World Banks’s common principles encourage dirty energy under the rubric of ‘lower carbon’ fossil fuel

energy5By Janet Redman, Alexis Durand, Maria Camila Bustos, Jeff Baum and Timmons Roberts*

When Jim Yong Kim took over the World Bank Group presidency in 2012, many development and climate advocates hoped his public health background would lead him to embrace a clean energy agenda. In July 2013, under Kim’s guidance, the World Bank board quietly approved a new Energy Directions paper for the Bank’s energy sector. The paper highlighted the Bank’s intention to focus on the poor in delivering universal energy access, promised increased support for energy efficiency and renewable energy, and—most remarkably—included a halt on financial support for new coal power generation projects except in “rare” circumstances. The Energy Directions paper included a list of exemptions from the Bank’s claimed halt to coal financing, however.

The new restrictions did not apply to coal used in industrial operations for heat, captive power, and chemical needs. The Bank would continue to finance investments in industrial and commercial processes such as steel, cement, and other manufacturing operations. It remained a question if coal power plant expansion and retrofits of existing coal power plants — which usually extend the life of a facility, often for decades — escaped the ban.

The Bank also pledged to scale up its engagement in natural gas, and committed to ramp up spending on hydropower projects. The reiteration of an “all of the above” approach was particularly disappointing given the International Energy Agency’s conclusion that local mini- and off-grid solutions based on solar, wind and micro- hydropower projects work best for achieving electrification in rural communities, where the majority of families without access live.

energyA pair of reports by Oil Change International revealed disturbing trends. The same year as the Energy Directions paper was approved (2013), they found that Bank support increased to fossil fuels and decreased to clean energy from the preceding year. The study revealed an increase in natural gas financing from $590 million in FY12 to $1.2 billion in FY13, and a leap in large hydropower funding from $333 million to $844 million. In a second study, OCI reported that the Bank had again increased support for dirty energy. Of the total $9.9 billion provided in energy finance in 2014, 34% went toward fossil fuel projects, while clean energy received only 19%. Despite the World Bank’s climate rhetoric, lending for fossil fuel projects had gone up by a third since 2012, including $400 million in coal finance in 2014.

International Rivers found that Bank financing for large dams was on the rise with more than $2 billion approved for large hydropower projects in 2014, accounting for over half of its support for power generation that year.

Worryingly, the World Bank’s “everything and the kitchen sink” direction on energy seems to have been used as a framework for the common principles on tracking climate mitigation finance agreed to by the Bank, other multilateral development banks and the International Development Finance Club.

energy1Common definitions can help bring consistency and transparency to donor spending on climate and energy, and the principles insist that hydropower, biomass and geothermal projects would have to show real emission reductions to count. Still, the common principles encourage dirty and destructive energy under the rubric of ‘lower carbon’ fossil fuel, carbon capture and sequestration, large dams, and burning trash as fuel and are conspicuously silent on common methodology for calculating a project’s carbon footprint.

The World Bank faces serious challenges in matching its pro-climate discourse with its fossil-heavy lending. This is all the more reason why the Bank’s ability to influence the lending policies of institutions with significantly larger energy portfolios puts a speedy transition to a climate-friendly, low-carbon economy at risk. Much of existing development aid could simply be redefined as climate finance and emerging institutions like the Green Climate Fund could be distracted from their mission to support a paradigm shift in developing countries energy systems. At a time when climate change is recognized by the Bank itself as one of the greatest risks to development, its actions need to reflect its rhetoric.

New Renewables

The good news is that the Bank increased spending on new renewables and demand side energy efficiency almost five-fold between 2000-2004 and 2010-2014, from $1.2 billion to $5.7 billion. Also, the number of new renewable projects reached parity with the number of fossil fuel projects supported, although renewable projects tended to be far smaller. In both time periods, energy efficiency and mixed renewables made up the majority of new renewable financing.

energy2Funding for demand side efficiency quadrupled to $2.1 billion — a smart move by the Bank since investing in energy efficiency is a cheaper and faster way to reduce greenhouse gas emissions than building new lower- carbon power facilities. Other major shifts included a 40-fold increase in funding for solar power projects, and significant growth in wind energy (although wind still only constitutes 4 perfect of new renewable finance).

