for monitoring their direct results, they do not yet trackhow effectively these results are reaching their intended audience.As other IEG reports have noted, cost-benefit analysis hasfallen out <strong>of</strong> fashion, impeding the WBG’s ability to identifyhigh-return investments. <strong>The</strong> estimates quoted here remainan unvalidated and possibly overoptimistic guide. <strong>The</strong> lack<strong>of</strong> good impact evaluations <strong>of</strong> forest projects, for instance,has deprived the REDD agenda <strong>of</strong> urgently needed guidanceon how best to combine forest protection with economicdevelopment.Publicly disclosed monitoring <strong>of</strong> carbon projects shows thegains from feedback. Landfill gas projects proliferated withthe advent <strong>of</strong> the carbon market, but monitoring reportssoon showed that these projects were systematically underperforming,relative to their design expectations. Thisfeedback revealed that the appraisal models were based onUS experience, which is inapplicable to the waste streams<strong>of</strong> developing countries. <strong>The</strong> WBG helped to publicize thisdiscovery.Newer projects have incorporated design and operationallessons. This kind <strong>of</strong> systematic feedback is missing frommost projects, though IFC’s monitoring system is beginningto cover it. Feedback is especially needed for renewableenergy projects, where economic and carbon impactsare proportional to capacity utilization. Many hydropowerand wind projects are underperforming for reasons that arenot clear.At the organizational level, the WBG has framed SFDCCgoals in terms <strong>of</strong> dollars committed, rather than outcomesor impacts. This sets up poor incentives. For instance, energyefficiency projects are expensive in staff time and leadto relatively modest volumes <strong>of</strong> lending, yet can benefit clientsmore than cheaper-to-prepare, larger-volume generationprojects.Recommendations<strong>The</strong> WBG should maximize its leverage in promoting lowcarbondevelopment. This will require a strategic approachto portfolio choice, instruments deployed, and technologypolicy. And it means scaling up what works and redesigningwhat does not, using learning to unlock value for clientsand for the world. Key aspects are as follows.Act like a venture capitalistIn both the public and private spheres, the WBG can supportthe transfer, adaptation, piloting, and demonstration<strong>of</strong> innovative technologies, policies, and financialpractices—as it has, for instance, with ESCOs, bus rapidtransit, solar home systems, and agr<strong>of</strong>orestry. <strong>The</strong>se demonstrationscarry risks but can <strong>of</strong>fer high returns. Whatcounts for clients, the WBG, and the world, however, is thereturn on the portfolio in development, poverty reduction,and GHG mitigation.A first challenge is to mitigate risks. This means using GEFor other concessional funds (grants or low-interest loans)to support the earliest and riskiest ventures, so that failuresare less costly to borrowers. Because <strong>of</strong> the potential forhigh returns, this could be a much higher-leverage use <strong>of</strong>climate finance than the purchase <strong>of</strong> carbon <strong>of</strong>fsets frommarginally pr<strong>of</strong>itable renewable energy projects. Risk isfurther mitigated by staging successively larger pilots anddemonstrations, from test site to province to nation. Withincreasing experience and comfort, scale expands and riskdeclines. Changes are necessary, too, in internal WBG incentivesto reward staff and managers for conducting informativepilots and for producing results at the portfoliorather than the project level.A second challenge is to design projects effectively for learningand diffusion. Pilot or demonstration projects musthave a clear, logical framework showing how they will promotediffusion the knowledge gained through experience.Pilot, demonstration, and technology transfer projects requireadditional support for preparation and supervision infunding and on-call expertise.Though there is a clear case and large scope for WBG involvementin technology transfer at the national level, thecase is less clear for WBG involvement in new technologydevelopment at the global level. Candidate technologieswould be those where WBG support could make an appreciabledifference to the global market, helping to pushcosts down. Of special interest are technologies that benefitpoor people and are difficult to protect from copying(and therefore attract little private R&D)—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 effortis sufficiently large to globally push the industry down thecost curve.<strong>The</strong> <strong>World</strong> <strong>Bank</strong> and IFC should—• Create incentives and mobilize resources to supporteffective pilot, demonstration, and technologytransfer projects that have a clear logic <strong>of</strong> demonstrationand diffusion. This will include mobilizingGEF and other concessional funds to mitigate <strong>World</strong><strong>Bank</strong> borrower risk, reshaping incentives for staff andmanagers, providing adequate resources for the designand supervision <strong>of</strong> complex projects, and makingavailable specialized expertise in technology transferand procurement through a real or virtual technologyunit.xiv | Climate Change and the <strong>World</strong> <strong>Bank</strong> Group
