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

Major monitorable IEGrecommendations requiring a responseThe World Bank should take the necessary stepsto enhance the delivery of its guarantee productsby taking actions to improve policies and procedures,eliminate disincentives, increase flexibility,and strengthen skills for the deployment ofthe products. It should assess the potential forgreater use of partial risk guarantees to mobilizelong-term financing for renewable energy projects,particularly in the context of feed-in tariffsor other premiums to support investment inrenewable energy.The Carbon Partnership Facility and other post-Kyoto carbon finance efforts should focus ondemonstrating effective technical and financialapproaches to boosting low-carbon investments.Funds and facilities should have clear exitstrategies.The WBG should—Measure projects’ economic and environmentalimpact during execution and after closure andaggregate this information for analysis. For instance,renewable energy projects should monitorcapacity utilization, and energy efficiencyprojects should monitor energy savings. This mayrequire the use of concessional funds to defrayadditional costs of monitoring by staff, clients,and project proponents.Management Action Record (continued)Management responsePartially AgreeIn response to IEG’s evaluation of WBG guarantees, Management has been engagedin ongoing discussions on opportunities to optimize the delivery of WBG guaranteeinstruments and has taken action to introduce greater flexibility in the use of Bankguarantee instruments in response to dynamic country and client needs and marketdevelopments. A Memorandum of Understanding was recently signed betweenthe World Bank and MIGA to provide incentives to staff to collaborate and a similaragreement is being worked on with IFC. The Bank is working to increase potential forgreater use of partial risk guarantees for renewable energy projects and is allocatingmore staff and resources accordingly. The World Bank feels that the delivery of renewableenergy guarantee products should not single out the feed-in-tariff instrument, asthe effectiveness and efficiency of its application varies across market structures andvaries across countries depending on their energy access levels, with the potential toresult in high energy costs that will need to be borne by consumers.Ongoing/AgreeCPF and FCPF were clearly established for the purposes described. Beyond thesefacilities, the World Bank is invited to explore how to facilitate developing countries’further access to the carbon market and expand the reach of market mechanisms inland use, including in agriculture. Work is under way to develop successor facilities toCDCF and the BioCarbon Fund.Each fund and facility has its own clear exit strategy corresponding to when its capitalhas been fully committed. Regarding CPF, each tranche is to be established based onan assessment of the needs for further methodology development and piloting ofnew approaches to scale up the use of market mechanisms.DisagreeWhile WBG assesses projects’ environmental impacts before, during, and after implementation,there are methodological difficulties in aggregating these.There is not a clear source of concessional funding to defray the additional cost ofmonitoring by staff and project proponents, apart from climate-related trust funds,such as the CIF. Under the CIF, results frameworks are currently under development.Each multilateral development bank partner and client will be responsible formonitoring results in accordance with the frameworks. Under the CTF and the SREP,indicators for renewable energy and energy efficiency investments will be tested inCIF-funded operations.Measurement is being strengthened with respect to climate change mitigation. Asoutlined in SFDCC, a methodology for “carbon tagging” has been developed andprototyped. Once this methodology is adopted, this will help aggregate the projectcommitments coded as GHG mitigation (CO 2emission reduction). In addition, a newset of core indicators for IDA investment lending operations was approved by the Energyand Mining Sector Board in 2009, to better capture impacts of the implementationof renewable energy projects. For energy efficiency projects in the IDA portfolio,a similar set of indicators, including project energy savings, is currently under review.The formulation of new core indicators for energy projects is also proposed for IBRDfinancedoperations.IFC feels that collecting information on project performance may be complex andunrealistic for some financial intermediation-based lending instruments (for example,small loan programs for SMEs). Nevertheless, more efforts could be made in termsof monitoring, if additional resources were available to cover the extra costs of staff,clients, and project proponents.(continued)Management Response | xxi