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The World Bank and climate negotiations: updates from Copenhagen

11 December 2009

This page is being updated regularly. Check back for news and analysis about the events inside and around the climate negotiations in Copenhagen.

  1. The World Bank in Copenhagen – latest developments
  2. World Bank meetings and announcements
  3. Highlights of civil society meetings

1. The World Bank in Copenhagen – latest developments

The United Nations Climate Change Conference is taking place in Copenhagen, Denmark from 7th to 18th December 2009. This, the 15th Conference of the Parties (COP 15) to the UN Framework Convention on Climate Change, is intended to agree a framework for action on climate change beyond 2012.

At stake are billions of pounds from rich countries for nations in the global south to mitigate and adapt to climate change. The World Bank has been positioning itself behind the scenes to become the conduit for that funding. At the summit, the Bank has kept a low profile but expressed a willingness to expand its role if desired by the Conference of Parties (COP). In meetings with civil society, the Bank stated that its climate investment funds would end, as promised. However, it highlighted that decisions by the COP could extend those funds.

Donor governments have continued to support the Bank, with the Danish minister for development advocating a significant role for the institution in climate finance, despite acknowledging a need to reform its energy portfolio.

The UK, together with Mexico, Norway and Australia, has also come forward with a finance proposal for a new Green Fund. The proposed fund would give grants and loans through an existing institution, very possibly the World Bank. The proposal calls for all actors, including the international finance institutions, to leverage private sector finance in developing countries, as well as emphasising the importance of nascent carbon markets.

However, many civil society organisations in both the north and south, along with developing countries, think the World Bank is not fit to handle climate finance, in the context of broader concerns about the institution.

Below are news and analysis from the Bretton Woods Project team in Copenhagen, reporting from World Bank meetings, as well as civil society events.

Read about the role the World Bank has played so far in climate finance.

2. World Bank meetings and announcements

World Bank President in Copenhagen to weigh-in on climate talks, 17 December

President of the World Bank Robert Zoellick has been meeting government representatives at Copenhagen to tout the Bank’s existing climate investment funds, as well as its expertise on climate change and private sector expansion. Though no decision has been made, it is rumoured that donor countries, in particular the US, are pushing for a new climate fund or facility at the World Bank, based on the model of the climate investment funds. These funds have provoked considerable concern among southern governments and progressive civil society groups.

Clean Technology Fund finance for Asian countries announced, World Bank, 16 December

The World Bank used the Copenhagen summit as an opportunity to announce the first funding for Asian countries from the Clean Technology Fund (CTF), after the finance had been endorsed on 1 December. Vietnam, Thailand and the Philippines will together receive $800 million, all but a tiny fraction as loans, to encourage private sector investment in energy efficiency and renewable energy, and to support transmission system upgrades and improvements in urban transport.

The Clean Technology Fund is one of the two climate investment funds (CIFs) run by multilateral development banks, including the World Bank. It provides finance to middle income countries with the aim of slowing the growth of their greenhouse gas emissions.

The first regional Investment Plan was announced on 1 December and will provide $750 million for scaling up concentrated solar power in five countries in the Middle East and North Africa region. Most of the workers are likely to be foreign and much of the energy exported to Europe.

New website launched for ‘interim’ climate investment funds, World Bank, 16 December

A new website was launched by the World Bank for the climate investment funds (CIFs). It provides information about the two climate investment funds, the Clean Technology Fund, which offers finance to middle income countries, and the Strategic Climate Fund, which targets low income countries.

Financing climate action in developing countries: A United Nations system perspective, World Bank, 15 December

This UNDP – World Bank event began with a brief introductory presentation by Michele de Nevers of the World Bank highlighted the need for public funds to leverage other finance, to reach the required $100 billion for adaptation and $150 billion for mitigation, far above existing commitments. She also argued that the Bank’s climate investment funds have created promising models within the Bank.

Kseniya Lvovsky, Program Manager, Climate Change, World Bank

Lvovsky said that we can’t afford to use climate finance inefficiently, and highlighted the work the World Bank has been doing through the climate investment funds (CIFs). She asserted that the Clean Technology Fund has leveraged funds from the private sector at a 1:9 ratio.

Public finance can address additional costs and risks, create enabling environments and be innovative, and catalyze action. She provided some examples from work within the Bank.

Guarantees can build confidence among investors. Examples include fuel switching in Nigeria and the risk of non-payment, which has kept utilities from getting access to cleaner fuel, and goethermal uptake in Africa. IFC has provided upfront insurance to cover the risk of geothermal technology.

