Friday, June 18, 2010

World Bank clings to fossil fuels, stumbles on clean energy

World Bank clings to fossil fuels, stumbles on clean energy
Bretton Woods Project, 17 June 2010, update 71
www.brettonwoodsproject.org/art-566379

Despite recent attempts to restyle itself as a green institution, the
World Bank's energy lending suggests that it remains wedded to fossil
fuels. Meanwhile, independent evaluators and civil society groups have
raised serious concerns about the developmental benefits of the Bank's
approach to energy efficiency and renewables.

Analysis published in April by US NGO the Bank Information Center (BIC)
showed that the World Bank Group's (WBG) finance for fossil fuels had
climbed higher than ever, to $4.7 billion in the first ten months of
financial year (FY) 2010 (see Update 69). This represents a major leap from
the previous record of $3.1 billion in the whole of FY2008. The Bank has
provided $6.5 billion for coal since FY2007, largely in middle-income
countries – roughly equivalent to commitments to its Climate Investment
Funds (CIFs, see Update 71).

In April, the Bank produced a progress report on its Strategic Framework
for Development and Climate Change (SFDCC, Update 71). The Bank claimed
that the increased share of fossil fuels compared to renewables or energy
efficiency in FY2010 "is in large part due to the impact of the [financial]
crisis on the ability of African countries to finance their conventional
energy development programmes, necessitating WBG support to coal power
projects in Botswana and South Africa." However, an April briefing by three
European NGOs observes that this justification is an opportunistic revision
of the Bank's argument for fossil fuel lending before the financial crisis,
which claimed that developments would go ahead regardless, so Bank
involvement was desirable in order to raise social and environmental
standards.

Though the Bank's progress report argued that support for coal was
becoming more selective thanks to the use of the SFDCC environmental and
developmental criteria, civil society groups warned that these had not been
applied to the Bank's loan for coal in South Africa in April (see Update
70).

The report also forecast that the Bank's future support for coal would be
limited. Yet in an online discussion at the end of May, the Bank's climate
change team manager, Kseniya Lvovsky insisted that "fossil fuels will
remain an important part of the energy mix in both developed and developing
countries for some time."

These indications threaten to undermine attempts to transform the Bank's
energy portfolio, enshrined in the SFDCC target for half of Bank energy
lending to go to 'low carbon' investments by 2011, as well as targets set
by donor governments. A May briefing by UK NGO the Bretton Woods Project
warns that misleading categorisation of clean energy lending – for example,
including large hydropower and upgrades to fossil fuel plants in the low
carbon figure – undercuts the credibility of these targets. It also points
out that 40 per cent of the Bank's reported finance for renewable energy
over the last six years comes from carbon finance and the Global
Environment Facility, in addition to money from the CIFs, even though
carbon finance comprises funding streams set up independently of the Bank's
own funding, while the GEF and CIFs are different institutions, with the
Bank only administering the funds. It concludes that there is a pressing
need for a far more rigorous and transparent approach, with independent
monitoring. US NGO Center for American Progress, in a March report, also
urged greater transparency, including around the selection of investments
and what alternatives are explored. It called for a clear, independently
audited annual report on energy financing across the World Bank Group.

The Bank's sustained investment in fossil fuels prompted a broad coalition
of over 100 civil society groups to urge donor governments to withhold
contributions to the general capital increase (see Update 71), "unless the
Bank Group ends support for all dirty energy projects that do not have
energy access for the poor as their sole purpose."

The Bank's attachment to fossil fuels appears out of step with other
international institutions. A February IMF staff position note argues that
fossil fuel subsidies are rising, costly and inequitable. It calls for
reform strategies which, coupled with policies to protect low-income
groups, would have financial benefits and could reduce greenhouse emissions
by approximately 15 per cent in the long term. Though the Bank denies that
its finance is a form of subsidy, critics argue that all its capital is
provided from public funds, all its lending is guaranteed by member
governments, and its fossil fuel finance is often channelled to
commercially viable projects that are not in need of concessional finance.
Low-carbon own goals

Questions also hover over the effectiveness of the Bank's support for
low-carbon development. An April report by the Washington-based World
Resources Institute identified a set of policies, regulations and
institutional capacities in the electricity sector that enable investment
in sustainable energy, and examined whether they were reflected in
multilateral development banks' relevant loans between 2006 and 2008. The
World Bank performed worse than other institutions, particularly on
supporting long-term integrated energy planning, capacity building and
promoting stakeholder engagement. Two thirds of its loans addressed less
than half of the enabling factors.

In May, the Bank's Independent Evaluation Group reported on the energy
efficiency programme run in China since 2006 by the International Finance
Corporation, the Bank's private sector arm. The programme failed to achieve
some of its key aims, including: promoting a switch from coal to gas;
benefiting small and medium companies; and building partners' capacities,
to ensure the programme's sustainability. At one of the two partner
commercial banks, energy efficiency finance actually increased less than at
comparable, non-participating banks.

A similar lack of focus dogs the Bank-managed Clean Technology Fund's
investment in a large-scale solar power project across the Middle East and
North Africa region. There are concerns that the project will place further
strain on the region's already scarce water resources, while engagement
with regional civil society has been sorely lacking. Despite unmet energy
needs in the host countries, BIC warns that a proportion of the power
produced will be exported to Europe, suggesting that "the major raison
d'etre for the concentrated solar power programme is to help Europeans
reach their emission goals."

In April, 11 NGOs, including BIC, Greenpeace and Hivos, submitted a model
energy strategy to the Bank's ongoing consultation. It proposes phasing out
fossil fuel lending in favour of sustainable and reliable energy services
for the poor, as well as supporting the transition to zero or
ultra-low-carbon development. It recommends a number of steps towards these
goals.

Another submission, from UK NGOs including Christian Aid and WWF-UK,
stresses a "limited but catalytic role for the World Bank in ensuring
energy access for the poor and supporting the transition towards a low
carbon future," in part by phasing out fossil fuel lending. Excluding
representations from industry bodies, similar messages have dominated
submissions to the first phase of the Bank's energy strategy consultation.

In an April paper, Romina Picolotti and Jorge Daniel Taillant of
Argentinian NGO Centre for Human Rights and Environment warned that
"Current discussions at the World Bank regarding energy policy largely fail
to address the principle of common but differentiated responsibilities that
has been established in global discussions around the challenges in
addressing climate change." They argue that historical responsibility for
climate change must be taken into account in developing equitable financing
solutions, which should support local, national and regional project
planning and implementation, including local generation of clean
technology.
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