World Bank still supporting carbon-intensive future

17 April 2009

The World Bank Group will kick off the revision of its energy sector strategy this autumn but new research shows its fossil fuel lending is on the rise.

The energy sector worldwide is responsible for the lion’s share of greenhouse gas emissions and the Bank’s energy investments are no exception. US based NGO Bank Information Center (BIC) recently published World Bank energy sector lending: encouraging the world’s addiction to fossil fuels, a study on the World Bank’s approach to energy sector investments. The assessment finds that important gains in renewable energy and energy efficiency in recent years still do not compensate for the highly imbalanced financing in favour of fossil fuel development.

The BIC study shows that World Bank fossil fuel lending is on the rise, especially for coal. During its 2008 fiscal year, the World Bank and International Finance Corporation (IFC) increased funding for fossil fuels by 102 per cent compared with only 11 per cent for new renewable energy (solar, wind, biomass, geothermal and small hydropower). In considering the Bank’s three-year average increase for renewable energy and energy efficiency of 73 per cent, it is important to highlight that these projects started from a very low baseline compared with fossil fuel projects.

On average, fossil fuel financing by the Bank is still twice as much as new renewable energy and energy efficiency projects combined and five times as much as new renewables taken alone. The private sector arm of the Bank Group, the International Finance Corporation (IFC), is greatly lagging behind its counterparts on renewable energy efforts. According to the Bank, excluding hydroelectric projects, the IFC is currently only involved in ten renewable energy projects worldwide: two wind, two geothermal, and six other.

More worrisome is the fact that during the last three years, the Bank spent 19 per cent more on coal than on new renewable energy sources. During the 2008 fiscal year, the Bank provided approximately $1 billion to coal-based projects including the Tata Ultra Mega super critical coal plant in India, two projects for privatisation of coal-fired plants (Calaca Power and Masinloc Power Partners) in the Philippines (see Update 62), and the PT Makmur Sejahtera Wisesa coal power plant in Indonesia.

New carbon projects

Currently, there is no end in sight for the Bank’s involvement in fossil fuels, including coal. For example, the IFC will be involved in developing Ghana’s recently discovered Jubilee offshore oil field starting with the $115 million Tullow Oil project that was approved in mid February (see page 3).

In addition, the IFC has recently reached an "in-principle agreement" to supply $5 billion over five years to expand Eskom, the South African state-owned power utility giant (see Update 64). In addition to the IFC’s billions, the African Development Bank has already approved $500 million, its largest private sector project to date. Although the details of what the IFC funds could be used for are still under discussion, it is highly likely that a significant amount will go to coal-based projects. Eskom supplies 95 per cent of South Africa’s electricity, 90 per cent of which is generated by coal. According to Reuters, Eskom has launched a $33 billion new power investment programme, with two 4,800 megawatt coal-fired power plants due to come on stream in 2015 and 2016.

The Bank defends its support for coal on the basis that the need for electricity is so great in the developing world that coal plants are going to be built with or without Bank support. It contends that without Bank support the cheaper, dirtier type of coal plants will proliferate.

In fact, the Bank counts some coal-based activities as low-carbon projects, such as upgrading a coal-fired thermal plant to be more efficient relative to the "business-as-usual scenario". To term any upgraded coal-fired plant as ‘low-carbon’ seems at best misleading given that even high efficiency coal plants emit more than twice as much CO2 per megawatt-hour as combined cycle natural gas plants. There is no evidence that in the Bank’s recent coal investments, the Bank’s involvement was either necessary or resulted in more efficient technology than would have been used otherwise.

Contributing to climate change

The BIC study also found that Bank fossil fuel projects have a clear impact on global CO2 emissions. When the fossil fuels involved in World Bank and IFC lending projects for the 2008 fiscal year are combusted, the project lifetime CO2 emissions from this one-year of financing will equate to approximately 7 per cent of the world’s total annual CO2emissions from the energy sector, or more than twice all of Africa’s annual energy sector emissions.

Continued Bank lending to fossil fuels, especially coal and oil, will make a low-carbon transition very difficult. Each fiscal year the Bank supports a coal, oil, or gas project represents a commitment to carbon-intensive energy sources for the next 20 to 50 years. Moreover, many of the World Bank’s largest oil and gas extraction and pipeline projects have been and continue to be aimed at exports to rich countries, feeding their appetite for fossil fuels. As a result, the Bank is not adequately encouraging the rich countries to reduce their greenhouse gas emissions from fossil fuels.


In contrast to the Bank’s reasoning, it is not a forgone conclusion that developing countries will need to continue building more coal power plants and other fossil fuel energy sources. A recent Worldwatch Institute report advocates a no-carbon energy roadmap and demonstrates that developing countries are well positioned to leapfrog the carbon-intensive development path of the 20th century and go straight to the advanced energy systems that are now possible. The report points out that renewable and efficiency technologies will allow developing countries to increase their reliance on indigenous resources and reduce their dependence on expensive and unstable imported fuels. But, to reach the economic tipping point in favor of low-carbon development, the report states it will "require innovative public policy and strong political leadership."

Roadmap for the future

So far the Bank has not shown strong leadership, as evidenced by its increased financing for fossil fuels. To begin, the Bank needs to reassess and responsibly revise its approach to energy sector financing, including: by calculating and disclosing project greenhouse gas emissions; including carbon valuation in project cost-benefit analyses to reflect conventional power projects’ true externalities; hiring more staff (especially within the IFC) with renewable energy expertise; promoting innovative low-carbon policies in the areas of tax incentives, transmission, investment, feed-in tariffs, and land-use policies; and providing political leadership through convincing member countries that it is in their best interest to invest in no-carbon energy resources as much as possible.

Climate change is anticipated to negatively affect developing countries and the poor of the world disproportionately – the very countries and people World Bank programmes aim to benefit. As such, the Bank must significantly change its development model and truly become a leader in helping to create low-carbon economies. In the revision of the energy sector strategy, it would serve the Bank well to remember that its role is not to lead countries down the carbon-intensive, economically unstable path of the developed countries.