World Bank’s climate record in the dark

2 October 2012

As the World Bank officially stepped into its role as interim trustee of the United Nations Framework Convention on Climate Change’s (UNFCCC) new Green Climate Fund (GCF), its track record on fossil fuel investments continues to raise concerns.

Launched in late 2011 to manage climate finance transfers from the developed to the developing world, the GCF held its first official meeting in Geneva in August after several delays (see Update 81). The Bank serves as the fund’s interim trustee until 2015, when a permanent trustee will be selected. Its principal responsibilities are to establish a financial intermediary trust fund at the Bank to manage GCF contributions, transfer funds as instructed by the GCF board, and prepare financial reports.

In the meeting the GCF interim secretariat presented several draft papers, including an outline of activities and costs incurred by the Bank as interim trustee. The Bank’s expected expenditures until end October were estimated to almost $400,000. According to a September report by German political foundation Heinrich Boell, several questions were raised about the comparability and competitiveness of the Bank’s fees for services, such as report and document preparation. There were also concerns around language implying a self-assessment by the World Bank of its trustee services instead of a review by an external auditor. The GCF board asked the interim secretariat to work with the Bank to amend relevant reports according to the comments, to be presented at the next board meeting scheduled for mid October.

Meanwhile, the Bank’s track record on fossil fuel investments continues to raise concerns (see Update 82, 80). A July report by NGO coalition Jubilee South Asia Pacific Movement on Debt and Development, which reviewed the Bank’s carbon projects in the region, concluded that over the past 61 years the Bank has financed projects that produce or heavily use fossil fuels in the Asia-Pacific region to a total value of almost $70 billion. Over $20 billion of this was provided in the last ten years alone, principally to India. The report argues that the Bank therefore lacks a “basis in laying claim to a place in the climate negotiations and a say in climate finance”. Instead, the Bank “has a debt to settle with world’s peoples, especially in the South, for its complicity in the climate crisis”, yet to date it “has never explicitly owned up to its share”.

India’s coal problems

The July power blackout in India, which affected over 620 million people, has led some to critique the role of the Bank in providing inducements to expand India’s exploitation of coal rather than exploring more sustainable energy sources. Daphne Wysham, of US-based NGO the Institute of Policy Studies, argues that “had the bank heeded its own studies in the early 1990s, which showed that a more economically efficient way of handling the energy needs of the poorest in rural areas would have been to invest in renewable energy, many of India’s energy and environmental problems would have been solved”.

The Bank’s continued focus on coal in India has been confirmed by senior Bank staff. In a July interview on US-based radio station National Public Radio, Kalpana Kochhar, the Bank’s chief economist for South Asia, noted that the Indian government’s efforts to tighten environmental standards have slowed the number of permits issued for new coal mines. She also argued that the coal fuel supply agreements between private sector generation companies and Coal India are not being fulfilled, with the public sector not “fulfilling its end of the bargain”.

In a September interview in the Indian magazine Business Today, Roberto Zagha, the Bank’s India country director, argued that increasing production of Indian coal mines is an “easy solution” to India’s energy problem, but that there are also problems, such as that coal “happens to be in protected forest areas or where the tribals are”. Zagha noted that “all the coal India needs is going to be imported from Australia and Indonesia. Or you have a different policy regarding clearing forests and people living in them.”

Soumya Dutta of the India People’s Science Campaign questions the rationale for coal exploitation: "If we take all costs (including environmental costs), wind is much cheaper than coal today, and solar will be so in a few years. New coal power plants will need years to come onstream and lock us in dirty energy for four decades.” 

Further controversy has arisen over the support of the Bank’s private sector arm, the International Finance Corporation (IFC), for coal power in India. In July, the IFC’s accountability mechanism, the Compliance Advisor/Ombudsman (CAO), ordered a full investigation into the investment in Coastal Gujarat Power Limited (CGPL) with regards to the Tata Mundra coal power plant (see Update 80, 77, 59). The investigation was launched in response to a 2011 complaint of “alleged and anticipated adverse impacts of the plant on livelihoods and the environment”. CAO’s appraisal of the case concluded that a number of issues “merit further enquiry”, including “whether the IFC exercised due diligence in reviewing GCPL’s environmental and social (E&S) assessments”, “whether IFC’s assessment of community support for the project was adequate” and “whether IFC has been sufficiently proactive in engaging with the client to remedy E&S issues that have been identified in project supervision”.

Bharat Patel of Machimar Adhikar Sangharsh Sangathan (MASS), a fishworkers association that lodged the complaint on behalf of local fisher folk, said: “We hope that they will go to the bottom of issues, investigate impartially and stop financing this project which is threatening the livelihood of thousands of fishworkers and the fragile ecology”. He expressed disappointment that CAO would not investigate the impact on other local stakeholders, due to the focus of their complaint: “After IFC financing a project, destroying lives of people, the onus of identifying all negative impacts should not be on the affected communities.”

The complaint is in line with a July report by an independent high level panel, set up by the National Fishworkers Forum on request from MASS, and led by the retired chief justice of the Indian state of Sikkim, S. N. Bhargava. The report concludes that the project “has disproportionately high social, environmental, and economic costs”, which were “either ignored or wilfully neglected” by the responsible parties. Furthermore, it argues that the social and environmental impact assessments “are misleading and erroneous, having excluded a large number of communities whose loss of livelihood was overlooked”. In addition, “the adherence to laws and their safeguard polices” was not properly monitored, which “contributed to the continuance of the violations by the company”, which report argues “the governments and the IFIs are equally complicit” with. Recommendations include a call for the IFIs’ “financial assistance to the project [to] be suspended” until they have undertaken “an immediate review of the project to examine adherence of their safeguard policies”.