<strong>Bank</strong>-supported programs in Costa Rica and Mexicohave demonstrated the logistics <strong>of</strong> paying for services andhave helped to globally popularize this approach. However,a substantial proportion <strong>of</strong> payments has gone to areasthat are not at high risk for deforestation, diluting carbonand environmental benefits and prompting attention totargeting.<strong>The</strong> most prominent line <strong>of</strong> action associated with forestconservation is support for protected areas. <strong>The</strong>se nowcover more than a quarter <strong>of</strong> the tropical forest estate, anarea equivalent to Argentina and Bolivia combined, much<strong>of</strong> it with <strong>World</strong> <strong>Bank</strong> 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 <strong>of</strong> all. <strong>The</strong>y also <strong>of</strong>fer precious biodiversitybenefits. <strong>The</strong>se findings support the feasibility <strong>of</strong> 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. <strong>The</strong> single largest WBG responsehas been to support the deployment <strong>of</strong> bus rapidtransit systems, which cost much less than tramways orsubways. Key barriers have been the lack <strong>of</strong> intermunicipalitycoordination, and opposition by displaced minibusdrivers. However, systems have been successfully initiatedin Bogota and Mexico City and are being expanded thereand replicated elsewhere.<strong>The</strong> immediate economic benefits in Mexico City providean estimated 81 percent economic return and a GHG return<strong>of</strong> 10 kilograms per dollar. Larger, sustainable longrungains will require demand-side management <strong>of</strong> trafficand rational land use planning.Coal powerCoal is a cheap source <strong>of</strong> power for a power-hungry world,but coal is a major source <strong>of</strong> GHG emissions. How does theWBG maximize development returns for clients with noGHG reduction obligations, while protecting other clientsthreatened by GHG emissions regardless <strong>of</strong> their source?SFDCC criteria restrict WBG support to instances wherecoal has the lowest cost after environmental externalitieshave been considered, there is optimal use <strong>of</strong> energy efficiency,and no concessional funds are available to financethe incremental cost <strong>of</strong> low-carbon alternatives.<strong>The</strong> 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 <strong>of</strong> 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. <strong>The</strong> complexity <strong>of</strong> the issues, however,is illustrated by IFC’s support for a supercritical coal plantin India. On one hand, it will be one <strong>of</strong> the largest pointsources <strong>of</strong> 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 <strong>of</strong> this higher-efficiency technology ina country that will continue to rely on coal for decades tomeet urgent power needs. More than a quarter <strong>of</strong> India’spower is lost in transmission and distribution. Nationwide,reduction in distribution losses and other efficiency measurescan <strong>of</strong>fer higher returns in power availability, localenvironmental improvement, and GHG reductions thannew construction.<strong>The</strong> WBG’s highest leverage for promoting low-carbongrowth is at the level <strong>of</strong> the power system. <strong>The</strong> <strong>World</strong> <strong>Bank</strong>’stechnical assistance to Kosovo points to a way <strong>of</strong> resolvingthe tensions surrounding coal. A study (<strong>World</strong> <strong>Bank</strong> 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. (<strong>The</strong>impact <strong>of</strong> higher carbon prices was not explored.) Modelslike this, if extended to include energy efficiency as an alternativeto expanded generation, can serve as a basis <strong>of</strong>discussion for identifying technical and financial optionsfor pursuing low-carbon growth at a national level.<strong>Carbon</strong> financeAs an institutional innovation, the <strong>World</strong> <strong>Bank</strong>’s <strong>Carbon</strong>Finance Unit (CFU) has played an important demonstrationrole in helping open an entirely new field <strong>of</strong> environmentalfinance, popularizing the idea <strong>of</strong> carbon markets, and contributingto the institutional infrastructure <strong>of</strong> the market.<strong>The</strong> <strong>Bank</strong>’s carbon business exit strategy called for the CFUto relinquish its role as carbon <strong>of</strong>fset buyer as the privatemarket began to flourish. But although the <strong>Bank</strong> indeedmoved into higher-risk, pilot areas <strong>of</strong> the carbon market(the Forest <strong>Carbon</strong> Partnership Facility and the <strong>Carbon</strong>Partnership Facility), it continued to build up its lowerriskKyoto-oriented business after that market was alreadythriving. It also failed to mainstream carbon finance withinthe <strong>Bank</strong>.As a vehicle for catalytic finance and technology transfer, theCFU’s record is mixed. It has contributed to the diffusionxii | Climate Change and the <strong>World</strong> <strong>Bank</strong> Group
