The Challenge of Low-Carbon Development - World Bank Internet ...

Because the range of activities is great, because most have notyet been subject to a final evaluation, and because most donot generate consistent and accessible data on impacts, theevaluation is selective, though it covers the bulk of evaluableWBG experience. Within each of the main GHG-emittingsectors—energy, transport, and forestry—it examines specificissues that capture a large part of the relevant WBGportfolio (such as support for energy efficiency via financialintermediaries), illuminate sectorwide issues (such as therole of finance for grid-connected renewables), or pioneernovel approaches (such as payment for ecosystem services).It also addresses three special issues: technology transfer, theWBG’s carbon funds, and the role of the WBG in coal power.The evaluation looks at how the WBG has diagnosed barriersto technology adoption, the effectiveness of prescribedinterventions, and likely economic and mitigation impacts.The first volume of this climate change evaluation (IEG2009) looked at WBG support for key areas of policy reform.This second volume focuses on two other areas ofintervention: (i) development, transfer, and demonstrationof technical and financial innovations and (ii) finance andimplementation.FindingsWBG-supported interventions vary widely in nature andeffectiveness. This evaluation first looks at sectoral findingsand then at cross-cutting lessons and recommendations.Congruence of mitigation and developmentThere is ample scope for projects that promote local developmentgoals while also mitigating GHGs. (See figure 6.1,which illustrates economic and carbon returns for a range ofenergy projects.) Energy efficiency, more than other investments,offers a combination of high economic returns andGHG benefits. Other projects may individually have highcarbon returns (forestry) or economic returns (solar homephotovoltaic systems). To optimize carbon and economicgains, it may often be necessary to construct portfolios ofprojects, rather than pursue multiple goals with a single instrument.Renewable energyGrid-connected renewable energy reduces CO 2emissions,offers the additional domestic advantages of local air pollutionreduction and energy security, and could potentiallystimulate industrial development. But investors may nottake account of the national or global benefits. Lenders mayshy away from capital-intensive investments in less-proventechnologies. Utilities may not know how to deal with intermittentenergy sources.Technical assistance can help overcome these barriers. TheWorld Bank helped Sri Lanka institute standardized smallpower purchase agreements that facilitated access to thepower grid. Analytic work, capacity building, and demonstrationhave contributed to Mexican and Chinese adoptionof favorable renewable energy payment schemes, which inturn have stimulated more than 20 gigawatts of installedwind capacity in China and hundreds of megawatts underconstruction in Mexico.Provision of long-duration loans (as in lending by the InternationalFinance Corporation [IFC] and World Bankon-lending projects) has a much bigger impact on projectbankability than the purchase of carbon credits, at currentcarbon prices. As countries increasingly rely on payingprice premiums for renewable energy, World Bank andMultilateral Investment Guarantee Agency (MIGA) guaranteesagainst breach of contract and other political riskscould be catalytic.The WBG’s direct lending for renewable energy is dominatedby hydropower, the only grid technology for whichthere is a substantial evaluable record at the WBG. Amongevaluated hydropower plants, 76 percent had outcomesrated as moderately satisfactory or better, with better ratingsin recently initiated projects. Unsuccessful projects areoften those for which preparation or implementation ofx | Climate Change and the World Bank Group