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World Bank to Stop Funding Coal Projects

Jake Schmidt

Posted July 18, 2013

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The World Bank Group has just agreed to stop funding coal projects. This is welcome news as the World Bank Group has funded almost $6 billion in coal projects over the past five years. As a part of a new energy strategy which will cover the Bank’s lending, the Bank agreed that it will only fund coal projects in “rare circumstances” under certain specific conditions. This commitment will help focus the World Bank Group on using scarce resources to combat climate change, spur clean energy deployment, and meet the energy needs of the poorest in the world. With the poorest communities feeling the brunt of the impacts of global warming this is a welcome shift from an institution that has clearly recognized the damages that will come from global warming.

The strategy specifically commits that the World Bank Group:

“will provide financial support for greenfield coal power generation projects only in rare circumstances. Considerations such as meeting basic energy needs in countries with no feasible alternatives to coal and a lack of financing for coal power would define such rare cases” [emphasis added].

While the definition of “rare circumstances” wasn’t completely detailed in the strategy, the U.S. and other countries have clearly signaled that investments in clean energy should be the primary focus of the World Bank Group. After all, President Obama recently committed that the U.S. won’t support using public financing – such as from the World Bank – for new coal projects overseas that don’t capture their carbon. So “rare circumstances” should be a high bar.

The strategy also commits the Bank to step up its efforts to help the poorest citizens gain access to energy and to spur clean energy like energy efficiency, wind, solar, and geothermal. It commits to Bank to view all of its energy sector support through the lens of how does it help countries secure the “affordable, reliable, and sustainable energy supply to end poverty and promote shared prosperity”. This will ensure that the Bank justify all projects on the basis of how they help the poor and supply sustainable energy. With renewable energy deployed around the world we have long past the point where people could say “renewable energy is only available in certain rich countries under certain conditions”. The cost of renewable has dropped significantly in recent years, in most cases it is cost competitive with coal generation even without factoring in the damaging pollution from coal power plants. Clean energy is real, being deployed widely around the world, and a viable economic investment so it is welcome that the Bank has signaled that they’ll shift their emphasis from 19th century to 21st century investments.  

World Bank President Dr. Kim should be praised for helping shepherd through a policy to reform the Bank energy lending that stalled under his predecessor. Over two years ago the Bank attempted to reform their energy strategy and implement a similar limit on coal financing. But that strategy got hung up as China, India, and Saudi Arabia blocked adoption. This time those countries recognized that the landscape had changed and that a priority should be placed on using the Bank’s scarce funding to spur clean energy. Nearly 60 development, environment, faith-based, human rights, and community groups urged the Bank in this direction when they called on the Bank to stop funding climate destruction.

Hopefully it will spur other large financial institutions like the other development banks – such as the European Bank for Reconstruction and Development and the Asian Development Bank – and major private banks (e.g. the financial institutions in the Equator Principles) to follow suit. Over the past 5 years the development banks have invested more than $11.6 billion in coal projects (see figure).Total IFI Coal Financing.pngThis shift in emphasis from the World Bank Group will allow them to focus scarce resources on helping poor countries tap into clean energy like energy efficiency, wind, solar, and geothermal. It is well past time for such a shift – better late than never.

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Michael BerndtsonJul 18 2013 11:01 AM

So we're supposed to stop worrying and learn to love shale oil and gas fracking? I'd say that the world bank put its main interest into item 52, located almost at the bottom of the letter.

I'm imaging the photo op with dignitaries and the most photogenic NGO intern from the western world helping install a PV panel on top of a grass hut. In the meantime, GE, Bechtel, and Exxonmobil are busy constructing massive production and processing facilities for the international LNG market. With a few BTUs for local clean cooking and stuff.

Here's item 52 on gas:

"Toward a Sustainable Energy Future for All Directions for the World Bank Group’s Energy Sector (Updated)"

Cut and pasted from the World Bank letter above (with format changes - I broke up the wall of text into paragraphs, whether or not they're actually paragraphs.

52. The WBG will scale up its engagement in natural gas.

Natural gas is the fossil fuel with the lowest carbon intensity. Recent discoveries have increased global reserves, lowering prices and potentially expanding its role as an interim fuel for a low-emissions future. Natural gas is well suited for power generation because it can provide both baseload and peak load, and is often the least-cost means of providing flexible supply for following demand fluctuations.

Using natural gas rather than coal in power generation offers significant potential for mitigating
CO2 emissions. Because of its flexibility, natural gas is also ideally suited to complement grid connected solar and wind power to manage what can be large and rapid variations in electricity
generation. The WBG will continue to assist countries to address barriers to commercializing
natural gas and increasing possibilities for private investment by engaging on the policy and
regulatory front, by providing World Bank and MIGA risk-mitigation instruments, and through
IFC investments across the entire gas exploration, production, and downstream supply chain.

The WBG will help countries develop national and regional gas markets and, where it makes
economic sense, use natural gas as an alternative to coal and thus shift away from locking into
coal infrastructure. The Global Gas Flaring Reduction (GGFR) Partnership, a World Bank-led
initiative, is an integral part of this effort and is being scaled up starting in 2013. Launched in
2002, this partnership facilitates and supports national efforts to use currently flared gas by
promoting effective regulatory frameworks and tackling the constraints on gas utilization, such
as insufficient infrastructure and poor access to local and international energy markets,
particularly in developing countries. Wasteful flaring of gas associated with oil production
releases some 400 million tonnes of GHG emissions every year, without extracting the
corresponding energy value of the gas.

The WBG will enhance its learning around the emerging technical and environmental elements of unconventional gas. As the U.S. experience shows, unconventional gas holds significant economic potential, and this learning would enable the WBG to provide appropriate advice and support increasingly sought by partner country governments.

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