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EU’s €300 billion foreign aid strategy targets hydrogen, renewables

03 December 2021 Cristina Brooks

The EU has vowed to spend billions on international development finance with a move it compared to China's Belt and Road, but with "the highest environmental standards."

China's Belt and Road initiative has invested in projects such as roads, power stations, railways, airports, and port across Eastern, Southern, and Central Asia.

On 1 December, the European Commission (EC) announced the new strategy, dubbed Global Gateway, through which it will facilitate foreign investments of up to $339 billion (€300 billion) by 2027.

While China's environmental standards under Belt and Road have been criticized, it recently published green standards for overseas construction.

The EC responded to the comparison with China by saying it was "offering an innovative choice" and filling an infrastructure finance gap for low- and middle-income countries estimated at over $2.7 trillion in 2019 and worsened by the COVID-19 crisis.

In particular, the Global Gateway will use the EU's existing European Fund for Sustainable Development+ to offer up to $152.83 (€135 billion) of guaranteed investments for infrastructure in countries in the EU's region and in Africa.

It will not only provide grants, loans, and budgetary guarantees to de-risk projects like renewables and smart grids, but it will also support what it termed "soft infrastructure" such as health projects, education, and research.

Its energy investments will include growing hydrogen production through state partnerships, to "promote the creation of competitive markets to enable such hydrogen produced outside the EU to be traded internationally without export restrictions or price distortions."

It aims to develop these projects in countries where it has existing development partnerships and strategic interests. For example, China's rivals include India and Japan, with which it recently signed pacts to cooperate on cleantech and connectivity.

The EU will pour funds into its neighbors to the east, including Albania, Bosnia and Herzegovina, North Macedonia, Montenegro, Serbia, Kosovo Armenia, Azerbaijan, Belarus, Georgia, the Republic of Moldova, and Ukraine.

This will extend to its North African neighbors like Algeria, Egypt, Libya, Morocco, and Tunisa as well as its Middle Eastern neighbors Israel, Jordan, Lebanon, Palestine, and Syria.

But the EU's broad net for finance under Global Gateway also captures Central Asia and Latin America.

The EU plans to provide technical assistance and apply standards, including environmental, for projects. "Projects will live up to the European Green Deal oath to 'do no harm' and ensure the use of environmental impact assessments and strategic environmental assessments," said the EC in the announcement.

The plan not only aligns with the Paris Agreement, which targets an upper limit on 2.0 degrees Celsius on global warming, but also the UN's social and environmental targets, including its aim to end poverty by 2030.

Also, the strategy was billed as a response to this month's COP26 climate summit discussions. At that summit, a group of less developed countries was "disappointed" that no deal was reached to finance climate adaptation.

The EU's main infrastructure investment bank, European Investment Bank (EIB), and states are among the financial backers behind Global Gateway. These include its international finance arm, European Bank for Reconstruction and Development (EBRD).

The EC hopes its public financing muscle will attract more private investors, taking advantage of skyrocketing demand for green bonds. Some estimates put the amount of capital investment seeking sustainable assets to finance at around $30 trillion.

The EU itself recently issued what it called a record €12 billion worth of green bonds through its NextGenerationEU €800 billion coronavirus recovery fund.

President of the European Commission, Ursula von der Leyen, framed the Global Gateway investment strategy as a response to calls to use COVID 19 pandemic recovery funds to "build back better."

At the same time, the EU is mulling a European-level export credit facility, "to complement the existing export credit arrangements at member state level and increase the EU's overall firepower in this area."

Posted 03 December 2021 by Cristina Brooks, Senior Journalist, Climate and Sustainability

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