Because the range <strong>of</strong> 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 <strong>of</strong> evaluableWBG experience. Within each <strong>of</strong> the main GHG-emittingsectors—energy, transport, and forestry—it examines specificissues that capture a large part <strong>of</strong> the relevant WBGportfolio (such as support for energy efficiency via financialintermediaries), illuminate sectorwide issues (such as therole <strong>of</strong> 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 <strong>of</strong> the WBG in coal power.<strong>The</strong> evaluation looks at how the WBG has diagnosed barriersto technology adoption, the effectiveness <strong>of</strong> prescribedinterventions, and likely economic and mitigation impacts.<strong>The</strong> first volume <strong>of</strong> this climate change evaluation (IEG2009) looked at WBG support for key areas <strong>of</strong> policy reform.This second volume focuses on two other areas <strong>of</strong>intervention: (i) development, transfer, and demonstration<strong>of</strong> 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 <strong>of</strong> mitigation and development<strong>The</strong>re 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 <strong>of</strong>energy projects.) Energy efficiency, more than other investments,<strong>of</strong>fers a combination <strong>of</strong> 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 <strong>of</strong>ten be necessary to construct portfolios <strong>of</strong>projects, rather than pursue multiple goals with a single instrument.Renewable energyGrid-connected renewable energy reduces CO 2emissions,<strong>of</strong>fers the additional domestic advantages <strong>of</strong> local air pollutionreduction and energy security, and could potentiallystimulate industrial development. But investors may nottake account <strong>of</strong> 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. <strong>The</strong><strong>World</strong> <strong>Bank</strong> 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 adoption<strong>of</strong> favorable renewable energy payment schemes, which inturn have stimulated more than 20 gigawatts <strong>of</strong> installedwind capacity in China and hundreds <strong>of</strong> megawatts underconstruction in Mexico.Provision <strong>of</strong> long-duration loans (as in lending by the InternationalFinance Corporation [IFC] and <strong>World</strong> <strong>Bank</strong>on-lending projects) has a much bigger impact on projectbankability than the purchase <strong>of</strong> carbon credits, at currentcarbon prices. As countries increasingly rely on payingprice premiums for renewable energy, <strong>World</strong> <strong>Bank</strong> andMultilateral Investment Guarantee Agency (MIGA) guaranteesagainst breach <strong>of</strong> contract and other political riskscould be catalytic.<strong>The</strong> 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 are<strong>of</strong>ten those for which preparation or implementation <strong>of</strong>x | Climate Change and the <strong>World</strong> <strong>Bank</strong> Group
esettlement plans has been ineffective. About two-thirds <strong>of</strong>hydropower investment volume now goes to run-<strong>of</strong>-riverhydropower (that is, without substantial reservoirs), whichhas less potential for local social and environmental damagebut is more vulnerable to climate change.Direct WBG investments in wind power have been modest.On average, wind power <strong>of</strong>fers significantly lower economicand carbon returns than hydropower because <strong>of</strong>high capital costs and <strong>of</strong>ten low capacity utilization. Manufacturingcost reductions at the global level, together withbetter siting and maintenance, are crucial to increasing thecompetitiveness <strong>of</strong> wind and other new renewable energytechnologies.<strong>The</strong> largest single area <strong>of</strong> <strong>of</strong>f-grid renewable energy investmenthas been in solar photovoltaics, mostly for home use.Since 1992, the WBG has contributed $790 million to solarhome system (SHS) components in 34 countries, almostall using GEF-funded subsidies. <strong>World</strong> <strong>Bank</strong> efforts, usingquality-contingent producer subsidies and relying onmicr<strong>of</strong>inance for consumers, have been more successfulthan those <strong>of</strong> IFC. <strong>The</strong>se projects can have economic rates<strong>of</strong> return <strong>of</strong> 30–90 percent but have little impact on GHGreductions because <strong>of</strong>f-grid households use so little energy.At current prices, SHSs have been successful in a narrowniche market: the <strong>of</strong>f-grid household that is either relativelywell-<strong>of</strong>f by rural standards or can access good micr<strong>of</strong>inanceservices.Energy efficiencyPhase I <strong>of</strong> this evaluation (IEG 2009) assessed the most importantbarrier-removing policies: energy price reform andpromotion <strong>of</strong> energy efficiency policies such as building andappliance standards. It noted that the <strong>Bank</strong> had pursuedprice reforms in energy but had relatively few—and modestlyfunded—projects dealing with energy efficiency. Sincethen, there has been increased attention to policy-efficiencylinkages, including <strong>Bank</strong>-IFC support for a recently adoptedenergy efficiency law in the Russian Federation, supportfor a G20 study <strong>of</strong> energy subsidies, and a recently approvedVietnam power sector development policy operation.Owners <strong>of</strong> factories and buildings <strong>of</strong>ten fail to borrow forapparently highly pr<strong>of</strong>itable energy efficiency opportunities.<strong>The</strong> WBG’s diagnosis: Borrowers lack information, andlenders lack experience and comfort with energy efficiencyproject finance. <strong>The</strong> largest WBG response has been tosupport financial intermediaries—banks, special-purposefunds, and energy service companies—with guarantees andtechnical assistance. <strong>The</strong>se programs have appropriatelybeen directed to China and Eastern Europe, where energyinefficiency has been high.Parallel programs have been implemented by the <strong>World</strong><strong>Bank</strong> and IFC, both supported by the GEF, and withoutmuch communication between them. Yet, contrary to expectations,loan guarantees have turned out not to be atemporary, market-transforming measure that could bediscontinued once the banks gained familiarity with energyefficiency lending. Inadequate lending for energy efficiency<strong>of</strong>ten reflects wider credit market failures, including onerousrequirements for collateral.Guarantees have triggered energy efficiency lending tocredit-strapped small and medium enterprises. Becauseborrowers achieved high rates <strong>of</strong> return, guarantee programscould achieve higher impact through tighter targetingon less creditworthy companies.