World Bank corners climate funds?

17 February 2011

As governments reached an agreement at the climate negotiations in Cancun in December 2010, the World Bank continued to stir controversy as it attained a role in a new global climate fund, launched new carbon market initiatives, and touted the success of the controversial Bank-housed Climate Investment Funds. 

While some civil society groups applauded the Cancun agreement, there was warning about optimism from a range of organisations. “A careful analysis will find that its text may have given the multilateral climate system a shot in the arm and positive feelings among most participants … but that it also failed to save the planet from climate change and helped pass the burden onto developing countries,” said Martin Khor, Executive Director of think tank the South Centre.

Ongoing opposition from civil society groups to the role of the Bank in climate finance came to a head, with over 100 NGOs signing an open letter to governments demanding there be no role for the Bank in future climate change architecture, and staging protests in Cancun. “[Having] directly experienced the consequences of [Bank] loans, loan-financed projects and policy conditionalities, to us, it is inconceivable that this institution can be entrusted with climate finance," said Abdul Awal of SUPRO, a network of grassroots community groups in Bangladesh and a member of Jubilee South.

Others such as Brussel-based NGO Eurodad highlighted that the Bank is unfit for a role in climate finance stating “The World Bank will deliver a significant part of climate finance as loans that will very likely come attached with conditionalities, advisory services and undermine recipient ownership of the funds. The World Bank’s governance structures are undemocratic, with representation dominated by governments of rich, industrialised countries that will pursue their own commercial interests through the process." The group also drew attention to the Bank’s privileging of the private sector.

Despite uproar about Bank involvement, an agreement to create a new Green Climate Fund (GCF) was reached, naming the Bank as interim trustee for the first three years. This role was hotly debated, with several negotiators from developing countries trying to define that role as narrowly as possible, and civil society groups speaking out against it. Tim Gore of international NGO Oxfam expressed the opinion, repeated by many civil society organisations and delegates from developing countries, that the fund must “act under the authority of the UNFCCC … independent from institutions such as the World Bank.”

The fund is to be designed by a transitional committee that will report at the next negotiations at the end of the year in Durban. The committee will be comprised of 40 members, with 25 from developing countries, as well as staff seconded from multilateral development banks (MDBs) and UN agencies. As think tanks Overseas Development Institute and the Heinrich Boell Foundation point out in a January paper, it is likely that Bank experts will be seconded to the transitional committee to recommend operational procedures, project selection criteria, and performance standards or safeguard measures for adoption in Durban. According to UK government officials, thus far the MDBs are the only ones to put forward names for secondment. Attention has also been drawn to the question of whether and how civil society participation will take place, with more than 50 NGOs submitting a letter to the UNFCCC calling for full civil society participation as “active observers”. The letter also calls on the UNFCCC to ensure balance in those selected for the transitional committee. “We particularly encourage you to ensure the secondment of staff with expertise in areas such as gender, sustainable development and poverty alleviation, new renewable energy and efficiency technologies, and social and environmental safeguards and not over-rely on experts from the finance community and multilateral development banks,” it states.

In early February, at an event in the UK parliament, Bank president Robert Zoellick highlighted that the GCF needs resources committed to it. This was followed by the message that the Bank is eager to apply the knowledge it has gathered through the Climate Investment Funds (CIFs). In Cancun, comments from Bank staff about being a development institution that would rather apply its knowledge than just write cheques, further suggests the Bank’s ambitions for long-term participation in the international climate architecture go far beyond that of a trustee role. That said, the Bank does receive significant earnings by providing trustee services. The high costs rendered for these services led the Montreal Protocol to move to use Barclays Bank, in conjunction with UNEP, as trustee.

Touting the Climate Investment Funds

The Bank held a high profile event in Cancun alongside other MDBs, hosted by Mexican president Felipe Calderón, extolling the virtues of the CIFs as “a new model for transparency, cooperation, and scaling-up climate action.” The CIFs will hold another Partnership Forum (see Update 70) in March where stakeholders are expected to discuss lessons and experiences so far, with rumours that the focus will be on how these can be applied to the design of the GCF.

Civil society groups have highlighted an array of continuing concerns over the CIFs (see Update 72, 68, 61), including the extent to which projects are genuinely contributing to transformational change, the monitoring and accountability of MDBs who act as implementing partners in CIF projects, and whether the CIFs are offering developmental gains. A February 2011 Eurodad report, Storm on the horizon, focuses on how the Bank is disbursing climate finance at the CIFs. It finds that only one sixth of the pledged funds will be delivered as grants, and that eligibility criteria for CIF funding “may constrain the policy space available for developing countries to decide on their own pathways for sustainable development.” It highlights the fact that over one third of CIF funding is channelled to the private sector, arguing that “private equity is a risky and opaque instrument, likely failing to deliver on intended climate purposes and often undermining country-led equitable and sustainable development.” It also suggests that this type of investment is often marked by “a lack of transparency and environmental and social safeguards.”   

Doubts also remain over the extent and depth of community participation. A notable example is the failure of the Forest Investment Program’s Dedicated Mechanism, aimed at ensuring extensive consultation with indigenous peoples and local communities, to be developed in time to allow participation in the development of investment strategies.

A recent report by the Global Gender and Climate Alliance and the United Nations Development Programme has critiqued CIF policies’ and projects’ approach to gender. The report argues that CIF projects risk “perpetuating existing gender imbalances in climate change funding.”

Carbon finance

In Cancun, the Bank also launched the Partnership for Market Readiness (PMR), a fund designed to help middle-income countries establish and participate in international and domestic carbon markets through a range of market instruments. A recent report on the PMR by NGO Carbon Trade Watch identifies how it is seeking to pioneer new market instruments beyond those agreed under the UNFCCC’s Kyoto Protocol. Despite the fact that the Cancun accords state that new mechanisms should be agreed in Durban in 2011, “the Bank clearly intends to pursue the creation of new carbon market mechanisms irrespective of UNFCCC negotiations.” This includes controversial ‘sectoral carbon markets’, which would for the first time oblige developing countries to reduce emissions in certain specific sectors of their economies. The report warns that this could “chip away at the idea – enshrined in the UNFCCC – that Annex 1 (industrialised) countries bear the burden of current and historical responsibilities for climate change, and seek to extend further obligations to developing countries”.

The Bank’s ambition to drive forward the growth of carbon markets was further underlined in January when the Umbrella Carbon Facility, one of its carbon funds, announced a new funding tranche of $92 million. The International Finance Corporation (IFC), the Bank’s private sector lending arm, also launched its $200 million Post-2012 Carbon Facility. Both funds are aimed at ensuring the operation of carbon-credit creating business beyond the potential expiration of the Kyoto Protocol commitment period in 2012, when there would no longer be a legal obligation for countries to reduce emissions.

However, a recent overview of the Bank’s role in carbon markets by London based NGO the Bretton Woods Project outlines a wide range of concerns, from both civil society and internal Bank reviews, regarding the effectiveness of Bank carbon finance in reducing emissions and generating development benefits. These include a lack of meaningful additional emissions reductions, an improvement in the profitability of fossil fuel intensive industries, and a lack of focus on development in both design and monitoring of projects.