Unfortunately, funding for fossil fuel projects grew from $2.4 billion to $9.3 billion — an almost four-fold increase. In the 2010-2014 period, fossil fuel projects still received more than 1.5 times as much support as new renewables, and the share of fossil fuel projects in the Bank’s energy portfolio rose from 35% to 38%.

World Bank financing increased to all types of fossil fuel projects, but the distribution shifted over time. During 2000-2004, mixed fossil fuel projects received the majority of funding (40%), and financing was evenly distributed between gas, coal and supply side energy efficiency (17% each). By the 2010-2014 period coal had leapt to 36% of dirty projects ($3.4 billion) and gas projects constituted 27% of fossil fuel support ($2.5 billion).

energy4The Bank’s increase in support for coal — the most carbon intensive of all fossil fuels — is particularly at odds with the Bank’s rhetoric on climate change. The rise in support for gas is also disappointing. Although cited as being less emitting than coal when combusted in new, efficient power plants, methane leaked during drilling, extraction and transport has called into question whether gas projects are actually less harmful to the climate.

Supply side energy efficiency increased five-fold, growing to about 20% of 2010-2014 fossil fuel funding. While lowering the carbon intensity of electricity generation, efficiencies should be considered part of an approach to ultimately transition away from fossil fuel energy generation.

Large Hydropower

Financing for large hydroelectric power projects, defined by the World Bank as projects with production capacity of greater what 10 megawatts, make up a quickly growing proportion of the Bank’s energy portfolio. In the first period, large hydroelectric projects constituted 6% of the energy portfolio ($373 million). Ten years later, 17% of energy funding ($4.3 billion) went to large hydro projects (Fig. 2) — a more than 10-fold increase.

The role of large hydropower in a sustainable energy regime is still hotly debated. On one hand, the World Bank and others have argued that large hydropower can help meet baseload electricity demand in a low-carbon energy system. However, dammed reservoirs, especially in the tropics, emit greenhouse gases. Large dams are also highly vulnerable to climate change as rainfall and river flow becomes increasingly unpredictable. In addition to its climate impacts, large hydropower is often considered a ‘dirty’ energy because of its broader social and environmental impacts.

In project documents, the Bank itself has acknowledged that larger hydropower projects require greater land and water resources, which it noted could impact inter-basin resource sharing, vegetation, wildlife, wetlands, local microclimate and village resettlement. And International Rivers has found that large dams often overrun costs, on average by 96%, making the electricity generated too expensive for poor consumers.

Other

In 2000-2004, landfill gas recovery, biofuel and energy infrastructure, planning and electrification projects that were not clearly identified as fossil or renewable made up more than 40% of the Bank’s entire energy portfolio ($2.9 billion). By 2010-2014 that proportion had been halved to about 20%, but the volume of financing almost doubled in absolute terms to $5.3 billion.

The considerable amount of funding classified as “other” points to the need for more detail and clarity in project descriptions, environmental impact assessments and other documents. It also raises issues about the World Bank’s categorization of biofuel projects as renewable, given the risk of land grabbing and potential competition for land with food production. Similar problems arise when claiming landfill gas recovery as renewable. In 2007 the Intergovernmental Panel on Climate Change found that landfill gas capture systems may prevent as little as 20% of methane emitted. And installation of landfill gas capture infrastructure can lock-in landfill operations, or their expansion, in place of putting in place less polluting, climate-friendlier zero waste strategies.

Energy Funding for Low-Income Communities

Over the past fifteen years, the Bank’s total volume of energy funding to least developed countries (LDCs) has increased from $1.8 billion in 2000-2004 to $5.2 billion in 2010-2014. However the proportion of overall Bank energy financing going to LDCs dropped from 26% to 21%. Funding for new renewables in LDCs increased almost six-fold, from $148 million to $856 million.

Mini- and off-grid solar, wind and micro-hydro projects are considered most effective for addressing energy poverty. However, this increase in new renewables does not necessarily mean projects were targeted at energy access for the poor. While increasing more slowly, funding for fossil fuel projects in LDCs more than doubled between the two periods, from $439 million to $1.1 billion.

*Excerpts from “Walking the Talk? World Bank Energy-Related Policies and Financing: 2000-2004 to 2010-2014: A joint briefing from Brown University’s Climate and Development Lab and the Institute for Policy Studies” (October 2015). Click HERE to download full report

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