Statement <strong>of</strong> the External High-LevelReview Panel<strong>The</strong> High-Level Review Panel (Panel) has been asked tocomment on the Phase II report <strong>of</strong> the Independent EvaluationGroup’s (IEG) evaluation Climate Change and the<strong>World</strong> <strong>Bank</strong> Group. <strong>The</strong> Phase I evaluation was devoted toassessing the role <strong>of</strong> policy actions in support <strong>of</strong> low-carbongrowth and stressed the importance <strong>of</strong> energy price rationalization.Like the Phase I report, this report places specialstress on the need for systems thinking in key sectors suchas energy, transport, and forestry. <strong>The</strong> Panel appreciatesboth the extensive amount <strong>of</strong> work and the scope <strong>of</strong> the assessmentassembled by the two reports together and separately.Summarizing <strong>World</strong> <strong>Bank</strong> Group (WBG) activitiesand giving a comprehensive review <strong>of</strong> the changing role <strong>of</strong>the <strong>Bank</strong> and future options is difficult because <strong>of</strong> the sizeand diversity <strong>of</strong> the <strong>Bank</strong>. <strong>The</strong> challenge <strong>of</strong> preparing such areport is compounded by the decline in the use <strong>of</strong> cost benefitanalysis over recent decades that has been documentedin another recent IEG report (IEG 2010a).We find the current report to be written with exemplaryclarity. As far as we have been able to ascertain, it gives bothan even-handed overview <strong>of</strong> the changing WBG practicein this area and a level-headed analysis <strong>of</strong> the options andalternatives ahead.<strong>The</strong> report is at once supportive and critical <strong>of</strong> the variousdimensions <strong>of</strong> the WBG activities and represents an element<strong>of</strong> an ongoing evolution <strong>of</strong> the thinking about the work alreadyunder way, or in need <strong>of</strong> further implementation,in the multiple activities <strong>of</strong> the WBG. <strong>The</strong> Panel also bothsupports and criticizes the reviewed practices <strong>of</strong> the WBGand equally recommends a continuing evolution <strong>of</strong> WBGperspectives in its adaptation to the pressing needs for climatefinance. In this comment, we want to reinforce the keymessages in the report: that the WBG can and should play acentral role in the multilateral and national responses to theworldwide development/climate problems before us.We believe that the tensions between development andclimate are a chimera: the damages from climate changewill counteract the development aspirations <strong>of</strong> low-incomecountries. To mitigate climate damages is a vital developmentgoal. Again, in agreement with the report, we believethat the newer and integrated strategies for low-carbongrowth can, if well and consistently pursued, minimize orovercome these tensions. Finally, we emphasize that theWBG, as other institutions that grew up before the challenges<strong>of</strong> climate resilient development were apparent,must alter its practices <strong>of</strong> investment and capacity buildingto adapt to the different politics and technologies that noware present. We hope our comment will be read in the samespirit as the IEG report, reinforcing and extending the workwe are charged to review.<strong>The</strong> <strong>Challenge</strong> <strong>of</strong> Climate Change and<strong>Low</strong>-<strong>Carbon</strong> (Green) GrowthA number <strong>of</strong> features set the management <strong>of</strong> climate risksapart from most developmental and environmental problems.It spans centuries, forcing us to rethink intergenerationalequity issues between and within countries. Ifunchecked, climate change might threaten the developmentaspirations <strong>of</strong> the poor. If approached creatively, it opensdevelopment opportunities. Rapid economic growth inthe last decades has substantially reduced poverty in somecountries, but now the very sustainability <strong>of</strong> this growth isseriously threatened by climate change unless we changeour growth strategies. Some implications <strong>of</strong> the long-runlow-carbon strategy are clear, such as the virtual phase-outin this century <strong>of</strong> fossil fuel use. This will require a highprice on carbon emissions or other aggressive policy measuresand incentives, with inclusive participation acrossthe world. Others aspects <strong>of</strong> these alternative developmentstrategies in the areas <strong>of</strong> forestry and innovation suggestquite immediate interventions to preserve depletable assetsor lay the foundations for the commercialization and diffusion<strong>of</strong> newer technologies that cannot be deferred.Although the short-run capital, operational, and transitioncosts <strong>of</strong> managing climate change risks are