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

Bank-supported programs in Costa Rica and Mexicohave demonstrated the logistics of paying for services andhave helped to globally popularize this approach. However,a substantial proportion of payments has gone to areasthat are not at high risk for deforestation, diluting carbonand environmental benefits and prompting attention totargeting.The most prominent line of action associated with forestconservation is support for protected areas. These nowcover more than a quarter of the tropical forest estate, anarea equivalent to Argentina and Bolivia combined, muchof it with World Bank support. A global analysis showsthat these areas are on average effective in reducing deforestation.Areas that allow sustainable use are more effectivethan strictly protected areas, and indigenous areas aremost effective of all. They also offer precious biodiversitybenefits. These findings support the feasibility of the ReducedEmissions from Deforestation and Degradation initiative(REDD) in combining sustainable development andforest conservation.Urban transitGrowing transport demand clogs limited roadway spacein the developing world, resulting in severe congestion, airpollution, and GHG emissions. The single largest WBG responsehas been to support the deployment of bus rapidtransit systems, which cost much less than tramways orsubways. Key barriers have been the lack of intermunicipalitycoordination, and opposition by displaced minibusdrivers. However, systems have been successfully initiatedin Bogota and Mexico City and are being expanded thereand replicated elsewhere.The immediate economic benefits in Mexico City providean estimated 81 percent economic return and a GHG returnof 10 kilograms per dollar. Larger, sustainable longrungains will require demand-side management of trafficand rational land use planning.Coal powerCoal is a cheap source of power for a power-hungry world,but coal is a major source of GHG emissions. How does theWBG maximize development returns for clients with noGHG reduction obligations, while protecting other clientsthreatened by GHG emissions regardless of their source?SFDCC criteria restrict WBG support to instances wherecoal has the lowest cost after environmental externalitieshave been considered, there is optimal use of energy efficiency,and no concessional funds are available to financethe incremental cost of low-carbon alternatives.The Independent Evaluation Group (IEG) examined fivepre-SFDCC coal power projects to determine whetherWBG involvement contributed to greater efficiency andwhether lower-carbon alternatives had been considered.IEG found that none of the investment cases would havemet the SFDCC criteria, either because they were notleast-cost for generation after accounting for local air pollutionburdens or because they did not fully explore efficiencyalternatives. The complexity of the issues, however,is illustrated by IFC’s support for a supercritical coal plantin India. On one hand, it will be one of the largest pointsources of CO 2on the planet, adding to the atmosphere’spre-existing burden as GHG concentrations climb towarddangerous levels. On the other hand, it may neverthelesshave reduced emissions by about 10 percent compared witha scenario without IFC involvement, and indirectly acceleratedthe diffusion of this higher-efficiency technology ina country that will continue to rely on coal for decades tomeet urgent power needs. More than a quarter of India’spower is lost in transmission and distribution. Nationwide,reduction in distribution losses and other efficiency measurescan offer higher returns in power availability, localenvironmental improvement, and GHG reductions thannew construction.The WBG’s highest leverage for promoting low-carbongrowth is at the level of the power system. The World Bank’stechnical assistance to Kosovo points to a way of resolvingthe tensions surrounding coal. A study (World Bank 2005)assessed options for power system expansion using a systemwidepower model that accounted for local health costsfrom pollution. It showed if CO 2abatement was valued at€10 per ton, it would be optimal to retire small, inefficientcoal plants but also to construct a large, efficient one. (Theimpact of higher carbon prices was not explored.) Modelslike this, if extended to include energy efficiency as an alternativeto expanded generation, can serve as a basis ofdiscussion for identifying technical and financial optionsfor pursuing low-carbon growth at a national level.Carbon financeAs an institutional innovation, the World Bank’s CarbonFinance Unit (CFU) has played an important demonstrationrole in helping open an entirely new field of environmentalfinance, popularizing the idea of carbon markets, and contributingto the institutional infrastructure of the market.The Bank’s carbon business exit strategy called for the CFUto relinquish its role as carbon offset buyer as the privatemarket began to flourish. But although the Bank indeedmoved into higher-risk, pilot areas of the carbon market(the Forest Carbon Partnership Facility and the CarbonPartnership Facility), it continued to build up its lowerriskKyoto-oriented business after that market was alreadythriving. It also failed to mainstream carbon finance withinthe Bank.As a vehicle for catalytic finance and technology transfer, theCFU’s record is mixed. It has contributed to the diffusionxii | Climate Change and the World Bank Group