• Scale up high-impact investments for solutions thatwork.• Use feedback and learning as a source <strong>of</strong> value for theWBG and its clients.<strong>The</strong> first point, with associated recommendations, wastreated in Phase I. <strong>The</strong> other two are discussed here.Be a venture capitalist <strong>of</strong> technologies, broadlyunderstoodIn both the public and private spheres, the WBG can supportthe transfer, adaptation, piloting and demonstration <strong>of</strong>innovative technologies, policies, and financial practices—as it has, for instance, with energy service companies, busrapid transit, solar photovoltaic systems, and agr<strong>of</strong>orestry.As in the case <strong>of</strong> private investments, these demonstrationscarry risks but can <strong>of</strong>fer high returns. What counts for clients,the WBG, and the world, however, is the return onthe portfolio in development, poverty reduction, and GHGmitigation. <strong>The</strong> vision is to prepare a pipeline <strong>of</strong> developmentsolutions that can be pursued on a large scale by theWBG and other funders, as climate finance expands.A first challenge is to accept some prudent risks in pursuit<strong>of</strong> a high-return portfolio. For <strong>World</strong> <strong>Bank</strong> clients, thismeans using GEF or other concessional funds to supportthe earliest and riskiest ventures. Risk is further mitigatedby starting small and staging successively larger pilots anddemonstrations, from test site to province to nation. Withincreasing experience and comfort, the scale expands andthe risk declines. For WBG staff and managers, it is importantthat demonstration and pilot projects’ objectives beframed in terms <strong>of</strong> learning. For instance, if the project’sgoal is to test the financial viability <strong>of</strong> an innovation andthe test shows convincingly that it is not viable, it should beconsidered a successful project.But a more fundamental change in incentives may be necessary.In IFC, for instance, a venture capital team has secureda niche within IFC’s generally conservative and risk-averseculture. This could be inspirational for the <strong>World</strong> <strong>Bank</strong>.A second challenge is to design projects effectively forleaning and diffusion. Pilot or demonstration projectsmust have a clear notion <strong>of</strong> what is being demonstrated, towhom, and how; demonstration should be formulated asa goal and appropriately measured. For instance, the RegionalSilvopastoral Project used experimental techniquesto rigorously document the private gains from some kinds<strong>of</strong> agr<strong>of</strong>orestry, and industry groups used this informationto get government support to scale up. But some projectsfailed to recognize that private firms are reluctant to shareproprietary information. So, for instance, the beneficiaries<strong>of</strong> technology licenses in the Efficient Boiler Project did notshare their boiler designs with competitors. In contrast, pilotESCOs in the Energy Conservation Project were obligedto share their experience with others, and the model diffusedrapidly.In sum, the social networks and information mechanismsfor demonstration and diffusion should be as importantin project design as the hardware being demonstrated. So,too, is the capacity building, which is an integral part <strong>of</strong>technology transfer. <strong>The</strong> distinctive features <strong>of</strong> pilot, demonstration,and technology transfer projects argue for additionalsupport for preparation and supervision in fundingand on-call expertise.<strong>The</strong>re is a clear case and large scope for WBG involvementin technology transfer at the national level. <strong>The</strong> case is lessclear for WBG involvement in new technology developmentat the global level. Candidate technologies would be thosewhere WBG support could make an appreciable differenceto the global market, helping to push costs down. Of specialinterest are technologies that are beneficial for poor peopleand difficult to protect from copying (and therefore attractlittle private research and development)—for instance, inagriculture and land use. <strong>The</strong> proposed new WBG effortto support concentrated solar power is a plausible area <strong>of</strong>support because a large proportion <strong>of</strong> the suitable resourceis located in client countries, the technology is suitable formanufacture in client countries, and the proposed effort islarge enough to globally push the industry along the costcurve.Specifically:• <strong>The</strong> <strong>World</strong> <strong>Bank</strong> and IFC should create incentives andmobilize resources to support effective pilot, demonstration,and technology transfer projects that have aclear logic <strong>of</strong> demonstration and diffusion. This willinclude mobilizing GEF and other concessional fundsto mitigate <strong>World</strong> <strong>Bank</strong> borrower risk, reshaping incentivesfor staff and managers, providing adequateresources for the design and supervision <strong>of</strong> complexprojects, and making available specialized expertise intechnology transfer and procurement through a real orvirtual technology unit.Scale up high-impact investmentsIn the process <strong>of</strong> scaling up, the WBG can work with clientsto choose the sectors and instruments that <strong>of</strong>fer the greatestreturn on investment. This evaluation finds that the WBGcould place more emphasis on energy efficiency. It is generallycheaper than renewable energy and has fewer potentialnegative environmental impacts. If coordinated with gridexpansion, it can be an important contributor to energyaccess. It plays a prominent role in the 2010–30 time-slice<strong>of</strong> most long-term climate stabilization scenarios. And it isapplicable to all countries—it is the poorest who can leastafford inefficiency. <strong>The</strong>re are many aspects <strong>of</strong> energy efficiencythat are in need <strong>of</strong> further piloting, but there areample candidates for scale up.82 | Climate Change and the <strong>World</strong> <strong>Bank</strong> Group
