Resistance to Bank’s role in climate finance as alternatives gain traction

17 June 2010

As talks aim toward an agreement on climate finance in December in Cancun, fault lines remain about the role of the World Bank. Contradictions in recent Bank lending and contributions to alternative financing mechanisms have fuelled ongoing debates about the Bank’s role.

In a recent submission to the United Nations Framework Convention on Climate Change (UNFCCC), the US government said the Bank would be the “desirable” trustee of a new Copenhagen Green Climate Fund and suggested that the Bank should shape the design process. However, under pressure the US may be withdrawing from such staunch support for the Bank’s role. The new $30 billion a year fund was proposed to jump-start climate finance with a final goal of disbursing $100 billion a year by 2020.

Both the Bank and the US profess support for a limited role for the institution, serving as trustee to a new climate fund. However, analysts acknowledge there is a desire for the Bank to play a greater role in decision-making. Additionally, as the Bank undertakes ongoing internal reforms (see Update 70) there are moves to bring trust funds under greater control to “better integrate Bank-executed trust funds with [the] Bank budget” and bring them into line with new processes for investment lending and analytical and advisory activities.

An interim report was released in mid May by the Bank as part of its Strategic Framework for Development and Climate Change (SFDCC, see Update 62). This, along with remarks made by Bank president Robert Zoellick at the spring meetings, assert that there is growing demand for the Bank in climate, and that progress is being made in addressing the issue through its investment lending, its advisory services and through the Climate Investment Funds (CIFs) housed at the Bank.

Climate funds critiqued

As existing climate funds at the Bank begin to be disbursed there is continued concern about civil society participation. Initial analysis of the reports from the missions of the Pilot Programme for Climate Resilience (PPCR) shows a lack of civil society participation in the make-up of the missions. There has also been little consultation by the missions with civil society, often only with the largest international NGOs, not allowing for input from smaller groups and most communities affected by climate change.

The CIFs are dogged by continued critiques, including from the Partnership Forum held in Manila (see Update 70) in the spring, about civil society participation in their governance committee meetings. A recent report from the Oxford Institute of Energy Studies highlights that the CIFs have a top-down structure, with a limited role for civil society. “This model clearly fails to harness the strengths of civil society, to ensure more effective national and local implementation and protect the rights of the most vulnerable.”

Meetings of the CIF governance committees – including of the PPCR, the Scaling Up Renewable Energy for the Poor Programme (SREP), and the Forest Investment Programme (FIP) – will take place in Washington in late June. It is expected that the SREP will select countries for the pilot programme and solidify modes of operation. The FIP will propose six additional country pilots and will adopt operational guidelines, investment criteria and financing modes and will discuss proposals for a results framework.

The Bangladesh Multi-Donor Trust Fund, which is currently being developed as a channel for bilateral climate aid from the UK, is still not up and running in part due to the contested role of the Bank. The Bangladesh government is looking to limit the Bank to providing fiduciary assistance rather than being an outright administrator. Bangladeshi NGOs have called for a national board instead of the MDTF which could be designed to handle foreign and domestic funds for adaptation and could be monitored by donors and civil society.

Contradictions fuel resistance

A recent Bank loan to South Africa of $3.75 billion for state energy company Eskom (see Update 70), largely to be used for a new coal plant, has spurred increasing resistance to the Bank’s role in climate related lending. In the US, NGOs like the Natural Resources Defense Council and the Environmental Defense Fund have joined Bank critics in lobbying US Congress against a role for the Bank in climate finance. A letter to US president Barack Obama has also been signed by over 280 NGOs world-wide, calling for a new climate finance mechanism rather than placing funds at the Bank.

Red Constantino of international NGO Institute for Climate and Sustainable Cities also highlights contradictions in the $258 million that will go to the Philippines to address the impact of two typhoons that hit the country last year. “The World Bank has seen opportunity in tragedy by pushing loans like those for the Philippines, which prop up the institution, at the same time that it fuels climate change by funding more coal plants across the world.”

A new report by NGO Oxfam echoes concerns about climate lending, concluding that public finance for climate change adaptation should be provided entirely in the form of grants, not loans. For mitigation, Oxfam argues that strict limits should be agreed which ensure that at least two-thirds of public finance is provided through grants, with no more than one-third through concessional lending. Only the grant element of concessional loans should be counted towards rich countries’ UNFCCC obligations.

Alternatives gain traction

In late April, Spain contributed €45 million ($55 million) to the UNFCCC Adaptation Fund (AF). As the first contribution of its kind, this sets an important precedent for fast start finance and signals support for alternatives to the contested, Bank-housed CIFs. The money will be disbursed at the sole discretion of the AF board to meet the most pressing funding needs of developing countries, without any conditions imposed by developed countries.

The Global Environment Facility (GEF), a multilateral environmental fund, also received record contributions in May with more than 30 nations pledging $4.25 billion. Governments point to this as a first significant multilateral step toward the commitments made in Copenhagen on climate change and on other key international environmental agreements. However, the GEF has faced a number of challenges and critiques over its effectiveness as well as the fact that the Bank is the trustee (see Update 8).