The new policy potentially deals a blow to billions of dollars of gas projects in the pipeline, which will now have to be based on "new technologies" to qualify for funding

* Ban to start a year later than first proposed

* Gas projects to face tight new lending criteria

* Policy could hurt proposed LNG projects - WoodMac

By Jonas Ekblom

BRUSSELS, Nov 14 (Reuters) - The European Investment Bank said on Thursday it would stop funding fossil fuel projects at the end of 2021, a landmark decision that potentially deals a blow to billions of dollars of gas projects in the pipeline.

The bank's new energy lending policy, which it said was approved with "overwhelming" support, will bar most fossil fuel projects, including traditional use of natural gas.

"This is an important first step - this is not the last step," EIB vice president, Andrew McDowell told reporters in a call.

Under the new policy, energy projects applying for EIB funding will need to show they can produce one kilowatt hour of energy while emitting less than 250 grams of carbon dioxide, a move which bans traditional gas-burning power plants.

The policy raises new risks for the gas industry, which has more than $200 billion in liquefied natural gas projects lining up to go ahead worldwide over the next five years, aiming to provide a cleaner alternative to coal and oil.

"The EIB's new financing criteria will make lending to gas projects very difficult," Nicholas Browne, a Singapore-based research director with global energy and mining consultancy Wood Mackenzie, said in a note.

"In turn this would be a major strategic challenge for companies that have identified gas as the key driver of future growth," he said.

Under the new policy, gas projects would have to be based on what the bank called "new technologies," such as carbon capture and storage, combining heat and power generation or mixing in renewable gases with the fossil natural gas.

Environmental organisations celebrated the EIB decision, but expressed disappointment that its introduction will be delayed by a year after lobbying by European Union member states.

"Hats off to the European Investment Bank and those countries who fought hard to help it set a global benchmark today," Sebastien Godinot, economist at WWF EU said in a statement.

DELAYED INTRODUCTION

The EIB, the biggest multilateral lender in the world, has ambitious goals on sustainable finance. McDowell said the bank wants to "set the standard" for what it means for a multilateral bank to be aligned with the Paris agreement.

Thursday's decision was expected, coming after EU finance ministers last week unanimously backed the phasing out of funding of gas, oil and coal projects to help combat climate change.

A decision on fossil fuel funding was planned for last month but was postponed due to divisions within the bloc. Some countries wanted gas funding to continue, prompting McDowell to write to the bank's current 28 shareholders, the EU member states, on Nov. 5.

In the letter, McDowell suggested deferring the originally proposed end of fossil fuel lending from the end of 2020 to the end of 2021, which the European Commission had sought.

The European Commission has only an observer role on the EIB board, but the EU executive body holds the power to cast a deciding vote at a deadlock between the bank's current 28 shareholders.

There was no need for that as the bank said members representing 90% of its capital had approved the new energy lending policy. (Reporting by Jonas Ekblom; Additional reporting by Sonali Paul in Melbourne; Editing by Bernadette Baum, Alexandra Hudson and Jane Wardell)

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