues and, above all, political decision-making all move along parallel paths, with decarbonization as the goal and renewable energy as the means to that end, change can occur more quickly and the final objective can be brought that much closer.