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

e WBG priorities. The WBG has made significant gains inrecent years through its Clean Energy Investment Framework,and it reports that it achieved a 40 percent share of itstotal energy commitments for renewable energy and energyefficiency for fiscal 2009. This total commitment figure caninclude funds for energy efficiency in fossil energy, hydropowerfacilities, new renewable energy technologies, andboth specific donor funds and structural lending. Thesealternative types of climate finance should be clearly andseparately reported to facilitate transparent understandingof the changing composition of WBG activities. The Panelalso makes specific remarks about continuing WBG lendingto coal fired power below. However, given the strongfindings of the IEG report on the economic viability of increasingnumbers of renewable energy or clean transportinvestment and the social value of the WBG acting to lowercapital and operational costs of newer technologies andsystems, the Panel urges the WBG to move more quicklyin its structural energy lending to assume the coordinatingrole of a strategic renewable energy investor.As does the IEG report, the Panel realizes that a change inWBG investing stance is not a simple or politically easy task.Our position, like that of the evaluation, is more forceful thanthe WBG Strategic Framework on Development and Climate.We recognize that various WBG stakeholders contest its abilityto lead on climate finance, that the WBG operates in apartial policy vacuum, and that it has neither a clear mandatenor control over many of the necessary international policiesto complement its investments. In spite of these factors, thePanel would go beyond even the IEG evaluations and reiterateby consensus that the Bank Group is uniquely positionedto take on roles that would as an investor and trustee be internallyinnovative and politically opportune in showing theway toward a comprehensive multilateral system in whichthe financing of low-carbon growth is the essential reform.General FindingsIt certainly is true in the short run that low-carbon growthcosts more (ignoring externalities) than business as usualgrowth (the evaluation emphasizes that renewable energy,aside from medium to large hydropower, does have highercosts or lower returns than other kinds of power generation);but the Panel, like the report, puts great stress on thepotential for a congruence of mitigation and development.The report shows there is ample scope for projects thatpromote local development goals while also mitigatinggreenhouse gases (see figure 6.1 of the report). In additionto energy efficiency investments, other projects may individuallyhave high carbon returns (forestry) or economicreturns (solar home photovoltaic systems). To optimizecarbon and economic gains, it may often be necessary toconstruct portfolios of projects, rather than pursue multiplegoals with a single instrument.The IEG report directs attention to energy efficiency, whichoffers low-cost or negative-cost opportunities to reducecarbon emissions. It finds that many people, inside andoutside the WBG, do not appear to take energy efficiencyseriously. However, especially noting that hoped-for largescaleclimate funding may not appear soon and that manycountries simply do not have good immediate alternativesto fossil power, many kinds of energy efficiency offer bothhigh economic returns to the borrowing country and highabatement returns to the world. Some types of energy efficiencyinvestments can be undertaken immediately, withconcurrent huge economic benefits and significant climatebenefits. At the same time, aggressive pursuit of energyefficiency today can defer the locking in of new carbonintensivepower construction like diesel or coal plants fora few years, allowing time both for technical progress toreduce the cost of renewable alternatives and for the internationalpolitical process to muster more climate finance.Although the Panel insists that it is necessary to reinforcethe effects of such investments by anticipating with complementarypolicies—such as tariff and tax reform—therebound effects of falling energy prices, it emphasizes theconclusion of the IEG report that the WBG should givevery high priority to energy efficiency.The Panel also underscores the evaluation’s finding that theWBG can emulate a role played by venture funding in theprivate sector. With current carbon prices, the power ofconcessional finance is often limited in mitigating the riskof high-risk projects. At $10/ton for CO 2, carbon financesimply doesn’t constitute a make-or-break factor in lowcarboninvestments. Yet there is a whole class of projectsthat offer high economic returns (to the adopting country)together with carbon benefits, but that present some apriori risks. Bus rapid transit and silvopastoral systems areexamples given in the text. Although risk-averse borrowingcountries will shy away from these until they are proven,concessional funds can mitigate this risk. WBG clean technologyfunds or other WBG climate finance could be usedto support a number of individual “start-up” projects, scalingup the ones that work, and produce an overall portfoliowith very attractive rates of return. The difference betweenthis and private venture capital is that the benefits accrueto the Bank’s client countries rather than the Bank itself—hence the need for concessional capital.Although the IEG report demonstrates a record of considerablesuccess in many WBG projects in the energyefficiency and off-grid photovoltaics (renewable energy),the WBG’s record in renewable energy more generally hasbeen more mixed and modest. Many hydropower and windprojects have underperformed relative to expectations. Stillgreater caution about the value of WBG programs shouldbe attached to the Group’s extensive efforts in pilotinginternational carbon markets between Annex I andxxvi |Climate Change and the World Bank Group