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KEY POINTS

The World’s rich industrialised nations are trying to avoid domestic action on cutting greenhouse gas emissions and are expecting to be bailed out through emission credits bought from other countries. At the same time they are fuelling climate change by making fossil fuel use the path of least resistance in these same countries via low-interest loans and guarantees provided through the World Bank.

Friends of the Earth International urges the Bank to steadily disengage from investments in conventional fossil fuel exploration, exploitation and use.

The World Bank must create disincentives for fossil fuel use and stronger incentives for energy efficiency and renewable energy use to ensure that developing countries are given the capacity to pursue clean, safe, renewable energy paths.


INTRODUCTION ODUCTION

In Kyoto, in December 1997, the world’s rich industrialized nations agreed to act to prevent dangerous climate change. Now, the world’s richest nations are threatening to derail the Protocol unless poorer, developing countries cut their consumption of fossil fuels as well [1].

A number of countries, and in particular the US, have been making these demands whilst trying to avoid tough domestic action to cut emissions, preferring instead to trade emission credits. The rich nations want to buy emission credits from other countries such as Russia and the Ukraine, as well as making use of the Clean Development Mechanism (CDM) in deals with developing countries.

At the same time the US, along with the other G8 nations, is fuelling climate change through the World Bank, which since the 1992 Rio Earth Summit, has spent $12.4 billion on gas, oil and coal projects in Russia and developing countries [2]. The greenhouse gas emissions produced by World Bank projects financed since 1992 (9.9 billion tons) will, over their lifetimes, be more than three times the output of greenhouse gases from all OECD countries in 1995 (2.7 billion tons of carbon). This is hypocrisy. Regrettably, a similar story can be told about other major G8 institutions such as export credit agencies and the other regional development banks. But the World Bank’s record is of particular concern.

Research carried out by the Sustainable Energy and Economy Network and the International Trade Information Service established that nine tenths of World Bank fossil fuel investment ends up enriching multi-national corporations based in the G8 nations, such as Amoco, Chevron, Exxon and Mobil. These companies are leading lobbyists - through the Global Climate Coalition - in resisting official action on climate change, particularly in the US. Despite the insistence by the US that countries such as China take-on legal obligations to reduce climate changing pollution, one third of the World Bank’s fossil fuel lending during the last year has been spent on coal- and diesel-fired power plants in China. The World Banks’s China portfolio for 1992-1998 will eventually emit at least 2 billion tons of CO2.

So the rich nations are trying to avoid domestic action, and are expecting to be bailed out through emission credits bought from other countries whilst fuelling fossil fuel use in these same countries.


POOR RECORD ON THE ENVIRONMENT

Environmental criticism of the World Bank’s performance has been growing for fifteen years, during which time its loan portfolios have not improved much. Even the Bank’s official history acknowledges that its response to environmental criticism often has taken the form of announcing new policies that are infrequently enforced [3]. In fact, the Bank is even stepping back from its environmental policy commitments as it reduces its investments in environmental projects, weakens the role of its Environmental Department and downgrades certain environmental policies to non-binding good practice [4].

The World Bank is mandated to tackle poverty and promote sustainable development, yet many of its loans are for projects that involve unsustainably managed natural resource extraction, or pollution generating projects, such as coal-fired power plants or roads; in some cases, they opt for these more environmentally destructive projects while the private sector is financing more environmentally benign options. The structure and operations at the Bank demonstrate that the Bank is not interested in promoting truly sustainable development and a less carbon-intensive future.

Furthermore, because energy delivery on a per capita basis is not an explicit goal of the World Bank’s energy strategy, those most in need of energy are the least likely to receive it. While the world’s poorest people reap few of the benefits of fossil fuel projects they are the ones who pay the highest prices in terms of resettlement, environmental degradation, and police harassment. This is evidenced by several recent claims filed with the World Bank Inspection (see, for example, the case study on Singrauli (India) [5].

There are legitimate concerns that World Bank financing of fossil fuel projects to the tune of millions of dollars per year is neither a prudent nor effective use of Bank resources. The 1998 "Study of the GEF’s Overall Performance", March 2, 1998 concluded that [6]:

"Continued financing by the World Bank for such projects (as conventional fossil fuel generation) is inconsistent with mainstreaming of the global environment in the Bank’s regular operations. "


THE WAY FORWARD Y FORWARD

One of the main roles of the World Bank Group in the energy sector should be to support investment in more efficient, low-emitting energy systems that will prove of lasting value in the environmentally driven energy markets of the twenty-first century. At least two billion rural poor cannot meet even their basic energy needs (cooking, heating, lighting). In many places, renewable forms of energy are the most promising, and least environmentally damaging, of the energy options in providing for their energy needs, even leaving aside larger environmental benefits. While the Bank likes to focus on the rural poor rhetorically, its portfolios tell a different story.

