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Carbon dating the World Bank

By Richard Mahapatra

The World Bank Group is poised to play a major role in managing climate change funds after Copenhagen. And yet, its lending for fossil fuels has more than doubled in the last decade. Since 1997, the Bank has financed over 26 giga tonnes of carbon emissions. The Bank’s lending to developing countries has ensured that no country will escape the carbon trap for at least 30-40 years

The World Bank is to review its energy strategy in 2010, soon after the Copenhagen talks to hammer out a post-2012 framework and identify key players in mitigating and adapting to climate change.

The World Bank Group, backed by G8 countries, will emerge as a key player in global climate change fund management post-2012. Senior officials at the Bank have indicated that they will wait until Copenhagen to finalise the Bank’s role. It’s quite clear though that the Bank’s role will be significant; it’s the details that we will get to know later.

The G77 block of developing countries and civil society groups oppose this move, demanding that the UN be given overall charge of managing mitigation and adaptation programmes.

In this context, the Bank’s review of its energy strategy gains importance. The Bank’s energy sector lending was more than $8 billion in 2009. In October 2009, it released an approach paper for the review exercise; it will take more than a year to come out with a new strategy. The review will debate the Bank’s existing energy policy. Energy being critically linked to climate change, the review process has important ramifications for global climate change management.

Between January and May 2010, civil society groups will participate in the review process; there are already a number of groups lobbying the Bank to make drastic cuts in its lending to climate change-causing fossil fuel-based projects. A new strategy may be ready by April 2011.

It is pertinent therefore to review the Bank’s earlier lending to fossil fuel-based projects and to prepare a balance sheet of their carbon-emitting potential. This may explain the ‘key’ role that is being given to the World Bank by developed countries.

A thick carbon trail

The Bank’s own carbon trail is thick and getting denser by the year. The Bank’s lending for fossil fuels -- a major source of greenhouse gases (GHGs) that cause global warming -- has more than doubled in the last decade (see Table 1). Emissions from Bank-supported projects will emit around 7% of the world’s total annual carbon dioxide (CO2) in their lifetime. Meanwhile, the Bank’s lending for renewable energy has neither been impressive nor on a par with that for fossil fuels.

Contrary to its mandate of helping developing countries transit to a low-carbon economy, the Bank’s lending policy has ensured that these countries remain carbon-intensive for at least 20-40 more years. Most of the lending has been done to offset high GHG emissions by developed countries.

Since 1998, the Bank’s lending for fossil fuels has been rising at an unprecedented rate. The increase was the sharpest during 2006 and 2008. In 2008, its spending on fossil fuels was 48% higher than that in 2000, by $ 1 billion. During 2006-2008, the Bank reported a consecutive increase in lending for fossil fuels (see Table 2 and Table 3). The Washington-based Bank Information Centre (BIC), a credible civil society group that monitors multilateral development banks like the World Bank, has calculated that when fossil fuels involved in World Bank (and its private sector lending arm, the International Finance Corporation)-lending projects for 2008 are combusted, the project lifetime carbon dioxide emissions would amount to approximately 2,072 million metric tonnes of carbon dioxide. That’s around 7% of the world’s total annual carbon emissions from the energy sector; more than twice as much as all of Africa’s annual energy sector emissions.

“Clearly, the World Bank’s investments in fossil fuel-based energy are significant to climate change, and yet none of its current climate change initiatives adequately incentivise for a reduction in financing for fossil fuels,” says a BIC report that assessed the Bank’s carbon trail.

In another estimate, the World Wide Fund for Nature-UK’s ‘World Bank Carbon Footprint Report’ of 2008, using some data from the Bank’s 2008 lending, found that, since 1997, the Bank had financed a total of over 26 giga tonnes worth, or 26,000 million metric tonnes (MMT), of carbon emissions. This means a yearly financing of 2,600 MMT of carbon emissions per year -- around 9% of the annual world total for energy sector emissions.