<strong>World</strong> <strong>Bank</strong>-supported projects have been successful inintroducing energy service companies (ESCOs) to China,with high returns, significant GHG impacts, and spontaneousreplication. However, further replication and scaleupmust address the ESCOs’ own credit problems andrecognize that energy performance contracting, the standardparadigm for ESCOs, may require major adaptationsin many developing countries.IFC also lends directly to industry for energy efficiency.IFC’s program <strong>of</strong> screening its clients for energy efficiencyopportunities supports mostly small loans with low GHGimpacts.Three areas <strong>of</strong> existing activity stand out as having highimpact and high potential for scale-up: first, proactive IFCsupport for energy efficiency in the atypical but importantcases <strong>of</strong> large, carbon-intensive factories that face credit orinformation barriers; second, increased support for transmissionand distribution loss reduction, which <strong>of</strong>fers economicrates <strong>of</strong> return <strong>of</strong> 16–60+ percent and lifetime carbonreturns <strong>of</strong> 7–15 kilograms per dollar. Third, substitution <strong>of</strong>compact fluorescent lamps (CFLs) for incandescent lamps<strong>of</strong>fers estimated direct economic returns (in saved energy)<strong>of</strong> 50–700 percent, together with deferred construction <strong>of</strong>power plants and emissions reductions <strong>of</strong> 27–134 kilograms<strong>of</strong> CO 2per dollar. <strong>The</strong>se returns would be further magnifiedif initial projects catalyzed spontaneous diffusion <strong>of</strong> CFLs.However, rigorous evaluation <strong>of</strong> CFLs is lacking.ForestryForest loss, especially in the tropics, generates a quarter <strong>of</strong> developingcountries’ emissions. <strong>The</strong> local and global values <strong>of</strong>standing forests <strong>of</strong>ten greatly exceed the gains from destroyingthose forests. Tapping this value could therefore <strong>of</strong>ferlarge economic and GHG gains. <strong>The</strong> Forest <strong>Carbon</strong> PartnershipFacility is a pilot that explores options to monetize thevalue <strong>of</strong> standing forests. However, the mechanisms to usethe funds to conserve forests are still being planned. <strong>World</strong><strong>Bank</strong> experience provides some models for scaling up.Payment for Environmental Services programs also seekto reward property owners who maintain forests. <strong>World</strong>Executive Summary | xi
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costs for remaining unelectrified a
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World Bank experienceTwo factors ac
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Box 2.5On-Grid and Off-Grid Renewab
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Energy EfficiencyThe first phase in
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Box 3.1ESCOs and Energy Performance
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have had limited causal impact on t
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measurement of achieved economic re
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Since the early 1990s, public entit
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part with a $198 million IDA credit
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Chapter 4eVAluATioN HigHligHTS• B
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for Costa Rica for the period 2000-
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Consequently, the efficiency with w
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technologies could accelerate diffu
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A second issue, inherent to any adv
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goal of promoting wind turbine impr
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ConclusionsThe WBG’s efforts to p
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Table 5.1Carbon Funds at the World
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demonstration initiative. The Commu
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Impacts on technology transferThe 2
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Chapter 6Photo by Martin Wright/Ash
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Figure 6.1800Economic and Carbon Re
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Specifically, the WBG could:• Pla
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Table 6.1Summary of Sectoral Findin
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Table 6.1Sector Intervention Direct
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Appendix ARenewable Energy Tables a
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Table A.4Grid-Based Biomass/Biogass
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Table A.5 (continued)Negative examp
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Figure A.4A. Hydro/biomass capacity
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Appendix bWorld Bank Experience wit
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Table C.2Completed Low-Carbon Energ
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TAble C.4Reviewed energy efficiency
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the new capacity. Transmission syst
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Table E.2Climate obligationsCoal Pl
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Table F.2GHG objectiveModeNumber of
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IEG eliminated a few cases of doubl
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Table H.1Project andlocationBioener
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Appendix ICarbon and Economic Retur
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Appendix JRecent WBG Developments i
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y providing value to standing fores
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never had an explicit corporate str
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overnight. The Bank can provide ass
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Chapter 51. From the chief economis
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Hartshorn, G., P. Ferraro, and B. S
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______. 2007. World Development Ind
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IEG PublicationsAnalyzing the Effec