In terms of creating an enabling environment, in Morocco there is a program for mixing carbon finance with a program for municipal reform.

Veerle Vandeweerd, Director of Environment and Energy Group, UNEP

A presentation from UNDP highlighted the challenges of responding to demand in climate finance and the need to address the ability of public authorities to process and spend funding.. It also emphasised the need for careful attention to the sequencing of finance. Finally the presentation discussed the diverse financial services offered by the UN system and the need to better integrate with the World Bank and others.

Sylvie Lemmet, Director of the Division of Technology, Industry and Economics, UNEP

The presentation focussed on the different costs that need to be addressed. There are business-as-usual costs to maintain infrastructure and capital costs. These should be supported with overseas development assistance as grants to overcome barriers to necessary finance. There are additional capital costs which are unattractive to investors because the financial returns are poor. These should be addressed with carbon markets and subsidies. Finally there are technical assistance costs and the barriers presented by a lack of expertise.

It is the wrong approach to create “readiness” for climate finance with one institution and then have it given through totally different institutions without clear linkages between the institutions. The presentation concluded by asserting that capacity building shouldn’t be separated from resource mobilization.

Lasse Ringius, Senior Carbon Finance Specialist, IFC

IFIs can help local institutions enter carbon markets since local banks are unfamiliar with carbon finance.

IFC has been running training on energy efficiency and renewables for local banks:

  • Knowledge and outreach
  • Transaction support
  • Tools for appraisal and underwriting
  • Portfolio review
  • Project development support
  • Legal documentation

IFC can also help with credit and risk sharing facilities. An example is a new IFC Carbon Delivery Guarantee (CDG), which so far only involves three deals, and guarantees delivery of Certified Emission Reduction (CER) offsets so reducing risk for buyers.

Launch of the Scaling Up Renewable Energy Programme, World Bank, 14 December

The World Bank finally launched its Scaling up Renewable Energy Programme in Low Income Countries (SREP) on 14 December, as a $50 million commitment from the US was announced. SREP is intended to finance demonstrations of how low income countries can take renewable energy to a national programmatic level. Government support for market creation and private sector implementation should increase energy access and economic growth, according to the Bank. However the $261 million available to low income countries from SREP pales in comparison to the $4.9 billion pledged to middle income countries via the other multilateral climate investment fund, the Clean Technology Fund (CTF). The CTF has been criticised for including coal technologies within its definition of clean energy.

Launch of the World Bank’s Carbon Partnership Facility, World Bank, 11 December

The World Bank’s new Carbon Partnership Facility (CPF) is a partnership with sellers and buyers of carbon credits, as well as with donors and governments. This is not stand alone carbon finance; it will be linked to World Bank lending programmes in countries where the World Bank is already working. Host country governments can be observers of the CPF so they can learn about it.

According to the Bank, the Facility will:

  • support systematic approaches to low carbon development
  • support country initiatives for clean technology
  • include carbon finance as part of an integrated financial package
  • utilize programme approaches to scale up emission reduction programmes
  • promote innovative methodologies and technology
  • engage where the private sector can’t succeed alone

Programmatic approach

  • single regulatory approval for a number of programmes involving similar activities (work at wholesale level)
  • support systematic approaches at scale
  • broaden coverage of the Clean Development Mechanism (CDM) to ‘untapped’ areas (e.g. energy efficiency and urban transport)
  • bork toward reducing transaction costs

CPF Methodology Agenda

  • demonstrate efficacy of programmes of activities (POA) approach in a variety of situations
  • design POAs with incentives for private investment in individual project activities
  • develop capacity of POA coordinating entities

There is interest in bundling together programmes in a single city. The Bank is currently working with city authorities. The Bank is also interested in focusing on energy efficiency in buildings as well as with lighting and appliances, and trying to reduce gas flaring.

The Bank hopes that the CPF will lay groundwork for next stages of the carbon market and plan for it to continue for the long-term (post-2012) and to adapt it to changes in regulatory frameworks over time.

Knowledge for development and climate change, World Bank, 11 December

Hosted by the World Bank, a ” target=”_blank”>discussion of key reports and analytical work that shed light on impacts of climate change and the costs of dealing with it. The Bretton Woods Project team in Copenhagen reports on what was said…

Address given by Ulla Tørnæs, Minister of Development, Denmark

Danish Minister of Development Ulla Tørnæs gave a presentation to a small group at an event hosted by the World Bank. She emphasized the importance of the role of the World Bank along with other key issues:

New and additional finance is needed: climate finance can’t undermine efforts to meet MDGs and economic and social development.

