The European Investment Bank says it has launched a $385 million fund targeting energy efficiency project aimed at reducing greenhouse gas emissions.

The new European Energy Efficiency Fund has pooled contributions from the European bank, the European Commission, the Italian bank Cassa Depositi e Prestiti and Deutsche Bank to invest in small-scale energy efficiency projects, EIB officials announced in Brussels last week.

Some $182 million of the new facility comes from unspent funds from the European Energy Program for Recovery, which was set up by the European Commission in the aftermath of the 2008 financial crisis to help kindle new investments in green energy projects.

The European Investment Bank is committing $109 million in mezzanine financing, while the Italian bank is committing $87 million and Deutsche Bank, which will also act as the fund's investment manager, is chipping in with $7.3 million.

The EEEF is meant to leverage private investments in European energy efficiency projects that might not otherwise get bank financing, and to help the European Union meet its goals of 20 percent energy savings and greenhouse emissions reductions below 1990 levels by 2020.

The new loan fund is meant to overcome "risk aversion" by private backers in green projects, the European Commission says, by offering helping local governments "whose investments are often rendered impossible or delayed due to budgetary constraints and lack of knowledge on how to implement such investments."

In a concession to critics from Britain and the Netherlands who said the effort amounted to investing in market failures, the EIB said the new fund will pursue "a two-track investment approach" -- either investing directly in projects or via financial institutions -- and will seek to stimulate private investment by imposing a "layered risk/return structure."

"I would not speak about 'market failures' but there is a little gray zone," EIB President Philippe Maystadt told the Brussels news Web site EurActiv. "There are some projects that might look like giving a return later than some private investors would expect."

Maystadt predicted the fund would provide positive returns within four or five years, adding, "The most important return is the saving on energy."

EU officials said the EEEF will fund municipal and local energy efficiency projects, particularly in urban settings, providing financial products such as senior and junior loans, guarantees or equity participation.

Efficiency upgrades in public and private buildings will be eligible, including investments in micro-cogeneration and district heating-cooling networks, as well as decentralized renewable energy sources and clean urban transport.

Also targeted will be infrastructure modernization, such as street lighting and smart grids, as well as investment in "sustainable energies with a potential for innovation and growth."

The EIB last month loaned $65 million to Spain's Ingeteam S.A., an electrical engineering company that develops electrical equipment, motors, generators and frequency converters.

That money is earmarked for its research on renewable energy generation, including wind turbine generators, photovoltaic installations and thermo- and hydroelectric plants.

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