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

should have been strengthened in the report. This wouldhave helped identify a set of concrete suggestions on howbest to capture and measure the potential developmentdividend of low-carbon growth.B. Areas of divergenceStrategic direction. Management is of the view that severalmajor policy decisions made by the WBG on climatechange needed to be better reflected in the IEG report. Specifically,the report tends to imply that the SFDCC requires“optimizing” both local and global benefits and outcomes.However, this premise is not the message of the StrategicFramework; the SFDCC very clearly states that the WBG isto help clients “maximize” national and local developmentoutcomes, taking advantage of low-carbon growth opportunitiesto achieve these outcomes whenever possible. Itwould have been better if the IEG report had correctly presentedcurrent WBG policies as articulated in the SFDCC.While the IEG report makes selective references to specificrecent initiatives that draw on lessons from experiencesover the study period, it does not recognize the significanceof ongoing changes that have been facilitated by theadoption of the SFDCC. These changes cut across projectdesign and implementation, corporate targets, and new financialinstruments and are also reflected in organizationalrestructuring as well as addition of new staff with specializedexpertise. While it is too soon to evaluate their impact,these actions are indicative of greater corporate commitmentto addressing climate change. For example, climatechange work has become a major focus of IFC’s business.The IEG report should also have emphasized more stronglythat the “debate” has moved beyond “low-carbon” developmentto “climate smart” development as noted in the WorldDevelopment Report 2010, taking into account synergiesthat exist between climate resilience and low-carbongrowth.Cleaner production. An area of difference in views concernsIFC’s Cleaner Production (CP) program, which IEGsummarizes as dedicating “significant resources … to smallloans” and largely dependent for impact on concessionallending. In contrast, management perceives cleaner productionmore broadly as part of a systematic approach tohelping clients identify opportunities for resource and energyefficiency which can be implemented at low cost andwith continuing benefits. Management would like to stressthat the CP program is one initiative among others that aimto improve resource-use efficiency in IFC operations.Coal power. Management would like to emphasize that theapplication of the system analysis suggested for evaluatinginvestment decisions for coal power projects should takeinto account differences across power markets. The IEGreport’s conclusion that investment in transmission anddistribution (T&D) loss reduction would avert the neededcapacity addition from the Tata Mundra project in India isoversimplified. This conclusion does not account for differencesin power supply-demand balances or the level of T&Dlosses within India’s regional networks (the 27 percent T&Dlosses cited in the report is an average across five regionalnetworks). An investment decision on capacity additionsis always linked to a prospective service market, not to theentire country. The analogy of using the same system wideapproach as for the Kosovo electricity system analysis is aninappropriate extrapolation, since the total system capacityis only about 1,000 MW linked through a single nationaltransmission network. For Kosovo, any investment in T&Dloss reduction will result in capacity availability in any regionof the country; whereas in India, the power market is muchlarger, and the supply-demand situation varies locally.Energy efficiency. Management is of the view that thereport’s evaluation of energy efficiency is somewhatoversimplified in that it does not include a discussion ofoperationally-relevant nuances vis-à-vis energy efficiencybarriers. By limiting the discussion to specific financingtools such as credit lines, the analysis does not fully appreciatethe broader challenges in dealing with energy efficiencyimplementation through key delivery mechanisms(for example, incentive systems, market-based approaches,and regulatory policies to implement energy efficiency subprojects)which are required to overcome energy efficiencysector constraints and address transaction risks. Furthermore,by focusing on only a few types of interventions, thediscussion does not mention some of the barriers addressedthrough other operations (technical assistance, policy work,and so forth), which are meant to create additional driversfor energy efficiency (mostly through incentives or throughnew policy drivers). As a result, the evaluation depicts anincomplete picture of World Bank programs in some countries,most notably in China.Management also believes that barriers to investment inenergy efficiency, particularly within many large energy-intensiveindustries, remain significant and justify continuedtargeted efforts to work with banks and commercial lenders.This conclusion is underscored by recent announcementsof setbacks in achieving Chinese targets for energyefficiency improvements in key industrial sectors. IEG’smethodology, which relies primarily on self-reporting byindustrial enterprises already under government mandate,needs to be reassessed, with more attention given to commercialrealities and constraints on clean energy lending.Outstanding data issues. Management finds that the datafile provided in the report is difficult to reconcile with theenergy database, and as such, does not allow for verificationof IEG’s numbers. Further efforts to ensure consistency ofdata would be desirable.Management Response | xvii