Denmark is cooperating with the World Bank to look at climate resilience related to land and water. They have established a trust fund at the Bank, “incorporating Nairobi principles”.

She also mentioned that the World Bank has increased its investment in renewable energy over the last year and mentioned that this would be reflected in the World Bank’s energy strategy review. She highlighted that the Danish government is calling for the World Bank to increase its clean energy investment from the 40% of its portfolio currently reported by the Bank to 60%. This echoes UK government proposals for the Bank. Concerns remain among civil society about the role of the Bank in climate finance overall, as well as what is included in the definition of clean energy.

One participant from an African NGO in particular raised concerns about consultations with civil society in relation to World Bank projects and adaptation finance in general.

Warren Evans, Director of Environment Department, World Bank, Adaptation finance and case studies

Bank estimates show a need for $78-90 billion from 2010-2050 as the average cost for adaptation. These numbers are on the conservative side the Bank highlighted. It has put forth numbers to the governments of the case study governments, but is waiting for the countries to sign off on the numbers before they are released publicly.

The World Bank has undertaken country studies from Bangladesh, Ethiopia, Ghana, Samoa, Bolivia, Mozambique and others to complement the global picture on adaptation needs.

  • Existing development plans and actions must be consistent with climate proofing
  • Land tenure is increasingly going to be an important piece of the debate
  • Countries need to hedge against very wet and dry conditions due to uncertainty
  • Road construction adjustments will need to be made immediately
  • In most countries agriculture research is needed to look at different types of crops
  • There should be participatory budgeting so that countries take into account the realities of people being impacted at local level
  • Vulnerable people must be targeted: slum dwelling urban poor and rural populations are key groups

Supporting Development in a Changing Climate, World Bank with other multilateral development banks, 10 December

An event hosted by the World Bank and other multilateral banks with speakers from developing countries, the private sector, NGOs, UN agencies and financial institutions to discuss scaling up assistance to developing countries in the face of challenges posed by climate change.

José María Figueres, former president of Costa Rica and founder of the Fundación Costa Rica para el Desarrollo Sostenible

Development has always been coupled with carbon. We need to decouple that. The multilateral development banks need to lead in a world that lacks leadership on these issues.

The MDBs could say it isn’t their role to lead, like with the discussion around climate funds at the World Bank, and that it’s governments’ role to lead. But, those in government come and go. Those working in MDBs stay over generations so they have a long-term vision.

At same time we need to make a ‘frontal war’ on fossil fuel subsidies. We can’t be subsidizing fossil fuels at the same time as addressing climate.

In response to a question from the floor about the contradictions of wanting to cut fossil fuel subsidies yet place climate money at the World Bank, which has high fossil fuel investment, Mr Figueres reconsidered and said the Bank should reconsider its investment in fossil fuels. At the same time, he highlighted our dependence on oil and that this couldn’t be changed overnight. He also highlighted the need for economies of scale in new renewables and pointed out that other easy initial steps are to look at energy efficiency issues.

A participant in the audience from the UN system pointed out that the UN system has a solid history of dealing with human development issues and that climate change is a human issue. She argued that assuming the MDBs are best placed to manage funds takes away the possibility of trying any other options, which might be more transparent.

Ken Newcombe, former World Bank carbon market expert

The World Bank is leading from behind on climate. MDB staff claim that we don’t engage in politics, but we are engaged in politics all the time and have to understand it.

There are two kinds of capital: smart capital and dumb capital. Smart capital includes strategic insight and understanding of how to better get things done.

Within the MDBs and the Bank, there’s a risk of accumulating dumb capital. Capital is not a challenge at the minute. It is risk that should be focused on and what risks the private sector won’t take.

It’s not an accident that less than 1% of carbon assets are generated by Africa. The MDBs need to provide information and do hand-holding for certain countries to enter the market.

The MDB challenge will be speed. If you take more than a few months to close a deal in the private sector, it becomes a problem. MDBs have to learn to work on the same time scale.

If you’re just accumulating capital to buy more carbon credits, the private sector can do that. MDB capital should be accumulated to underwrite getting advanced technologies into developing countries and taking risks on technologies that the private sector won’t take.

