World Bank Energy Sector Lending: Encouraging the World’s Addiction to Fossil Fuels

1. World Bank Energy Sector Lending: Encouraging the World’s Addiction to Fossil Fuels Heike Mainhardt-Gibbs Bank Information Center – March 2009

2. World Bank and Climate Change • Difficult task of providing energy access to the poor while protecting them from climate change • Country specific and politically sensitive • Clean Energy Investment Framework pledges to transition to a low-carbon economy • 8 out of 9 people harmed by climate change will be living in countries that are currently classified as ‘developing.’

3. Importance of the World Bank • Global GHG reduction targets dependent on overall development path, especially energy sector • World Bank plays significant role in developing countries: • Direct energy and extractive industries investments • Key institution determining development models • Development policy loan programs (regulations, tax policies, investment codes, etc.) • Technical assistance/expertise • Convening power between governments and companies

4. Aim of Study • Assess World Bank Group’s core portfolio of energy sector financing • Determine trends in funding for different energy sources • Assess against goal of transitioning to a low-carbon development path • Estimate contribution to global GHG emissions

5. Main Findings • Approach to energy sector does not provide transition to low-carbon economy • Gains in renewable energy and energy efficiency do not compensate for highly imbalanced financing in favor of fossil fuels • Financing for fossil fuels on the rise, especially for coal • Significant contribution to global GHG emissions

6. What is the most valuable and appropriate role of the World Bank? Suggestion: If the Bank is truly going to benefit the poor, it must significantly change and improve the development model for developing countries - not simply lead them down the same carbon intensive, unstable economic path of developed countries.

7. World Bank Group Financing for Fossil Fuels, Renewable Energy and Energy Efficiency

8. World Bank Group Financing for Fossil Fuels (million $)

9. Fossil Fuels on the Rise • FY06 – FY08 represents an increase for three consecutive years, which did not take place any other time • FY08 highest year, exceeding next highest by 48% or $1 billion

10. World Bank Group Financing Three-Year Average (2007$)

11. Three-year Average Trends • Important gains in new renewable energy and energy efficiency (73%) • Low baseline for new RE and EE relative to oil and gas • Overall funding amount – fossil fuels 2 times new RE and EE combined and 5 times new RE sources • 19% more for coal then for new RE

12. New RE by Institution, FY05-08 (2007$)

13. Breakdown of IFC Energy Sector

14. CO2 Emissions of World Bank Fossil Fuel Lending (FY2008) When the fossil fuels involved in the Bank projects are combusted: • 97.42 MMTCO2 annually; and • 2,072 MMTCO2 project lifetime emissions • 7% of World annual CO2 emissions from the energy sector Note: Does not account for relevant policy lending, technical assistance, or several fossil fuel projects lacking data.

15. Comparison to Country and Regional Annual Energy Sector CO2 Emissions (2005 country estimates, US EIA)

16. Main Conclusions • Bank is still spending five times as much on fossil fuels as for new renewable energy sources • Continued emphasis on fossil fuels commits many countries to carbon intensive energy sources for 20-40 years • Increase in coal projects makes low-carbon transition difficult (coal emits almost twice as much CO2 as natural gas per unit of energy)

17. Main Conclusions • None of the Bank’s climate change initiatives address assistance to fossil fuels – no incentives/strategies to reduce • Future developing country GHG reduction targets will be more costly • Oil and gas projects aimed at export to developed countries do not encourage UNFCCC Annex I countries to reduce their GHG emissions from fossil fuels

18. World Bank’s Approach to Energy Sector: Moving Forward • Fully recognize and correctly change role in energy sector as it relates to climate change • GHG emissions contribution – throughout value chain • Furthering world’s reliance on fossil fuels (long-term commitments, exports to Annex I countries) • Ensure benefits to and protection of the poor

19. World Bank’s Approach to Energy Sector: Moving Forward • Carefully reassess approach to fossil fuel projects • GHG emissions reporting • Costs associated with CO2 damages included in cost-benefit analysis • Evaluate availability of private sector funding • Comprehensively assess alternative energy options and benefits/costs to the poor

20. World Bank’s Approach to Energy Sector: Moving Forward • Provide political leadership – convince countries it is in their best interest • Push the envelope to help developing countries leap frog to better energy technologies (e.g. super critical coal technology does not equal a low carbon project) • Hire more staff (especially IFC) with renewable energy expertise • Report more accurate data on energy sector activities • Revise Energy Strategy and IFC Performance Standards to provide incentives to reduce fossil fuel development