<strong>of</strong> some technologies, such as landfill gas, and supportedfirst-<strong>of</strong>-kind technology investments in some countries.<strong>The</strong> Bio<strong>Carbon</strong> Fund and the Community <strong>Development</strong><strong>Carbon</strong> Fund have supported small-scale, rural, and forestryprojects—and learned in the process that this is difficultto do.In contrast, much <strong>of</strong> the CFU’s support for energytechnologies has gone to projects where its financialleverage—and hence its catalytic impact—was relativelysmall. In addition, two-thirds <strong>of</strong> carbon fund purchasecommitments have been for projects that destroy HFC-23,a highly potent, industrially generated GHG. <strong>The</strong> projectstapped a Chinese low-cost GHG abatement opportunityand gave participating companies high pr<strong>of</strong>its, 65 percent<strong>of</strong> which were then taxed for development purposes. Althoughthis was an allowable use <strong>of</strong> the carbon market, analternative would have been to use international funding topay only for the low marginal costs <strong>of</strong> destroying the gas,deploying carbon funds with higher leverage elsewhere.Technology transferTechnology transfer is one <strong>of</strong> the pillars <strong>of</strong> the Bali ActionPlan (under the United Nations Framework Convention onClimate) and <strong>of</strong> the SFDCC. <strong>The</strong> WBG has contributed tothe transfer <strong>of</strong> existing clean technologies through projectsthat pilot, debug, demonstrate, and diffuse innovations inengineering and finance. <strong>The</strong>se have been successful whenthe logic <strong>of</strong> demonstration and diffusion has been wellthought out.<strong>The</strong> Renewable Energy <strong>Development</strong> Project (China),for instance, used a combination <strong>of</strong> quality-contingentsubsidies, research and development grants, and technicalassistance to foster the growth <strong>of</strong> a competitive solarphotovoltaic industry. <strong>The</strong> Energy Conservation Projectsupported China’s first ESCOs, with strong emphasis onknowledge sharing and diffusion. <strong>The</strong> Regional SilvopastoralProject in Latin America piloted different approachesto integrating trees with pasture, rigorously documentingthat some techniques were highly pr<strong>of</strong>itable even withoutreckoning carbon and biodiversity benefits, and was ableto convince the Colombian government to scale up theproject. In all these cases, GEF support was essential tomitigate up-front risk and to pay for global benefits <strong>of</strong>knowledge created.Conversely, technology transfer has foundered in theabsence <strong>of</strong> a solid logical framework that links interventionsto technological diffusion, especially in the case <strong>of</strong>advanced technologies. Early efforts to support concentratedsolar power, for instance, incorrectly assumed thata few scattered projects would spur cost reductions at theglobal level. (A new concentrated solar power initiativeunder the Clean Technology Fund is more appropriatelyscaled.) Projects incorrectly assumed that private beneficiaries<strong>of</strong> technology (such as recipients <strong>of</strong> technology licensesin the China Efficient Boilers Project) would shareproprietary technology with competitors. Several IFC investments,pursuing multiple but conflicting objectives,tackled an insurmountable combination <strong>of</strong> inexperiencedentrepreneurs, unfamiliar technology, and an uninterestedtarget market. Finally, both the concentrated solarpower and efficient boiler projects underestimated the difficulty<strong>of</strong> procurement when technology suppliers are fewand costs are poorly known—an inherent feature <strong>of</strong> newertechnologies.Learning and incentivesRapid feedback and learning is essential for adapting technologyto new sites, for deciding which technologies toscale up, and for ensuring that they are working as planned.Technology demonstration projects work best when itis clear what is being demonstrated, how, and to whom.Although recent demonstration projects have good plansPhoto by Kenneth M. Chomitz. Used with permission.Executive Summary | xiii
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- Page 9 and 10: AcknowledgmentsThe report was prepa
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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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The WBG urban transport portfolio (
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y conventional transport systems, i
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include the forest carbon projects
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for Costa Rica for the period 2000-
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After 20 years of effort, systemati
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orrowers have demonstrated the abil
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Chapter 5EVALuATioN HigHLigHTS• O
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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