10 Years of Carbon Finance Experience report, World Bank, 8 December

A new report by the Bank, 10 Years of Carbon Finance Experience , claims that:

  • The CDM and JI market mechanisms are an important tool for private sector action on climate mitigation, which should be further encouraged.
  • There are significant developmental and social co-benefits associated with market mechanisms and these need to be valued.
  • Insufficient predictability in the CDM is an obstacle to maximizing the leverage potential of carbon finance for low carbon investments.
  • A supportive enabling environment and overall investment climate are key to attracting CDM investments.
  • Some CDM decisions have had a disproportionate negative impact on Least Developed Countries.
  • Environmental integrity is essential for both the overall climate regime and the carbon market. However, additionality remains a challenge due to its inherent subjective nature.
  • Improvements to the CDM are needed to scale-up emission reductions.

3. Highlights of civil society meetings

Kick World Bank out of climate finance, says ActionAid, 18 December

Kicking the World Bank out of climate finance is a crucial step to reach a global climate deal, says ActionAid. Before leaving Copenhagen, rich countries must guarantee that money will be channelled through a global climate fund under the authority of the UNFCCC, giving developing countries a voice in how the money is managed and spent.

The US has lobbied heavily in Copenhagen for a new facility at the World Bank, along the lines of pilot climate investment funds that were launched in 2008 with contributions from the UK, US, Japan and others.

World Bank climate funds have been hugely controversial with developing countries due to concerns that they could undermine structures under negotiation through the UNFCCC process, or result in unfair conditions being attached to funding. The bank’s Board is dominated by rich countries, with the 7 leading industrialised countries holding nearly 45% of the votes.

Earlier today President Lula of Brazil highlighted the deficiencies of the World Bank, noting that the IMF and the World Bank continue to promote failed policies in the 21st century.

“Handing the World Bank the reins of a climate change fund would be a disaster for the world’s poor,” said Ilana Solomon, ActionAid’s climate finance expert. “The World Bank is governed by rich countries and largely ignores the voices of those it is designed to help. And they continue to fund fossil-fuel development, further exacerbating the problem of climate change,” added Solomon.

The World Bank is currently negotiating a $3 billion deal with Eskom in South Africa to build a new coal plant. Analysis of 2007-2009 spending by the World Bank shows an annual average lending for fossil fuel projects of US$2.2 billion.

ActionAid calls on rich countries to provide at least US$200 billion per year by 2020 for developing countries to tackle climate change, of which $100 billion should be for adaptation measures to cope with droughts, floods and other impacts. This money is essential for protecting the lives and livelihoods of the world’s poor.

“We need a funding mechanism with direct accountability to the UN Framework Convention on Climate Change – where developing countries have a voice. The fund must also ensure that communities affected by climate change have decision making power,” said Raman Mehta, ActionAid’s climate expert in Asia.

BWP event: A new climate compact, 15 December

An event co-hosted by the Bretton Woods Project at the alternative summit in Copenhagen saw a panel of people from seven NGOs discussing the large scale finance that is needed to tackle climate change, the institutions that are trying to win the role for delivering it, and the principles that need to be in place in order for future finance to benefit the poor and vulnerable, rather than the middle classes.

World Bank’s role

There was a discussion of current World Bank initiatives, including the climate investment funds, and the way in which the Bank is trying to position itself as the institution favoured by donors to channel increasing financial flows to tackle climate change.

Janet Redman of the Institute for Policy Studies reported that Bank staff are inside the negotiations having conversations with governments as well as with indigenous groups in order to gain the favour of key players for climate finance. On the day of the event it was reported that there is very little in the negotiating text about finance. While donors are talking about a proposed $10 billion between now and 2012 for fast start finance, but there is nothing in the text committing to either that or long term finance.

Climate Debt

The underlying concept of climate debt was discussed by Lidy Nacpil of Jubilee South, who argued passionately for this to be upheld by developing countries who are currently denying their responsibility. On the basis of the historic responsibility of developed nations for the over-consumption of fossil fuels which have polluted the atmosphere, Annex 1 countries should transfer the resources necessary for developing countries to adapt to climate change and to switch to a low carbon development path. The concept of this debt affects the mechanisms for money to be delivered, because it should be controlled by the developing countries to which it is owed.

