IFI governance


‘Cleaning’ energy

Ambiguous framework proposes coal and large hydro

19 June 2006

versión español

Environment and development groups have slated the World Bank’s Clean energy and development: towards an investment framework for its perverse definition of ‘clean’ energy, letting Northern polluters off the hook and neglecting the needs of the rural poor. There are question marks about the framework’s relationship to the existing international regime established under the United Nations Framework Convention on Climate Change, its emphasis on market-based approaches to both climate change and energy access, and how its recommendations will be mainstreamed into Bank operational policies.

The framework comes in response to calls from the G8 summit in July 2005 to create “a new framework for clean energy and development” (see Update 47). The first phase, to be completed by the WB-IMF annual meetings in Singapore in September, will include an analysis of the adequacy of existing IFI instruments to address: the long-term energy needs of developing countries; the mitigation of greenhouse gas emissions; and the adaptation needs of developing countries. A longer term programme of country-level activities and global research is to be completed by the G-8 Summit in Japan in 2008. Implementation options include: the use of “innovative financial instruments”; public finance as a main driver of adaptation; an expanded role for the Global Environment Facility in funding adaptation; and private finance as the dominant mechanism for energy supply.

includes proposals for untested coal technologies, nuclear power and large hydropower

Despite the framework’s clean investment mandate it includes proposals for untested coal technologies, nuclear power, and large hydropower as solutions to global warming. Although it identifies decentralised, renewable sources of energy- such as wind, mini-hydro, solar photovoltaics and biogas- as low-cost solutions to climate change, such solutions are given scant priority in the Bank’s current lending portfolio. Instead the framework focuses on centralised, grid-based power plants, ignoring the fact that nearly 1.6 billion people live in communities that are not connected to electric grids. Andrew Pendleton of Christian Aid was shocked by the “staggering lack of reference to poor people, for whom most of the framework will be almost completely irrelevant”.

There is no indication on if or how the World Bank’s energy lending will be reoriented to reflect the recommendations of the framework. Robert Watson, chief scientist at the World Bank has stated that to provide figures on this now would be “premature”. The framework claims to “take a global non Bank-centric perspective”, yet fails to emphasise the North’s contribution to global carbon dioxide emissions- of which the US accounts for 25 per cent- or to call for deeper emissions reductions under the second commitment period of the Kyoto Protocol (2013-2017).

Environmental NGOs assert that given its heavy investment in fossil fuels the Bank is not the institution to address the ‘climate, energy and development’ problem. Instead an effective multilateral regime should be created under the UN Convention on Climate Change and UN bodies such as the Commission on Sustainable Development. “The Bank’s fossil fuel policy is nullifying the effects of the ‘climate solution’ it is pretending to offer,” said Larry Lohmann of The Corner House, a UK think-tank.

The Institute for Policy Studies (IPS) in Washington states the Bank has yet to conduct a full assessment of the climate impact of all of its lending. IPS finds that the World Bank’s oil, gas and coal projects financed since 1992 will release over 43 billion tonnes of carbon dioxide over their lifetimes. The Bank also ignored its own Extractive Industries Review in 2004, which recommended that the Bank get out of all oil and coal investments by 2008 on the grounds that these harm the poorest.

Clean coal and large hydro

Watson said it was realistic to put coal above renewables such as wind and solar power, given that the latter only make up about three per cent of energy production worldwide. “I don’t think there is anything to apologise for in saying that you can use coal but transform it to be environmentally friendly.”

In disregard for the findings of the World Commission on Dams, large hydropower is central to the framework, particularly for Brazil, India, and Sub-Saharan Africa. This is despite devastating environmental and social impacts and greenhouse gas emissions of large dams in tropical regions. In FY 2005, 60 per cent of the Bank’s support for “renewable energy and energy efficiency” was for just five large hydropower projects. Large hydropower currently absorbs the biggest share of the Bank’s support for “renewable energy and energy efficiency”.

The World Bank’s private-sector arm plans to invest in a number of hydro electric and clean coal power plants in China. During a visit to the country, IFC executive president Lars Thunell signed an agreements to lend $22 million for three hydro power plants in China’s southwestern Yunnan province (bordering Myanmar and Laos) and $45 million for a renewable resource project.

Ministerial statements

Ministerial statements at the meeting of the Development Committee were mixed: representatives of Colombia, Russia, Saudi Arabia and Korea found the report to be biased toward the development of alternative, renewable sources of energy not yet commercially viable while neglecting the aim for cleaner, more efficient traditional energy sources.” Peru proposed to eliminate the “stringent social and environmental safeguards promoted by the IFIs” – for investments in large hydro and gas projects, whilst Brazil strongly proposed ethanol as a cheap source of renewable energy. In contrast Germany found the paper biased in favour of conventional energy supply and too pessimistic about the marketability of renewable energy. It asserted that the Bank should not play any role in nuclear power. The Netherlands pointed out that the Bank report does not sufficiently address energy for the poor, particularly in Sub-Saharan Africa.

IFC: business as usual in Colombia

As part of its strategy to finance expanding oil and gas companies in the Andean region, the IFC has signed an agreement to purchase equity worth up to $15 million in Grupo Petrotesting. “This transaction reaffirms IFC’s commitment to supporting the growth of Colombian companies that are operating in the local oil and gas sector. Petrotesting’s commitment to long-term sustainable development in Colombia and the Andean region and its strong growth potential are important factors in making this investment,” said Rashad Kaldany, IFC’s Director for oil, gas, mining, and chemicals. Frank Kanayet, chairman of Petrotesting, said, “[the IFC’s investment] will allow us to accelerate the development of our assets and to expand our operations, both in Colombia and internationally.”