Scale up high-impact investmentsEnergy efficiency <strong>of</strong>fers high economic and carbon returns.<strong>The</strong> WBG should—• Place greater emphasis on large-scale energy efficiencyscale-up, as measured by savings in energyand reduced need for new power plants. This includessupport for efficient lighting and for exploringthe scope for accelerating the global phase-out <strong>of</strong> incandescentlight bulbs. It also includes continued andexpanded support for reductions in transmission anddistribution losses. And it includes a proactive searchby IFC for large-scale, catalytic investments in energyefficiency. <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 manufacturing andmore efficient products.<strong>The</strong> WBG should, wherever possible, help clients findcleaner, domestically preferable alternatives to coal power.Moreover, the WBG faces strategic choices in staffing andprogramming between building up expertise in “sunrise”sectors <strong>of</strong> broad applicability and limited private sectorcompetition (energy efficiency, land use management forcarbon, energy systems planning) versus “sunset” sectorssuch as coal power. <strong>The</strong> WBG should—• Help countries find alternatives to coal power whileretaining a rarely used option to support it, strictlyfollowing existing guidelines (including optimal use <strong>of</strong>energy efficiency opportunities) and being restrictedto cases where there is a compelling argument for povertyor emissions reductions impacts that would not beachieved without WBG support for coal power.<strong>The</strong> WBG cannot tackle this issue alone. Complementaryfinancing for renewable energy and investments in technologyR&D are needed from the developed world to providebetter options for the WBG’s clients.Protected areas—especially those permitting sustainableuse—reduce tropical deforestation, providing local environmentalbenefits as well as carbon emissions reductions.<strong>The</strong> WBG should—• Continue to explore, in the REDD context, ways t<strong>of</strong>inance and promote forest conservation and sustainableuse, including support for indigenous forestareas and maintenance <strong>of</strong> existing protected areas.In terms <strong>of</strong> its instruments—• MIGA’s upcoming FY 2012–15 Strategy should outlinethe role and scope for MIGA to provide politicalrisk insurance to catalyze long-term financing forrenewable energy projects, building on its expertiseand existing portfolio <strong>of</strong> climate-friendly guaranteeprojects.• <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-Kyoto carbon finance efforts should focus on demonstratingeffective technical and financial approachesto boosting low-carbon investments. Funds and facilitiesshould have clear exit strategies.Reorient incentives toward learning and impact<strong>The</strong>re is an urgent need to better understand the economic,social, and GHG impacts <strong>of</strong> a wide variety <strong>of</strong> scalable interventions.How can REDD programs incorporate the lessons<strong>of</strong> protected areas, environmental services payments,and community forestry? What is the best way to encourageenergy efficiency in the building sector?Traditional evaluation cycles are too slow when tens <strong>of</strong>billions <strong>of</strong> dollars may be deployed annually for climatefinance and where there is a danger <strong>of</strong> lock-in to highcarbongrowth. At the same time, information costs areplummeting, remote sensing resources are multiplying, andcell phone access is nearly universal. By wiring up projectsto return early information on impacts, global innovationcan be accelerated and the WBG can optimize project supervisionand new project design.<strong>The</strong> WBG’s extensive project portfolio and support forcountry strategies makes it a natural nexus for this globalpublic good. <strong>The</strong> WBG should—• Measure projects’ economic and environmental impactboth during execution and after closure and aggregatethis information for analysis. For instance,renewable energy projects should monitor capacityutilization, and energy efficiency projects should monitorenergy savings. This may require the use <strong>of</strong> concessionalfunds to defray additional costs <strong>of</strong> monitoring bystaff, clients, and project proponents.• Link these measures to a results framework that shiftsthe SFDCC toward a focus on outputs such as powerproduced, power access, forest cover, and transitshare <strong>of</strong> urban trips, rather than on money spent.Executive Summary | xv
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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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Chapter 4eVAluATioN HigHligHTS• B
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Chapter 5EVALuATioN HigHLigHTS• O
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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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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