Energy for the poor: World Bank urged to make a clean break

6 April 2011

Policymakers, analysts and campaigners have said the Bank must revise its proposed energy strategy to set a clear course for reducing energy poverty and supporting low-carbon development.  The credibility of the strategy is also at risk from new coal investments under consideration at the Bank.

A draft of the strategy was due to go to a Bank board sub-committee in mid April, with another round of online and technical consultations before board consideration in July.  The strategy will guide the Bank’s energy lending over the next decade and is expected to influence the policy of other lending institutions as well (see Update 74, 67).

A leaked copy of the current draft contains some measures that have been welcomed, such as a household energy programme and an end to coal lending in middle-income countries, meeting demands from southern civil society groups and their northern counterparts (see Update 71).  However, the draft has been criticised for failing to focus the Bank’s limited resources on its two stated goals for the sector – increasing access to energy, especially for the poor, and enabling clean development – despite their attracting widespread support.  Rather than prioritising actions that would promote both, the draft rules little out and incentivises large projects for the sake of institutional efficiency, admitting that this is “somewhat at odds with the goal of scaling up activities in areas where many potential projects – such as solar, wind, micro-hydropower … and energy efficiency – tend to be small.”  This runs counter to International Energy Agency findings in 2010 that decentralised, renewable energy offers the most effective route to universal energy access.

There are concerns about major loopholes for coal finance, with only loose guidelines directing funding in low-income countries.  No new restrictions will be placed on oil and gas lending. 

Similarly, no real limit or downward trajectory will be imposed on the Bank’s fossil fuel finance.  Instead, the Bank is to commit 75 per cent of spending to “clean energy” projects by 2015.  Observers have repeatedly raised concerns about the Bank’s definition of “clean” (see Update 71), which includes non-Bank funds such as the Climate Investment Funds, indirect finance for fossil fuels, for example through financial intermediaries, and potentially coal plant rehabilitation.  A February report by German NGOs Brot fuer die Welt and EED estimated that misleading Bank reporting could disguise up to $1 billion in additional fossil fuel finance going through financial intermediaries, related infrastructure, and development policy loans.  Large hydropower is also counted as “clean”, and Bank finance is set to increase, without applying international standards on environmental and social impacts (see Update 72).  The Bank is also resisting calls to disclose its overall carbon footprint.

The current draft is understood to be equally vague on how the Bank will improve access to clean, affordable and reliable energy for the poor in line with its poverty reduction mandate.  No targets for reducing energy poverty are set – only for increasing access to electricity in general. 

Alison Doig of UK NGO Christian Aid commented that the Bank risks “no departure from business as usual, but instead a slight tweaking of what has come before.  Despite a lot of nice language on low-carbon initiatives and energy access, the strategy for delivering on both remains very unclear.”

Srinivas Krishnaswamy of Indian NGO the Vasudha Foundation argues that, “The draft strategy should have a clearer focus on energy access with the intent of alleviating energy poverty by providing clean, affordable and reliable energy services to the poor.  Energy access should go beyond mere supply of electricity to rural households, and should meet various needs, such as communication and water supply, as well as ensuring livelihood enhancements.”

Global mobilisation

The draft will not satisfy a European Parliament resolution, passed in February, which expressed concerns about the Bank’s massive fossil fuel investments (see Update 72) and said the Bank should not count large hydropower or biofuels as clean energy.  It called for the Bank to “prioritise small-scale, local-level energy access” and ensure that communities “have access to and benefit from energy-sector developments including low-carbon technologies and renewable energy sources.”  This approach received widespread support in consultation feedback from business, civil society and other respondents to the Bank’s consultation, according to analysis conducted in March by US NGO the World Resources Institute.  In a March meeting with civil society groups, European executive directors to the World Bank said they would be “attentive” to the resolution. 

An international day of action in March saw campaigners demonstrating in Johannesburg, Zagreb, London and elsewhere.  Participant Bobby Peek of South African NGO Groundwork said, “Until we see a strong energy strategy that focuses Bank lending on renewable energy and energy efficiency, it is impossible to claim that the Bank is serious about addressing both energy poverty and climate change.”

New coal funding?

Contradictions between the Bank’s clean energy rhetoric and its practice deepened, with new coal lending under consideration.  Civil society groups have raised concerns about potential Bank finance for new coal power in Kosovo.  In 2006-7, the Bank granted $10.5 million for technical assistance to develop plans for a $20-60 million project that will include two new power plants, and the rehabilitation and expansion of a third.  Agron Demi of Kosovan NGO Instituti GAP said, “Bank officials and the Kosovo government are saying that Kosovo’s only resource is lignite [low-grade coal]. But no assessment of alternative sources, such as wind, or energy efficiency has been conducted.  We oppose plans for a big lignite power plant to produce energy for export, because people living nearby will suffer from pollution and health issues.”

Krenar Gashi of the Kosovar Institute for Policy Research and Development commented that, “Currently, the government is in the process of privatising the energy sector to a single commercial investor. This privatisation plan is not only harmful to the economy, as it will create a monopoly of production of energy, but is also illegal as it goes against the national strategy adopted by Parliament. This strategy explicitly says that Kosovo’s current production capacities should not be given to the investors of the new plant. Furthermore, it remains unclear for Kosovo public who will bear the responsibility to pay for added expenses of the energy produced from lignite coal burning. Since Kosovo aspires to join the EU, soon it will have to be part of the Emission Trading Scheme (ETS). The current plan doesn’t foresee who will take care of the extra cost for carbon emissions, and if this is not cleared in the contract with the investor, the cost will be paid by consumers, through their electricity bills.”

In March, the Times of India reported that the Indian state of Nagpur would seek a $67 million loan for the modernisation of the Koradi coal plant, which would extend operations by up to 20 years, and cited a government press release saying the Bank was willing to provide finance. This appeared to run counter to Bank research published in February, Empowering rural India: Expanding electricity access by mobilizing local resources, which found that decentralised generation from primarily renewable sources to be the most cost-effective way of increasing rural access to energy in India.  The model was found to almost halve the cost of electricity while bringing direct economic benefits to community-run franchises.

This came as a March report by US NGO Center for International Environmental Law argued that the Bank’s $3 billion loan to the Medupi coal plant in South Africa last year (see Update 70) failed to take into account the economic costs of its environmental and health impacts, contravening Bank policies.