Access the paper here.
On 30 June 2024, the World Bank marked one year of aligning projects approved by the International Development Association (IDA, it’s low-income country arm) and the International Bank for Reconstruction and Development (IBRD, its middle-income country arm) with the goals of the Paris Agreement.
A new briefing from the Bretton Woods Project looks at what this Paris alignment has meant for the Bank’s direct financing in the energy sector. The briefing reviews all 71 ‘energy & extractives’ projects financed by IDA and IBRD in fiscal year 2024 (1 July 2023 to 30 June 2024). It shows a continued shift in the Bank’s energy financing over recent years, where Development Policy Financing (DPF), which provides budget support contingent on policy reforms, has become the largest financing instrument, replacing Investment Policy Financing (IPF), which funds specific projects. Indeed, 38 of the 71 energy projects approved in the first year of Paris alignment were DPFs, totalling around $13 billion of the $19 billion committed overall in the Bank’s energy sector lending.
The findings suggest that the Bank’s approach to Paris alignment is being used to a significant extent to impose ‘green conditionalities’ on borrowing countries, especially in the Global South. This is mainly done by structuring energy sector conditionalities via DPF to facilitate a private sector-led energy transition, which includes privatising and liberalising energy sectors and modifying regulatory frameworks to de-risk private investments. At the same time, the Bank provided only $2.34 billion for renewable energy projects – across just nine direct investment projects – making up only 12.3 per cent of its total energy financing in the first year of ‘Paris alignment’.
This raises concerns, as the Bank’s private-led approach to the energy transition is failing to deliver results, with private investments in renewable energy at the scale required to meet global climate goals not materialising in most countries where the Bank operates. Additionally, given the lower profitability of renewables compared to incumbent fossil fuels and the increasingly prohibitive capital costs in many Global South countries, this approach shifts financial liabilities and costs onto citizens and governments in low- and middle-income countries, undermining hopes for a just transition.
The briefing argues that the Bank must continue to transform its approach to align with the Paris Agreement, through:
- An external, expert-led review of the Bank’s private sector-led approach to the energy transition: this review should identify how to create the fiscal and policy space for genuine green transformation in the Global South.
- Increased civil society participation: national trade unions and civil society must have a real voice in these debates to build support for green transition policies, including engagement in the World Bank Country Climate and Development Reports (CCDRs).
- Increased transparency of WBG energy investments and climate finance accounting: the Bank should publicly disclose what policy changes it proposes to decarbonise energy sectors via DPF, well in advance of the World Bank board discussions, to allow for greater public and parliamentary scrutiny and debate of the Bank’s ‘green’ conditionality.
Access the briefing here.
For more information abut this research of BWP’s Environmental advocacy work, please contact Jon Sward, Environment Project Manager at jsward@brettonwoodsproject.org
