World Bank clings to fossil fuels, stumbles on clean energy

17 June 2010

Despite recent attempts to restyle itself as a green institution, the World Bank’s energy lending suggests that it remains wedded to fossil fuels. Meanwhile, independent evaluators and civil society groups have raised serious concerns about the developmental benefits of the Bank’s approach to energy efficiency and renewables.

Analysis published in April by US NGO the Bank Information Center (BIC) showed that the World Bank Group’s (WBG) finance for fossil fuels had climbed higher than ever, to $4.7 billion in the first ten months of financial year (FY) 2010 (see Update 69). This represents a major leap from the previous record of $3.1 billion in the whole of FY2008. The Bank has provided $6.5 billion for coal since FY2007, largely in middle-income countries – roughly equivalent to commitments to its Climate Investment Funds (CIFs, see Update 71).

In April, the Bank produced a progress report on its Strategic Framework for Development and Climate Change (SFDCC, Update 71). The Bank claimed that the increased share of fossil fuels compared to renewables or energy efficiency in FY2010 “is in large part due to the impact of the [financial] crisis on the ability of African countries to finance their conventional energy development programmes, necessitating WBG support to coal power projects in Botswana and South Africa.” However, an April briefing by three European NGOs observes that this justification is an opportunistic revision of the Bank’s argument for fossil fuel lending before the financial crisis, which claimed that developments would go ahead regardless, so Bank involvement was desirable in order to raise social and environmental standards.

Energy efficiency programme fails on key aims

Though the Bank’s progress report argued that support for coal was becoming more selective thanks to the use of the SFDCC environmental and developmental criteria, civil society groups warned that these had not been applied to the Bank’s loan for coal in South Africa in April (see Update 70).

The report also forecast that the Bank’s future support for coal would be limited. Yet in an online discussion at the end of May, the Bank’s climate change team manager, Kseniya Lvovsky insisted that “fossil fuels will remain an important part of the energy mix in both developed and developing countries for some time.”

These indications threaten to undermine attempts to transform the Bank’s energy portfolio, enshrined in the SFDCC target for half of Bank energy lending to go to ‘low carbon’ investments by 2011, as well as targets set by donor governments. A May briefing by UK NGO the Bretton Woods Project warns that misleading categorisation of clean energy lending – for example, including large hydropower and upgrades to fossil fuel plants in the low carbon figure – undercuts the credibility of these targets. It also points out 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, in addition to money from the CIFs, even though carbon finance comprises funding streams set up independently of the Bank’s own funding, while the GEF and CIFs are different institutions, with the Bank only administering the funds. It concludes that there is a pressing need for a far more rigorous and transparent approach, with independent monitoring. US NGO Center for American Progress, in a March report, also urged greater transparency, including around the selection of investments and what alternatives are explored. It called for a clear, independently audited annual report on energy financing across the World Bank Group.

The Bank’s sustained investment in fossil fuels prompted a broad coalition of over 100 civil society groups to urge donor governments to withhold contributions to the general capital increase (see Update 71), “unless the Bank Group ends support for all dirty energy projects that do not have energy access for the poor as their sole purpose.”

The Bank’s attachment to fossil fuels appears out of step with other international institutions. A February IMF staff position note argues that fossil fuel subsidies are rising, costly and inequitable. It calls for reform strategies which, coupled with policies to protect low-income groups, would have financial benefits and could reduce greenhouse emissions by approximately 15 per cent in the long term. Though the Bank denies that its finance is a form of subsidy, critics argue that all its capital is provided from public funds, all its lending is guaranteed by member governments, and its fossil fuel finance is often channelled to commercially viable projects that are not in need of concessional finance.

Low-carbon own goals

Questions also hover over the effectiveness of the Bank’s support for low-carbon development. An April report by the Washington-based World Resources Institute identified a set of policies, regulations and institutional capacities in the electricity sector that enable investment in sustainable energy, and examined whether they were reflected in multilateral development banks’ relevant loans between 2006 and 2008. The World Bank performed worse than other institutions, particularly on supporting long-term integrated energy planning, capacity building and promoting stakeholder engagement. Two thirds of its loans addressed less than half of the enabling factors.

In May, the Bank’s Independent Evaluation Group reported on the energy efficiency programme run in China since 2006 by the International Finance Corporation, the Bank’s private sector arm. The programme failed to achieve some of its key aims, including: promoting a switch from coal to gas; benefiting small and medium companies; and building partners’ capacities, to ensure the programme’s sustainability. At one of the two partner commercial banks, energy efficiency finance actually increased less than at comparable, non-participating banks.

A similar lack of focus dogs the Bank-managed Clean Technology Fund’s investment in a large-scale solar power project across the Middle East and North Africa region. There are concerns that the project will place further strain on the region’s already scarce water resources, while engagement with regional civil society has been sorely lacking. Despite unmet energy needs in the host countries, BIC warns that a proportion of the power produced will be exported to Europe, suggesting that “the major raison d’etre for the concentrated solar power programme is to help Europeans reach their emission goals.”

In April, 11 NGOs, including BIC, Greenpeace and Hivos, submitted a model energy strategy to the Bank’s ongoing consultation. It proposes phasing out fossil fuel lending in favour of sustainable and reliable energy services for the poor, as well as supporting the transition to zero or ultra-low-carbon development. It recommends a number of steps towards these goals.

Another submission, from UK NGOs including Christian Aid and WWF-UK, stresses a “limited but catalytic role for the World Bank in ensuring energy access for the poor and supporting the transition towards a low carbon future,” in part by phasing out fossil fuel lending. Excluding representations from industry bodies, similar messages have dominated submissions to the first phase of the Bank’s energy strategy consultation.

In an April paper, Romina Picolotti and Jorge Daniel Taillant of Argentinian NGO Centre for Human Rights and Environment warned that “Current discussions at the World Bank regarding energy policy largely fail to address the principle of common but differentiated responsibilities that has been established in global discussions around the challenges in addressing climate change.” They argue that historical responsibility for climate change must be taken into account in developing equitable financing solutions, which should support local, national and regional project planning and implementation, including local generation of clean technology.