Infrastructure

Analysis

Clean energy targets for the World Bank

Time for a recount

14 May 2010 | Briefing

A fully referenced version of this briefing can be viewed as a PDF.

As the World Bank reviews its energy strategy and the deadlines for its clean energy targets approach, this paper questions what the World Bank counts as clean energy and whether it reports on its energy lending in an accountable way. The concerns set out below demonstrate the need for a far more rigorous and transparent approach, subject to independent monitoring.

In 2008, the World Bank committed to make half of its energy investments ‘low carbon’ by 2011. Last year the UK government went further, calling for 60 per cent of the Bank’s energy portfolio to comprise ‘clean energy investments’ by 2012. That target has since been endorsed by Denmark.

More than half of the Bank's renewable energy and energy efficiency portfolio in 2009 relates to improving the efficiency of fossil fuel power

These targets fall short of the recommendations of the Bank’s 2004 Extractive Industries Review, which included phasing out investment in new coal mining and oil production, to “concentrate its lending on activities that reduce pollution and greenhouse gas emissions”. Many civil society organisations argue that the Bank should go even further and shift away from all support to fossil fuels, so that its limited resources can be devoted to clean energy.

Whether or not they are sufficiently ambitious, for the targets to be meaningful, they must be based on robust classifications and transparent reporting practices.

Among the key concerns highlighted in this paper are:

  • The inclusion of major investments in large hydropower and upgrading fossil fuel power plants in the ‘low carbon’ figure;
  • The fact that 40 per cent of the Bank’s reported finance for renewable energy over the last six years comes from carbon finance and the Global Environment Facility, which is not Bank money;
  • The lack of information about the 20 per cent of finance supporting ‘other energy’;
  • The absence of rigorous, independent monitoring.

Clean energy: what counts?

The Bank claims that renewable energy and energy efficiency exceeded 40 per cent of its total energy lending of $8.2 billion in financial year 2009. However, much of that investment went to energy projects that are arguably neither renewable nor low-carbon. The following section highlights contentious elements of the Bank’s energy definitions. The UK government has not yet developed its own framework to judge progress towards its target for the Bank, despite the approaching deadline, and uses the Bank’s definitions by default.

  • The Bank’s energy efficiency category includes the rehabilitation of fossil fuel power plants. Upgrading plants can prolong their period of operation, locking developing countries into carbon-intensive energy supplies for decades to come. More than half of the Bank’s renewable energy and energy efficiency portfolio in 2009 relates to improving the efficiency of fossil fuel power.
  • The World Bank’s renewable energy figures include biomass. However, the Bank does not differentiate between waste and non-waste biomass. Concerns about using non-waste biomass for energy include potential impacts on land rights, food security, water resources, and soil conservation.
  • In reporting its energy portfolio, the Bank distinguishes between renewable energy, large hydropower and efficiency. However, it also provides a total for ‘low carbon’ lending, against which progress towards the clean energy targets is reported. Unlike the renewable category, ‘low carbon’ projects include all hydropower, regardless of scale, despite serious concerns about the social and environmental impacts of large hydropower projects and reservoirs, which can produce more greenhouse gases than fossil fuel power plants.

Transparent reporting?

In addition, there are a number of concerns about the way the Bank reports on its energy portfolio.

  • Carbon finance and funding through the Global Environment Facility (GEF) are included in the Bank’s renewable energy and low carbon figures, even though carbon finance comprises funding streams set up independently of the Bank’s own funding, while the GEF is a different institution. Moreover, carbon finance is used to purchase emissions offsets for wealthy countries, so does not represent a reduction in climate impacts. These two funding sources account for over 40 per cent of the Bank’s reported finance for renewables over the last six years.
  • Neither the UK’s nor Bank’s targets set specific requirements for renewable energy, which remains only a small proportion of Bank energy funding. Noting that renewables only accounted for 17 per cent of the Bank’s energy portfolio in 2009, the Dutch government has called for this to increase to 40 per cent by 2013.
  • The Bank’s reporting also uses an ‘other energy’ category, components of which include budgetary support and investments in multiple energy sub-sectors. This has been the fastest growing category, accounting for more than one fifth of lending in 2009. However, it is unclear where this funding is going as none of the categories are broken down by type of investment or specific energy source.
  • Greenhouse gas accounting is required only as ‘an analytical exercise and not a business requirement’ by the Strategic Framework for Development and Climate Change. This runs counter to the Extractive Industries Review recommendation that “energy that is generated by fossil fuels must take into account the release of greenhouse gases and their contribution to climate change”. In 2008, the Bank’s Independent Evaluation Group also called for “more rigorous economic and environmental assessment” to “account for externalities, including the net impact on GHG emissions”.

This briefing has focussed on how the Bank reports on clean energy, but there are other concerns with its energy portfolio reporting that fall outside the scope of this paper. For example, in low-income countries the Bank counts all power generation, transmission and distribution projects as contributing to increasing energy access for the poor. This would therefore include large-scale, export-oriented projects that are accused of having limited benefits in terms of improving energy access among poor and rural communities.

Conclusion

The energy strategy review is a crucial opportunity for the World Bank to begin a transformation of its energy lending, so that it focuses on increased access to energy and low-carbon development. As part of this, it must adopt robust categories for its energy portfolio and clear, consistent reporting practices. These should be subject to independent monitoring to ensure that it is making genuine progress towards supporting clean energy.

By setting targets for the World Bank, the UK and other shareholder governments have signalled that they wish to play a leading role in its transformation to a low-carbon development institution. They must now push the Bank to meet those targets without using definitions or reporting that obscure the figures.