The G8, the World Bank and climate change

11 July 2005

Environmentalists expressed dismay at the G8’s failure to make progress on the issue of climate change. The disappointing communiqué and plan of action, Climate change, clean energy and sustainable development, is peppered with expressions of concern, but contains little proposed action, no targets and no timetable. Despite the agreement for a “formal dialogue” between the G8 on climate change, possibly with the aim of setting up a new international consensus when the Kyoto treaty expires in 2012, the US still refused to sign the Kyoto protocol.

The communiqué allows a leadership role for the World Bank “in creating a new framework for clean energy and development, including investment and financing”, yet the finer details as to how this will be put into action remain highly ambiguous. Climate campaigners assert that the G8 has ignored their demands for a radical change of practice in the way the World Bank supports sustainable energy in developing countries. Currently Bank support for renewable energy is roughly 6 per cent of its total energy related lending, while fossil fuels make up the other 94 per cent.

A public letter signed by 120 civil society organisations which was handed to the G8 leaders during the summit urged them to recognise that “ongoing public financing of the fossil fuel industry is increasing debt, poverty and climate change”. The letter pointed out that the World Bank Group alone has financed over $25 billion in oil gas and coal contracts since the UN convention on climate change was signed in 1992. It highlights the contradiction between the Bank’s poverty alleviation and sustainable development mandate and the fact that 80 per cent of all oil projects financed by the World Bank are designed to produce petroleum for export to the wealthy countries of the north, rather than to meet the energy needs of the World’s poor. Meanwhile, the World Bank and the Global Environment Facility (GEF), of which the World Bank Group is an implementing agency, created at the 1992 earth summit to act on climate change have invested over 17 times more in fossil fuel related projects as they have in renewables and energy efficiency projects. The letter also criticises the Bank’s open rejection of the extractive industry review recommendations which called for the Bank to withdraw from coal financing immediately, phase out of oil-financing by 2008 and rapidly scale up its investments in renewable energy at the rate of 20 per cent per year.

ongoing financing of the fossil fuel industry is increasing debt, poverty and climate change

The Gleneagles plan of action:

  • acknowledges the role of the GEF in facilitating co-operation with developing countries on cleaner more efficient energy systems.
  • invites the Bank to develop and implement best practice guidelines for screening their investments in climate sensitive sectors; and
  • invites the Bank to increase dialogue with borrowers on energy issues and put forward specific proposals at its annual meetings to: use existing financing instruments to develop a framework for energy investment to accelerate the adoption of cleaner technologies; “explore opportunities” to increase the volume of investments on renewables and energy efficient technology within lending portfolios; and work with “interested borrower countries” to identify less greenhouse gas intensive growth options.

US obstruction

Paltry gains in the final statement acknowledging that climate change is “largely” rather than “partly” due to human activity, coupled with Bush’s concession that greenhouse gases should be “controlled” as soon as possible have been deemed by some G8 leaders as a victory. However, the US is the only G8 country not to have ratified the Kyoto Protocol, and its World Bank executive director has opposed all support for Bank projects that seek to implement the Kyoto protocol in other countries. The US has also been an obstacle to replenishment of the GEF fund for climate change on the grounds that funding must be tied to performance outcomes.

Carbon broker

The Climate change convention and Kyoto protocol envisage an important role for the World Bank with respect to financing technology transfers to mitigate green house gas (GHG) emissions. The Bank leads other multi-lateral development banks in the Clean Development Mechanism (CDM) which assists industrialised countries to comply with Kyoto emission limits and “developing countries to achieve sustainable development”. However, the CDM’s genuine contribution to renewable energy development is highly questionable, given its financing for such projects as monoculture tree plantations, gas flare reduction and methane capture from waste dumps. A recent report by the Sustainable Energy and Economy Network reveals the Bank’s plans to operate as a self-appointed broker – from which it would reap profits of between 8-10 per cent of each transaction- between northern and southern governments and industries on carbon transactions, through such schemes as the CDM, the bio-carbon fund and the prototype carbon fund.

On the eve of the G8 summit a number of civil society groups came out in strong criticism of the World Bank’s business-as-usual approach, through the perpetuation and reinforcement of fossil-fuelled economic expansion.

Drilling for debt, Oilchange International

This report explores how oil exporting countries have fallen into “a nightmare of crushing debt, civil conflict and stagnant economies”, as compared to the expectation of economic plenty that oil production would bring perpetuated by the Bank in the 1970s and 80s. Looking at case studies from Nigeria, Ecuador and Congo-Brazzaville, it examines the largely overlooked but fundamental relationship between debt and oil, and finds that Bank programmes designed to increase Northern private investment in Southern oil production have drastically increased debt.The Bank’s Petroleum Exploration Promotion Programme (PEPP) was initiated in the 1980s, allegedly to help oil importing developing countries increase their oil production and reform their policy environment to attract more foreign investment from international oil companies. The report finds that PEPP country recipients had higher debt-to-GDP ratios than the countries that did not receive PEPP loans.

Hoodwinked in the hothouse: The G8, climate change and free-market environmentalism, Carbon Trade Watch

This report looks at the interaction of neo-liberal policy and climate change, in which the Bank has played a major role in developing carbon-intensive projects in the majority world. It challenges the carbon “offset culture”, and finds that its assumptions that the market’s ‘invisible hand’ rather than radical reductions at source will contribute to a genuine reduction of emissions as fundamentally flawed. Consequently it criticises the Bank’s involvement in carbon trading emissions schemes, in particular the prototype carbon fund, which claims to “pioneer the market for project-based greenhouse gas emission reductions while promoting sustainable development”. Northern governments and industry are taking advantage of offsetting arrangements to postpone making the desperately needed cuts at home, and much of the scientific basis upon which carbon offset schemes such as tree planting are accounted for is on shaky ground.

Mainstreaming climate change considerations, World Resources Institute

This discusses the inadequacy of the World Bank Group’s (and other MDBs’) response to climate change, and reviews the limited extent to which climate change issues have been included in the Bank’s country strategies and energy-sector operations over the past five years. It highlights that the G8 and other industrialised countries have been the largest contributors to the historical build-up of GHG in the atmosphere, with 20 per cent of the world’s population responsible for over 60 per cent of net carbon dioxide emissions from fossil fuel burning and land use changes over last century. A review of World Bank Country Assistance Strategies reveals that they have failed to comprehensively address climate change issues. Furthermore, over 80 per cent of the Bank’s publicly disclosed lending in the energy sector 2000-2004 did not consider climate change issues in project appraisals.

The report recommends that

  • Bank country sector strategies explicitly integrate climate change considerations;
  • MDBs adopt rigorous and transparent GHG emissions accounting methodologies and an analytical framework to assess alternative options that might reduce carbon emissions; and
  • Developed countries should support the additional costs of GHG accounting and options assessments as part of their obligations under the Climate Convention and Kyoto Protocol.

Africa up in smoke?, Working group on climate change and development

The intergovernmental panel on climate change predicts that “the effects of climate change are expected to be greatest in developing countries in terms of loss of life and relative effects on investment and economy”. The African continent’s vulnerability to climate change is further exacerbated by other factors such as widespread poverty, recurrent droughts and floods, further complicated by the burden of un-payable debt. This report asserts that efforts to alleviate poverty in Africa will ultimately fail unless urgent action is taken to halt dangerous climate change and that G8 nations have failed to ‘join-the-dots’ between climate change and Africa.