sizable, they arestill dwarfed both by the benefits <strong>of</strong> and by the resourcesavailable from a century <strong>of</strong> growth. Green growth and winwinopportunities are increasingly recognized by nationalleaders as real options, but coal is <strong>of</strong>ten the cheapest currentinvestment and the (shadow) carbon prices currentlydiscussed are, as shown by the IEG report, inconsequential.In the multilateral climate negotiations, the distribution <strong>of</strong>these costs is deeply contentious and it will take some timeto resolve. Eventually we will live in a world where all productiveresources, including the climate regulating functions<strong>of</strong> the atmosphere have a price—just like land does today inxxiv |Climate Change and the <strong>World</strong> <strong>Bank</strong> Group
most places. Before we get there, we are in an interregnumwhen policy making is quite complex. What the situationneeds are credible agents that provide the vision to bridge thegap, leadership in this crucial task, and the capacity to mobilizeand channel resources responsibly. As suggested in thisreport, the WBG can and must contribute to this leadership.<strong>The</strong> WBG Role<strong>The</strong> report finds that there are multiple and overlappingreasons for WBG involvement and action. First, it is evidentthat when environmental externalities are taken intoaccount, unregulated markets will not optimize socialwell-being. Second, given past regulatory practices and therising costs <strong>of</strong> sustainable energy services associated withclimate change and with other environmental and resourceproblems, there is good reason to believe that greenergrowth built on less extensive exploitation <strong>of</strong> this resourcebase can increase productivity and development. Third, thehistorically low resource prices associated with prior industrialgrowth have failed to motivate innovation <strong>of</strong> systemsthat use resources in smarter ways. Looking systematicallyat these opportunities through integrated planning is theresponsibility <strong>of</strong> agencies such as the WBG, which makeinvestment capital available, especially in poorer countrieswith less institutional capacity to perform this analysis.<strong>The</strong> IEG report highlights that the problem <strong>of</strong> responsibleleadership in this field is compounded by the inability <strong>of</strong>the multilateral system over the past years to agree on aregime for giving meaningful price signals and complementaryincentives for managing carbon risks. It has beenrecognized in principle that climate change is a true threatto development and poverty alleviation, and there is agrowing (although not yet sufficiently large) willingness topay for global mitigation services. Yet there are not inclusivesanctions imposed on greenhouse gas emissions thatwould signal to all nations that resource use must changeor provide the funds for climate-specific transfers to put asignificant positive incentive behind cleaner technologiesin less developed countries. In the absence <strong>of</strong> such agreedinternational policy guidance to markets, it is especiallyimportant that established global coordinating agents usefinancial markets to internalize the shadow costs <strong>of</strong> carbonand the prospective returns <strong>of</strong> green investment into theirinvestment portfolios. We believe that the WBG—with itsaccess to world capital markets, the ears <strong>of</strong> policy makersin all countries, and a credible engagement in both developmentand environmental issues—is a strong candidatefor this position. <strong>The</strong>re are many other important agents,including governments, industry, and the United Nations.However, in the current situation, there is a particularneed for the WBG to consider its exceptional position toarticulate and promote the long-run investment horizon,the production <strong>of</strong> global public goods and services, and thesystemic planning perspective that few other financial bodiesare able to define and pursue.Although the report does not make the overall portfolio <strong>of</strong>WBG energy investments a principal subject <strong>of</strong> criticism,we urge that this question <strong>of</strong> WBG perspective receivemore direct attention. <strong>The</strong> bottom line is that virtuallyall forms <strong>of</strong> energy supply entail some serious issues, andhence optimization <strong>of</strong> demand through effective management,overview <strong>of</strong> tariff structures, reduction <strong>of</strong> grid losses,and other methods <strong>of</strong> increasing energy productivity should@ CorbisStatement <strong>of</strong> the External High-Level Review Panel | xxv
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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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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