The Bank has drawn up six guiding principles for energy investment [7].

• "Mainstream renewable energy policy in the energy and environment sector dialogues with client countries;
• Identify climate friendly options in the World Bank Group portfolio through rigorous greenhouse gas accounting at the investment level;
• Integrate climate change externalities in the Bank’s Economic and Sector Work, and Country Assistance Strategies as appropriate;
• Promote market transformation mechanisms to facilitate market entry of renewable energy and energy efficiency technologies;
• Implement a strategic partnership with the GEF to leverage expanded investment in renewable energy;
• Subject to agreements reached in Kyoto, and Bank Board approval, assist in the development of an efficient and equitable international carbon offsets market, and explore the potential for carbon emissions abatement via voluntary contribution mechanisms."

Boost to renewables

In order for the World Bank to "mainstream renewables" an innovative renewable energy investment programme is needed which would reverse the current imbalance between the amount of money spent on fossil fuels compared to the amount spent on renewables. Such a model has been suggested by Denis Hayes, former director of the federal Solar Energy Research Institute [8].

The World Bank, along with other Multilateral Development Banks (MBDs) as ‘lenders of last resort’, and as banks for ‘reconstruction and development’, are mandated to accept larger risks than commercial banks [9]. This means that the MDBs are in a prime position to lead the way in developing renewables and promoting the transition to sustainable energy markets.

Rather than rising to the renewables challenge the World Bank is focussing its attention more on developing a carbon offsets market under Joint Implementation and the Clean Development Mechanism (CDM). Diverting World Bank activities into the creation of such a market will not directly ensure greater energy supply to the world’s poor and may not necessarily reduce greenhouse gas emissions. Friends of the Earth International believes that the World Bank should not be allowed to house or operate any part of the CDM’s financial mechanism, given the large conflict of interests in its own portfolio.

RECOM MEDATIONS

The World Bank must reorient funding away from fossil fuels and towards renewables to ensure that developing countries such as India and China are given the capacity to pursue non-fossil fuel intensive energy paths.

In order to address the threat of climate change Friends of the Earth International urges the Bank to steadily disengage from investments in conventional fossil fuel exploration, exploitation and use, and to set benchmarks for doing that (see box).

NOTES AND REFERENCES

[1] The US Senate, in the Byrd-Hagel Resolution, has advised the President that it views meaningful participation of developing countries in the Kyoto Protocol to limit greenhouse gas emissions as critical, given their future role in either averting or exacerbating the problem of climate change.
[2] Sustainable Energy and Economy Network and the International Trade Information Service (1997). The World Bank and the G-7: Still Changing the Earth’s Climate for Business 1997-1998. Washington D.C.: Sustainable Energy and Economy Network (Institute for Policy Studies) and the International Trade Information Service.
[3] Devesh Kapur, J.P. and Lewis, R. W. (1997). The World Bank its first half century. Washington, D.C. Brookings Institution.
[4] Sustainable Energy and Economy Network and the International Trade Information Service (1997). Op cit.
[5] http://www.igc.apc.org/ciel/wbip.html
The World Bank Inspection Panel was created in 1993 to review complaints from affected parties in borrowing countries regarding alleged violations of the Bank’s operating policies.
[6] Global Environment Facility (1998). Study of the GEF’s Overall Performance , March 2. http://www.gefweb.org/
[7]Letter from Dr Robert T. Watson, Director Environment Department of the World Bank to Institute for Policy Studies, dated December 2 1997.
[8] Letter from Daphne Wysham, Institute for Policy Studies to James Wolfensohn, President World Bank, April 6 1998.
[9]http://www.geo.ut.ee/bankwatch/index.html
[10] http://www.foe.org/ga/chad.html
[11] Sustainable Energy and Economy Network and the International Trade Information Service (1997). Op cit.
[12] http://www.igc.apc.org/ciel/wbip.html
[13] Based on a joint NGO letter to James Wolfensohn, President World Bank.

© Friends of the Earth International, October 1998

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