Not bankable

Notwithstanding this huge carbon financing, the World Bank Group has been assuming a proactive role in climate change mitigation and has set a deadline for low carbon lending. In 1991, it took up an implementing role for the Global Environment Facility (GEF), the financial mechanism for the UN Framework Convention on Climate Change (UNFCCC). Its energy sector strategy of 2001 set a deadline of 2010 for reducing the average intensity of CO2 emissions from energy production, from 2.90 tonnes of oil equivalent to 2.75 for developing and transition countries.

In June 2004, in response to its own extractive industries review at the International Renewable Energies Conference in Bonn, the Bank committed to scaling up lending for new renewable energy and energy efficiency by at least 20% annually over five years, ie 2005-09. The review suggested that the Bank phase out coal and oil financing. In 2006, responding to a request from G8 countries, the Bank developed a clean energy investment framework intended to help scale up investments in clean energy and integrate climate change into development assistance. It has a specific objective of promoting a transition to low carbon emissions.

In October 2008, the Bank approved a new strategic framework on development and climate change that gives it a bigger role in climate change issues. Under this, the Bank has more than US$ 6 billion commitments from various countries to manage specially set up climate investment funds.

Renewed zeal for carbon

A closer look at the Bank’s lending for fossil fuels, climate-friendly renewable energy and energy efficiency projects throws up the true facts: there is a greater tilt towards carbon lending than towards cleaner energy projects. The Bank’s fossil fuel lending is twice that for new renewables and energy efficiency combined, and five times more than for new renewables if it is considered alone. In the last three years, the Bank has lent 19% more for coal than for new renewable energy.

In 2008, the World Bank and the IFC increased lending for fossil fuels by 102%, compared with only 11% for new renewable energy such as solar, wind, biomass, geothermal energy and hydropower facilities with capacities of up to 10 MW per facility. The three-year average (2005-08) indicates that the Bank’s funding for fossil fuels and new renewable energy increased at 615% and 58% respectively.

“Bank lending to coal projects will make low-carbon transition difficult given that coal emits almost twice as much carbon as natural gas per unit of energy,” says the BIC assessment. Lending for coal-based projects has registered a whopping 648% increase in the last three years. 

The Bank claims much of its coal lending is climate-friendly. It goes by its own definition of clean ‘low carbon emitting’ technology. According to the Bank’s definition, a coal project may be designated ‘low carbon’ when it is a high-efficiency coal-fired thermal plant such as supercritical and ultra-supercritical. Such projects are brought into the energy-efficiency category that, in turn, comes under the Bank’s low carbon lending category.

Similarly, under renewable lending the Bank supports hydropower projects that may not emit carbon but trigger large-scale environmental degradation and human displacement. The Bank has lent US$ 1.007 billion towards hydropower projects with capacities of more than 10 MW per facility. Large hydropower projects account for a major part of the renewable numbers and are up substantially from US$ 751 million in 2006 to US$ 1.007 billion in 2007. Similarly, the Bank’s energy efficiency lending has gone up from $ 262 million in 2006 to $ 1.192 billion in 2007. Its definition of ‘energy efficiency’ includes both the supply and demand sides; supply side efficiency includes retrofits of hydropower and coal plants.

In the IFC, new investments overall total $ 16.2 billion in 2008, a 34% increase over the previous year. For the same year, the increase in IFC fossil fuel investments considerably exceeded the overall portfolio rate, by over 250%. Conversely, IFC investments in new renewable energy and energy efficiency were a mixed bag in 2008, decreasing by about 50% for new renewable energy and increasing by around 190% for energy efficiency. The IFC’s performance is important given that it represents efforts to attract the private sector’s interest in renewable energy and low-carbon alternatives.

The carbon trap

When developing countries eventually take on GHG emissions reduction targets of their own, the World Bank’s current approach to energy will make meeting those targets more difficult and costly for them. Moreover, many of the World Bank’s largest oil and gas extraction and pipeline projects have been and continue to be aimed at exports to developed countries, further feeding the appetite of developed countries for fossil fuels. As a result, the Bank is not adequately encouraging UNFCCC Annex 1 countries to reduce their GHG emissions from fossil fuels.

The Bank’s Independent Evaluation Group (IEG) will release the first report in the series on the World Bank and climate change. The IEG finds that “there is a general tendency to prefer investments in power generation, which are visible and easily understood, to investments in efficiency, which are less visible, involve human behaviour rather than electrical engineering, and whose efficacy is harder to measure”.