Global Climate Fund

The proposal for a financial mechanism favoured by a number of NGOs is a Global Climate Fund. The fact that it has not yet been defined would make it much more amenable to the principles necessary to achieve equitable distribution. Four key principles outlined for such a financial mechanism were:

  • to be under the authority of the COP
  • to make grants, not loans
  • to enable direct access for communities
  • flexibility in the size of funding so that small groups can access grants in the order of $10,000 (much smaller than the amounts the Bank deals with.)

Clean Development Mechanism

There was also discussion of the Clean Development Mechanism (CDM) set up under the UNFCCC which has taxed EU countries on their purchase of carbon credits, but has failed to reduce emissions. The NGO Waste Pickers International illustrated that the projects funded by the CDM are not only less effective at reducing emissions than the poor who recycle waste in their countries to make a living, but they are also taking business away from these marginalised people by funding projects which often incinerate waste.

The event ended with a presentation by Stephanie Fried about the shady tactics of the IFC’s climate fund, which has been invested in offshore private equity funds and has leveraged several times its own value to invest in projects which are not subject to any environmental or human rights safeguards as they are channelled through financial intermediaries.

The event was hosted by the Bretton Woods Project, the Heinrich Boll Foundation, Jubilee South APMDD, Friends of the Earth, the Institute for Policy Studies, CRBM and Banktrack.

NGO – World Bank Dialogue, 12 December

Sunset clauses on World Bank Funds

The World Bank is interested in playing a range of roles related to climate finance and is waiting to see what is asked of it. Currently the Climate Investment Funds (CIFs) at the Bank can’t be converted into anything else or be continued without an agreement by the Conference of Parties meeting in Copenhagen. The Bank did highlight that the Trust Fund committee of the CIFs, along with donor countries, can extend the funds if parties choose to do so at the COP.

Human rights

There are currently no plans at the World Bank to change the World Bank’s social and environmental safeguards to include rights. The UN has separate systems that are charged with human rights issues, which write to the World Bank if they have concerns.

Loans-vs-grants

Civil society has been concerned about loans being given to developing countries to address climate change. The CIFs give loans (along with grants) because the seed money came from the UK and the type of finance provided by the UK treasury required that it be given as loans. The World Bank would prefer to see more grants given. The loans given are given at a very low interest rate with a long repayment window.

‘Fast-start’ finance

There is a lot of discussion in Copenhagen about short-term finance for addressing climate change as opposed to long-term finance. The World Bank hasn’t been approached about being a part of this, but would be happy to play a role if asked.

Fossil fuel investment

Civil society participants framed the discussion with concerns that the World Bank can’t work on climate solutions at the same time that it fuels the problem with fossil fuel investments and projects that undermine environmental integrity. Participants had energy and fossil fuel investments on as a main agenda item for the meeting, but Bank staff said they did not have the appropriate staff present for discussing the issue.

Community concerns / consultation

A number of developing country participants in the meeting raised the issue that the World Bank has had large environmental impacts in developing countries and projects like the Chad-Cameroon Pipeline, funded by the Bank, increased violence and have left countries poorer. In countries like Gabon the government does not consult with civil society on investment projects when it receives money and the Bank has a poor track record of carrying out genuine consultations itself. All of these reasons made developing country participants concerned about World Bank involvement in climate funds.

Reducing Emissions from Deforestation and Forest Degradation (REDD)

There are civil society concerns about standards being used in INREDD and in the Bank’s REDD programs as well as concerns that in some countries REDD projects are being developed without consulting with forest communities. The Bank staff said that its process of getting broad community support (BCS) for a project is the same as UN standards, which require Free Prior and Informed Consent of indigenous communities. Country plans are being developed for REDD programs with a number of partners in country and civil society should have a voice in that.

Internal review processes at the Bank

In 2010 there are a number of reviews taking place in the Bank. This includes reviews of the energy strategy, the environment strategy, the urban strategy, safeguards (being reviewed by the Independent Evaluation Group), and the performance standards of the International Finance Corporation (IFC). The Bank is aware that many of these are inter-related and that the energy strategy has to work well for the environment strategy to work well. In January 2010, Bank senior staff will meet to discuss this.

Palm oil

Palm oil investments have been put on hold across the whole World Bank Group due to breaches of social and environmental safeguards in the palm oil industry in Indonesia. Civil society participants from Indonesia pointed out that the Bank should halt investment on palm pulp as well since it is essentially the same industry run by the same companies with the same practices. The same participants expressed concerned that there are proposals to expand planting of palm for oil. IFC confirmed being approached about proposals by investors, but this would have to be on land that is considered to be degraded or already under some kind of cultivation.

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