Business as usual?

The World Bank's new energy strategy

22 September 2009

By Jakob Kane Loukas, Bank Information Center

The World Bank’s planned energy strategy review focusses on energy access for the poor and environmental sustainability, but NGOs fear it will justify continued fossil fuel finance.

The Bank produced a concept note on the energy strategy review in June, which was distributed to selected NGOs but was still not on the Bank’s website by September. After discussing the fundamental dangers of climate change in the developing world, the note states that economic concerns may trump environmental ones. The Bank estimates that climate change mitigation may require a $600 billion annual investment in the developing world. On energy, however, the concept note is dismissive of available renewable technologies and their applicability to developing countries. It does not offer any alternatives to current Bank policy, nor does it rule out environmentally hazardous energy sources, like coal and nuclear.

fails to acknowledge the need for investments in innovative, clean and off-grid energy options

Bruce Rich of US-based NGO Environmental Defense Fund says that although new coal plants financed by the Bank will likely employ supercritical technology, they will be carbon-intensive and will generate significantly more CO2 emissions than renewables. He concludes: “public international finance should support the necessary transition from coal power in the developing world and economies in transition. Otherwise it will be impossible to achieve the reductions in CO2 needed to prevent unstoppable climate change.” Moreover, new coal plants have an operating life of up to 50 years and rehabilitated plants about 20 years, committing the world to enormous emissions for many years to come.

The concept note also calls for large hydroelectric projects, despite the adverse impacts on habitats and livelihoods, and evidence that large dam reservoirs are a significant sources of emissions (Update 66). An approach paper that elaborates on the goals of the energy strategy is expected to be released by end September.

Accepting that the Bank is still a major source of finance for carbon-intensive projects (Update 65), the UK recently called on the Bank to increase its clean energy and energy efficiency portfolio to 60 per cent of all energy investments in the next three years.  Bank statistics show 35 per cent of its portfolio as being “clean in 2008” but approximately 40 per cent of this is large hydroelectic and other controversial forms of energy. “The UK’s efforts to clean-up the Bank should focus on renewable energy,” says Dominic White of international NGO WWF, “and ensure that the highest standards of environmental and social impacts are considered before investments in any energy deemed as ‘clean’.”

Energy access

There remain questions over whether the proposed strategy can meet its objectives of alleviating poverty and expanding energy access to the poor. Although coal fired power plants and large hydroelectric projects have enormous power generation capacity, past investments in large infrastructure projects have often proved difficult, costly to implement and open to abuse where governance is weak. Power often failed to reach local communities while at the same time  creating substantial adverse environmental and social impacts.

While the Bank struggles to reconcile energy access and sustainability, the US Treasury published a response to the concept note in mid July. It noted that “the World Bank’s energy access agenda is largely not at odds with the climate agenda,” and suggested focusing on improving supply-side efficiency and eliminating incentives for electricity overuse by industry. It did however, point out that the energy strategy concept note has not adequately addressed the issue of fossil fuels. As both NGOs and the US government push for higher environmental standards at the Bank in advance of the Copenhagen climate talks, there is a rare opportunity to resolve contradictions within the Bank and advocate for a reformed approach to energy investments.

Fabby Tumiwa, executive director of the Institute for Essential Services Reform in Jakarta, reflected the general feelings of many NGOs when he said, “the concept note fails to acknowledge the need for investments in innovative, clean and off-grid energy options that directly expand access to the poor.”

Going for the Grand Inga

During his recent visit to the Democratic Republic of Congo (DRC), World Bank president Robert Zoellick expressed the Bank’s intention to finance the 39,000 mega watt, $80 billion Grand Inga hydropower project in conjunction with the Southern Africa Development Community, the New Partnership for African Development and the World Energy Council. This dam project is being touted by proponents for its potential to bring electricity to millions of Africans and jumpstart industrial development on the continent. It would be the most expensive dam in the world and double the size of the current largest Dam, China’s Three Gorges.

Observers are sceptical, noting that a significant proportion of the power generated would be diverted to the mining sector and for export to elsewhere in Africa and southern Europe. Anders Lustgarten of the The Bretton Woods Project warns that “under the guise of bringing power to poor Africans, development banks are looking to put tens of billions of public money into a flight of fantasy that would benefit huge western multinationals and quite possibly feed African energy into European households.” A 2007 Bank project appraisal document found that the DRC lacks the electrical grid to transport power to rural areas. A forthcoming report from European NGOs argues that the European and industrial power connections are needed to make the project viable, putting its positive development impact in question.

Next Steps

The Bank planned to hold the first consultation with civil society on the energy strategy at the October annual meetings, but has since postponed consultations until after the December Copenhagen climate talks. A revised approach paper is due in early 2010 with consultations beginning in the spring of 2010. A draft policy will go before the relevent Bank board committee next autumn.

With a Copenhagen agreement anticipated to determine new flows for climate finance and the institutions that will manage them, many civil society actors feel that the energy strategy and its continued support for investments that significantly contribute to greenhouse gas emissions reinforces arguments that the Bank is not the appropriate channel for climate finance.