Specifically, the WBG could:• Place greater emphasis on large-scale energy efficiencyscale-up, as measured by savings in energy and reducedneed for new power plants. This includes support forefficient lighting and for exploration <strong>of</strong> the scope foraccelerating the global phase-out <strong>of</strong> incandescent lightbulbs. It includes continued and expanded support forreductions in T&D losses. And it includes proactivesearch by IFC for large-scale, catalytic investments inenergy efficiency. <strong>The</strong>re is scope to coordinate <strong>World</strong><strong>Bank</strong> support for demand-side energy efficiency policieswith IFC support for more efficient manufacturingand more efficient products.<strong>The</strong> WBG should, wherever possible, help clients findcleaner, domestically available alternatives to coal power.As is clear from the findings here and in Phase I, no-regretsalternatives can include energy efficiency, hydropower, andnatural gas. Moreover, the WBG faces strategic choices instaffing and programming between building up expertisein “sunrise” sectors <strong>of</strong> broad applicability (energy efficiency,land use management for carbon, energy systems planning)versus “sunset” sectors (coal power).But should the WBG completely forswear coal? Consider,as an analogy, the 1991 Forest Strategy’s ban on commerciallogging in primary moist tropical forests. IEG’s review (IEG2000) found that the strategy prevented <strong>Bank</strong> staff from engagingthe sector in proactive ways to improve economicand environmental management <strong>of</strong> tropical forests. <strong>The</strong>ban was rescinded in the 2002 Strategy, without triggeringlogging investments. Analogously, it is important that theWBG maintain its “honest broker” ability to help countriesengage in systemwide energy planning. A perverse resultwould occur if disengagement from coal had a chilling effecton the WBG’s ability to engage in policy and planningdialogue that could promote low-carbon alternatives.IEG recommends that:• <strong>The</strong> WBG should help countries find alternatives tocoal power while retaining a rarely used option to supportit, strictly following existing guidelines (includingoptimal use <strong>of</strong> energy efficiency opportunities) andbeing restricted to cases where there is a compellingargument for poverty or emissions reductions impactsthat would not be achieved without WBG support forcoal power.<strong>The</strong> WBG cannot tackle coal substitution alone. Complementaryfinancing for renewable energy, and investments intechnology research and development, are needed from thedeveloped world to provide better options for WBG clients.Protected areas deter tropical deforestation, providing localenvironmental benefits and conserving biodiversity as wellas reducing carbon emissions. <strong>The</strong>se impacts are greaterwhen sustainable use <strong>of</strong> the forest is permitted, and greaterstill for indigenous areas. This suggests compatibility <strong>of</strong> socialand environmental goals. Environmental service paymentscan, in principle, achieve much the same results inforests where protected areas are not an option. However,payment for environmental services impacts have been dilutedby limitations <strong>of</strong> finance and unfocused targeting <strong>of</strong>payments. Consequently, IEG recommends the following:• <strong>The</strong> WBG should continue to explore, in the REDDcontext, ways to finance and promote forest conservationand sustainable use, including support for indigenousforest areas and maintenance <strong>of</strong> existing protectedareas.In terms <strong>of</strong> WBG instruments—• MIGA’s upcoming FY 2012–15 Strategy should outlineMIGA’s role and scope for MIGA to provide political riskinsurance to catalyze long-term financing for renewableenergy projects, building on its expertise and existingportfolio <strong>of</strong> climate-friendly guarantee projects.• <strong>The</strong> <strong>World</strong> <strong>Bank</strong> should enhance the delivery <strong>of</strong> itsguarantee products by taking actions to improve policiesand procedures, eliminate disincentives, increaseflexibility, and strengthen skills for the deployment <strong>of</strong>the products. It should assess the potential for greateruse <strong>of</strong> partial risk guarantees to mobilize long-term financingfor renewable energy projects, particularly inthe context <strong>of</strong> feed-in tariffs or other premiums to supportinvestment in renewable energy.• <strong>The</strong> <strong>Carbon</strong> Partnership Facility and other post-Kyotocarbon finance efforts should focus on demonstratingtruly catalytic ways to overcome barriers to lowcarboninvestments. <strong>The</strong>y should also have clear exitstrategies.Reorient incentives toward learning and feedback<strong>The</strong> WBG is valued by clients for its knowledge. It producesand publishes an impressive array <strong>of</strong> research, analyses, reviews,and toolkits, drawing in part on its experience. Yetby failing to gather feedback from operations, it squandersvaluable sources <strong>of</strong> knowledge—knowledge that couldimprove its products and advice in economically measurableways—by failing to learn from its project experience:• Hundreds <strong>of</strong> millions <strong>of</strong> dollars are allocated in guaranteesor loans for energy efficiency, without systematicfeedback on how and where these interventions are inducinginvestments.• CFL distribution projects are being scaled up to multimillionbulb efforts without systematic feedback fromearlier projects on which interventions are most effectiveand sustainable. 1• Protected area and community forest projects lack systematicmonitoring <strong>of</strong> forest conditions (including carbonstorage and biodiversity), <strong>of</strong> the welfare <strong>of</strong> forestConclusions and Recommendations | 83
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Phase II: The Challenge of Low-Carb
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CLIMATE CHANGE AND THE WORLD BANK G
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Table of ContentsAbbreviations . .
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Figures1.1 GHG Emissions by Sector
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AcknowledgmentsThe report was prepa
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Executive SummaryUnabated, climate
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of some technologies, such as landf
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Scale up high-impact investmentsEne
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attention. In a couple of decades,
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GlossaryAdditionalityBankabilityBas
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Joint ImplementationA mechanism und
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Chapter 1evALuAtiOn HiGHLiGHts• T
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growth, poverty reduction (includin
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Chapter 2eValuaTION HIGHlIGHTS• W
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Figure 2.2Breakdown of 2003-08 Low-
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Table 2.4 Commitments to Grid-Conne
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Box 2.1The Economics of Grid-Connec
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on average (Iyadomi 2010). (Reducti
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and industrial policy. An increasin
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Table 2.6Hydropower Investments by
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costs for remaining unelectrified a
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World Bank experienceTwo factors ac
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