In January 2009, the Bank released criteria for its clean technology fund, one of two funds established to help developing countries adapt to climate change and switch to clean energy technologies to reduce emissions. Despite the Bank’s own 2004 extractive industries review recommending an end to funding for coal, clean technology fund criteria rely heavily on the financing of new coal-fired powerplants that are carbon capture and storage (CCS)-ready and highly efficient. CCS technology aims to capture carbon dioxide emissions from power station smokestacks and deposit them underground.

Even this small allocation towards low-carbon clean energy sources doesn’t come from the Bank’s own kitty. Carbon offsets and Global Environment Facility funding accounted for 30% of overall funding for new renewable energy. It is important to make note of this as the money is derived from funds that were specifically created to address climate change. These funds, plus an additional 1% from the Global Partnership on Output-Based Aid, do not originate from the Bank’s own portfolio of funds.

This clearly shows that the Bank is more than responsible for making developing countries take the carbon-intensive path to development. Going by investments already made in projects, no country will be out of ‘carbon-intensive mode’ for at least 20-40 years, as this is the average lifespan of a coal powerplant. Other studies suggest that multilateral financial institutions are also pushing for this mode of development. A new study by the Environmental Defense Fund shows that international public financial institutions have provided $ 37 billion to finance the construction of at least 88 new coal plants in developing countries since 1994, when Kyoto Protocol commitments for developed countries started. What’s more, that $ 37 billion in direct financing secured another $ 60 billion or so from private and local sources, taking the total investment in new coal plants in developing nations to over $ 100 billion. “The Bank’s ‘new’ approach differs little from its over 60 years of top-down, growth-oriented lending which has widened inequalities in recipient communities and has largely benefited rich-country corporations that have carried out the ‘development’ project,” says a report from the Institute for Policy Studies on the Bank’s energy policy.

Table 1

World Bank Group financing for fossil fuels (in million dollars)

  1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
World Bank 577 618 599 592 544 255 291 313 758 575 199
IFC 521 229 935 373 794 488 499 409 590 824 2,988
Sub-total 1,098 847 1,534 965 1,338 743 790 722 1,348 1,399 3,187
MIGA (guarantee) 85 205 239 230 193 312 155 75 118 152 0
Total 1,283 1,052 1,773 1,195 1,530 1,055 945 797 1,465 1,551 3,187
Total adjusted for inflation (at 2007) 1,593 1,288 2,125 1,398 1,760 1,188 1,035 845 1,505 1,505 3,137

Source: Bank Information Centre, Washington DC, 2009  

Table 2

World Bank Group financing, three-year average (in million dollars and inflation adjusted to 2007)

  2006  Million dollars       % change 2007  Million dollars  % change 2008  Million dollars  % change Three-year average  Million dollars  % change
Fossil fuels 1,505 78 1,551 3% 3,137 102 2,064 61
Coal 119 1283 140 18 1,041 642 433 648
Large hydropower 180 -46 777 333 1,529 97 829 128
Energy efficiency 399 91 206 -48 1,108 438 571 160
New renewable energy 176 15 435 147 485 11 366 58
New renewable energy and energy efficiency 576 59 641 11 1,593 148 937 73

Source: Bank Information Centre, Washington DC, 2009  

Table 3

Share of World Bank Group total energy sector financing

  1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Total energy sector (million dollars) 4,150 2,327 2,834 3,048 2,902 2,390 1,691 2,865 4,585 3,604
Fossil fuels 26% 36% 54% 32% 46% 31% 47% 25% 29% 39%
Large hydropower 15 0% 4% 0% 2% 1% 3% 8% 4% 19%
Energy efficiency 10% 0% 7% 5% 1% 2% 1% 5% 9% 5%
New renewable energy 0% 5% 3% 2% 3% 2% 2% 3% 4% 10%

Source: Bank Information Centre, Washington DC, 2009  

(Richard Mahapatra is with WaterAid India. He would like to thank the Bank Information Centre, Washington DC, for making available the assessment of the World Bank’s data)

Infochange News & Features, December 2009