World Bank drawing in climate funds?

29 November 2010

A much awaited November report from the UN high level advisory group on climate change finance (AGF) drew criticism for recommending an increasing role for multilateral development banks (MDBs). The noise generated by the report also highlights concerns about the development of a new climate fund hoped to be decided in Cancun, additional trust funds announced at the Bank, and the continued roll-out of the Bank-housed climate investment funds (CIFs).

The AGF report was released in time for climate negotiations starting in Cancun, Mexico at end November. Many civil society organisations welcomed it for demonstrating political backing for innovative streams of public revenue, providing possible solutions at a time when many governments face ever tightening purse strings. However, it came under fire for calls for the MDBs, in collaboration with the UN, to play a significant role in leveraging and multiplying finance. It asserts that for every $10 billion in additional resources, MDBs could deliver $30 billion to $40 billion in gross capital flows and significantly more by fostering private flows (see Update 72).

The report calls for additional resources for MDBs like the World Bank to fulfill this role over the next decade and was criticised as inappropriate by both development and environment NGOs. “MDBs are not a source of climate finance, but are used as a channel. And they are not acceptable even as a channel … The World Bank and other MDBs are far more adept at causing climate pollution than in helping countries to mitigate or adapt to it,” said Lidy Nacpil of Jubilee South.

NGO Oxfam further cautioned that “the report’s inclusion of the World Bank as a potential finance source should not be used to undermine international negotiations on the establishment of a new, independent global climate fund that is fair and accessible and allows for inputs from those most affected.” David Waskow of NGO Oxfam America said: “Vulnerable people whose lives are in danger cannot afford to see this money mismanaged. They must have a voice in these decisions.”

Negotiations this year within the United Nations Framework Convention on Climate Change (UNFCCC) are expected to continue to focus on critical elements of a post-2012 finance regime. Concerns over the design of a new fund which would channel international climate finance have emerged over recent months, with governments like the US proposing the Bank at least play a trustee role, if not a significant role in its design and management (see Update 72). In an October report, NGO Oxfam argues that any new fund must allow for: adequate representation of developing countries; prioritisation of adaptation financing; direct access to funds; and inclusion of women and vulnerable groups in decision-making. It also notes that “direct access financing modalities should be the preferred mode over financing through multilateral development institutions such as the World Bank”. The report also highlights that “developing countries have weak representation in the decision-making processes of most funds, which give undue weight and influence to donors and institutions such as the World Bank (where developed countries are major shareholders).”

The second report in a series from the Bank’s Independent Evaluation Group, The World Bank Group and Climate Change, released in early November, examines the Bank’s contribution to climate change through its financing as well as its role in providing solutions. Among key findings are that the Bank should advocate policies for removal of energy subsidies and other biases against renewable energy and energy efficiency. It recommends adjusting its strategic framework on development and climate change so that it is not focussed on money committed but rather outcomes or impacts such as power produced, energy access and forest cover. The report further concludes that “to meet power demands, the [World Bank Group’s] scarce human and financial resources will be best spent helping clients find domestically preferable alternatives to coal power, such as through increased energy efficiency.”

Climate funds lack consistency

At beginning November the committees of the climate investment funds (CIFs) housed at the Bank met in Washington. Many countries are reporting their CIFs contributions as “fast start”: money to be provided in the short-term. By some estimates these funds may account for a fifth of all fast start finance. This highlights a need for lessons to be carefully drawn out from the use of these funds. Representatives from China, India and Bolivia noted the need for contributions to the CIFs to be additional to development assistance.

The results of a strategic environmental assessment focussed on the Clean Technology Fund (CTF), one of the CIFs, were discussed at the November CTF meeting. They revealed that social issues and gender were not being routinely considered in the design of CTF programmes. The report argued these needed special attention as projects, unless specifically designed to do so, were not automatically pro-poor.

A November paper from CTF observer Smita Nakhooda of NGO World Resources Institute called for more transparency at the trust fund: “There is a lack of consistent information on the objectives, methods and terms on which the CTF financing is being mobilised. This has the effect of undermining the CIF’s stated objective of helping the international community learn about how to finance clean technology.” The report also notes that the fund must be diligent in ensuring that investments have transformative impacts that support low-carbon development, particularly since the CTF still allows funding of fossil fuels under limited circumstances. In response to calls for greater transparency, at recent Washington meetings the CTF committee agreed to disclose details of fund disbursements every six months as well as details of projects implemented by local financial intermediaries. It remains to be seen how the implementation of this commitment will improve transparency in practice.

The Pilot Program for Climate Resilience (PPCR) also approved three investment programmes with grants for Bangladesh, Tajikstan and Niger of $50 million each. These are the first projects in a second phase of PPCR funding, aimed at beginning to implement adaptation activities at the national level. NGOs have repeatedly voiced concern that there is insufficient stakeholder involvement in developing these national plans in the first phase of PPCR funding (see Update 71).

UK NGO World Development Movement has sounded the alarm that these grants are bundled with large loans. They cited the heavy debt burdens in these countries and the fact that developing countries are largely not responsible for climate change. For example, the Bangladesh programme package includes $49 million in grant money from the PPCR, $60 million in loans from the PPCR, a $300 million loan from the Bank’s International Development Association (IDA) and $215 million in loans from the Asian Development Bank.

Questions also remain about the publication of PPCR financing agreements between the country and the implementing agency. It is currently unclear whether grants or loans are being given, the terms of any loans and if there are conditions attached.

REDD controversy

Forestry continues to be an area of controversy (see Update 72, 65). An early November meeting held in Washington on Reducing Emissions from Deforestation and Forest Degradation (REDD) brought together UN officials with those working on the Bank-housed Forest Carbon Partnership Facility and Forest Investment Program. An issue central to discussions was the Bank’s proposal to allow other multilateral institutions to become delivery partners for its REDD-related financing. Susanne Breitkopf of NGO Greenpeace International warned that this could lead to a “race to the bottom” where a country could look for the agency with the lowest environmental and social safeguards. The Bank’s REDD programmes are controversial in part because of their lack of incorporation of internationally recognised norms to protect indigenous peoples’ rights and the potential impact that REDD could have on land ownership and resource equity.

Norway and the World Bank also reached an agreement in mid November to administer the Guyana REDD+ Investment Fund. While details are still emerging, UK NGO Forest Peoples Programme (FPP) has raised concern that other institutions such as the Inter-American Development Bank will be invited to join and that it is unclear which safeguards will be applied and how. FPP notes that this is of particular concern given that there are still unresolved conflicts over Amerindians’ claims to their lands and forests and the Guyanese government has announced that much of the money from the Norwegian fund will go to building a dam in the forested interior of the country with questions being raised about the proposed contractor.