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Now is the Time to Shift World Bank Resources to Clean Energy

Jake Schmidt

Posted May 11, 2010 in Solving Global Warming

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The World Bank has just announced its intent to seek $86 billion for a general capital increase (the GCI) from its donor countries (see World Bank press release).  It is time for the World Bank to become a full part of the solution to global warming, not part of the problem and part of the solution at the same time.  The World Bank needs to seize this opportunity to shift its energy investments to clean energy.  The US should only approve a contribution towards the Bank’s general capital increase if it secures a firm commitment to transition to clean energy.

With the request of a general capital increase from the Bank, individual donor countries will now need to agree to fund this increase and commit to provide specific amounts.  In the case of the U.S., the Treasury Department requests the funding, Congress would then need to authorize and ultimately approve a possible U.S. contribution.  We expect such a request in the coming weeks.   

World Bank is Not Doing Enough to Support Clean Energy Lending.  With over $8.2 billion in energy investments around the world last year the World Bank has a significant influence on developing country energy investments.  In 2009, the World Bank estimates that 40% of its energy sector lending was in “low carbon energy”*—with energy efficiency and renewables** accounting for 21% and 17% respectively .  While the share of “low carbon energy” has increased in the past from only 17% in 2003, fossil fuels are still a large share of the Bank’s energy investments.  The Bank Information Center calculates that from 2007-2009 fossil fuels still made up over 48% of the World Bank’s energy lending, while 35% of their energy loans were for energy efficiency and renewables (excluding large hydro). 

To put this energy investment in context, the total lending for energy efficiency and renewables** in 2009 was $3.1 billion and the recent coal-fired power plant approved by the World Bank for South Africa was $3 billion – so a single fossil project was the size of all of their energy efficiency and renewable investments in 2009.  While the South African’s proposed that they would come back to the Bank for a $1.25 billion loan for emissions reduction actions and they did package $260 million for renewable energy as a part of the Eskom loan, this combined energy efficiency and renewable energy package would amount to 33% of the total energy loan to South Africa – less than the modest 40% share that the Bank has achieved for its entire energy lending of late.       

At the same time, the World Bank is working to position itself as a leader in providing clean sustainable energy to the poor.  As part of their mission to fight poverty they see a strong role for the Bank in helping deliver energy access for the 1.5 billion people that don’t have access to electricity.  Those are worthy objectives that we support.  But achieving this aim doesn’t have to be at the expense of putting those same populations at risk of severe impacts on their development which will come from global warming.

Commitments to Address Global Warming and Phase-Out Fossil Fuel Subsidies Must Shape Decisions on the GCI.  Governments around the world must consider the general capital increase request in light of the Bank’s recent performance in the area of low carbon sustainable energy projects, the commitments made by world leaders to address global warming, and the commitment by the G20 to phase-out fossil fuel subsidies.  In light of the World Bank’s recent foray into lending for a South African coal-fired power plant, the Bank needs to do better on energy sector investments.  A point formally outlined in the US response to this loan

Following from the Copenhagen Climate Summit over 120 governments formally associated with the Copenhagen Accord –committing to move to a global low carbon economy – and over 75 countries formally registered specific actions that they would take to reduce emissions.  These same countries are both the donors to and recipients of World Bank funding so this commitment should presumably guide their World Bank strategy. 

And the 20 developed and developing countries that make up the G20 committed at their last Summit to: rationalize and phase out over the medium term inefficient fossil fuel subsidies that encourage wasteful consumption (as I discussed here).  Continuing to subsidize fossil fuel projects through the World Bank or other multilateral development banks would go against such a commitment.

These are commitments and context which should not be taken lightly or ignored.

The general capital increase should not be approved without clear energy reforms from the Bank.  When the Bank announced its request for the general capital increase it did mention climate change in its areas for strategic focus, but it didn’t address the call to condition capital increases in sustainable energy financing as urged by over 100 environmental, faith, women’s, indigenous and development organizations throughout the world, including the Natural Resources Defense Council.

In a statement these groups called for international financial institutions to stop using public resources to subsidize the fossil fuel industry.  The statement said:

“we call on governments to not support a general capital increase for any part of the World Bank Group unless the Bank Group ends support for all fossil fuel projects (other than assistance with transition such as mine closure) that do not have as their sole purpose energy access for the poor.  Fossil fuel projects that expand energy access for the poor should only be supported after a full examination of all costs--including damages to public health, welfare and the environment--of the project and any new renewable and efficiency alternatives demonstrates that they are the best alternative for delivering energy services to the poor.

Until such policies are approved, countries should direct funds requested by the Bank and other institutions for general capital increases to other financing mechanisms for supporting sustainable development, poverty reduction and clean energy.”

We need clear commitments (in writing and practice) that the World Bank is truly turning to clean energy investments.  Right now the World Bank is developing an energy strategy, which will guide their future energy lending.  Until commitments to truly shift to clean energy are ensured, the US and other donors should withhold commitments to the World Bank’s general capital increase. 

It is time for the World Bank to truly become a part of the solution to address global warming.

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This post was written with my colleague Heather Allen.

* Defined as new renewable energy, energy efficiency, and hydropower.

**Excluding hydro larger than 10MW.

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Comments

DueSouthMay 17 2010 08:03 AM

Agreed, this seems to be a crucial moment in the push for a more sustainable and equitable economy. Perhaps another point to emphasize might be the need to ensure that energy projects in developing countries do have an explicit goal of extending energy access to the poor, as there are cases where projects (the Medupi being one of them) are justified under this pretext but are still skewed towards supporting elite groups and industry. We´ve written about this at Due South (http://www.iied.org/sustainable-markets/blog/banking-coal-global-south) and would be interested in hearing anyone else´s point of view.

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Switchboard is the staff blog of the Natural Resources Defense Council, the nation’s most effective environmental group. For more about our work, including in-depth policy documents, action alerts and ways you can contribute, visit NRDC.org.

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