The Challenge of Low-Carbon Development - World Bank Internet ...
The Challenge of Low-Carbon Development - World Bank Internet ... 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
non-Annex I countries. The World Bank’s Carbon FinanceUnit (CFU) has led, through its extensive activities in CleanDevelopment Mechanism markets, to expanding the roleof, and the infrastructure for, carbon trading between developedand developing nations. However, there has beencriticism of the environmental quality of many projects thatthe WBG has supported, including industrial gases, hydropower,and fossil (gas and coal) power plants, which maywell have been either profitable in themselves or were pursuedprimarily for the purpose of national energy diversificationand security policies. In addition, although the CFUwas promoted as a market maker that could act as a carbonoffset buyer until the private market flourished, the WBGcontinued to build up its trading after that private marketwas fully established. Finally, as a vehicle for catalytic financeand technology transfer, the IEG finds the CFU’s recordis at best mixed. The Panel suggests that the WBG hasa public responsibility to ensure that its behavior advancesprograms have been valuable in exposing that inadequatelending for energy efficiency often reflects wider credit marketfailures, including onerous requirements for collateral.However, it is important to note that, contrary to expectations,although market transformation programs were oftenconceived as temporary, WBG experience indicates thatthese actions proved difficult to discontinue even as banksor firms gained familiarity with energy efficiency lending.The Panel finds that the WBG could focus even more extensivelyon these less usual categories of transition financing,but needs to pay careful attention to the incentives that willhelp convert such demonstrations of market potential intocommercial local finance as rapidly as possible.The Panel also applauds the report’s attention to the importanceof technology development or promotion andits transfer or diffusion. Technological innovation requiresspecial conditions to be successful. The report argues thatinnovations are more apt for WBG support when thePhoto by Dana Smillie, courtesy of the World Bank Photo Library.the quality of international institutions that regulate carbonfinance markets, rather than acting principally as a puremarket player profiting from expanding market scale.Both the report and the Panel underline the importanceof market transforming measures. The Panel confirms theview in the report that loan guarantees, innovative forms ofinsurance for joint ventures and other types of commercialorganizations that encourage the international transfer oftechnologies, can be valuable. Likewise, investment in newservice providers such as energy service companies (ESCOs)or transmission and distribution loss reduction programsare especially valuable in climate-related activities. WBGBank can help defray risks that are peculiar to a certainenvironment or when the supported innovations are particularlyadapted to conditions, inputs, or skills found indeveloping countries. The barriers to technology diffusionare very often related to institutional factors such asthe character of competition and industrial structure. Dependingon market structure, competitors may resist thediffusion of technology and the WBG must have a realisticstrategy and realistic goals that take this into account. Thereport argues that in numerous cases international supportwas essential to mitigate up-front risk and to pay for globalbenefits of knowledge created.Statement of the External High-Level Review Panel| xxvii
- Page 1 and 2: Phase II: The Challenge of Low-Carb
- Page 3 and 4: CLIMATE CHANGE AND THE WORLD BANK G
- Page 5 and 6: Table of ContentsAbbreviations . .
- Page 7 and 8: Figures1.1 GHG Emissions by Sector
- Page 9 and 10: AcknowledgmentsThe report was prepa
- Page 11 and 12: Executive SummaryUnabated, climate
- Page 13 and 14: esettlement plans has been ineffect
- Page 15 and 16: of some technologies, such as landf
- Page 17 and 18: Scale up high-impact investmentsEne
- Page 19 and 20: should have been strengthened in th
- Page 21 and 22: Major monitorable IEGrecommendation
- Page 23 and 24: Major monitorable IEGrecommendation
- Page 25 and 26: Chairman’s Summary: Committee onD
- Page 27: most places. Before we get there, w
- Page 31 and 32: attention. In a couple of decades,
- Page 33 and 34: GlossaryAdditionalityBankabilityBas
- Page 35 and 36: Joint ImplementationA mechanism und
- Page 37 and 38: Chapter 1evALuAtiOn HiGHLiGHts• T
- Page 39 and 40: of interventions, from technical as
- Page 41 and 42: would allow industrialized countrie
- Page 43 and 44: growth, poverty reduction (includin
- Page 45 and 46: Table 1.1 Map of the EvaluationSect
- Page 47 and 48: Chapter 2eValuaTION HIGHlIGHTS• W
- Page 49 and 50: Table 2.2Evaluated World Bank Renew
- Page 51 and 52: Figure 2.2Breakdown of 2003-08 Low-
- Page 53 and 54: Table 2.4 Commitments to Grid-Conne
- Page 55 and 56: Box 2.1The Economics of Grid-Connec
- Page 57 and 58: on average (Iyadomi 2010). (Reducti
- Page 59 and 60: and industrial policy. An increasin
- Page 61 and 62: Table 2.6Hydropower Investments by
- Page 63 and 64: costs for remaining unelectrified a
- Page 65 and 66: World Bank experienceTwo factors ac
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- Page 72 and 73: Box 3.1ESCOs and Energy Performance
- Page 74 and 75: have had limited causal impact on t
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non-Annex I countries. <strong>The</strong> <strong>World</strong> <strong>Bank</strong>’s <strong>Carbon</strong> FinanceUnit (CFU) has led, through its extensive activities in Clean<strong>Development</strong> Mechanism markets, to expanding the role<strong>of</strong>, and the infrastructure for, carbon trading between developedand developing nations. However, there has beencriticism <strong>of</strong> the environmental quality <strong>of</strong> many projects thatthe WBG has supported, including industrial gases, hydropower,and fossil (gas and coal) power plants, which maywell have been either pr<strong>of</strong>itable in themselves or were pursuedprimarily for the purpose <strong>of</strong> national energy diversificationand security policies. In addition, although the CFUwas promoted as a market maker that could act as a carbon<strong>of</strong>fset buyer until the private market flourished, the WBGcontinued to build up its trading after that private marketwas fully established. Finally, as a vehicle for catalytic financeand technology transfer, the IEG finds the CFU’s recordis at best mixed. <strong>The</strong> Panel suggests that the WBG hasa public responsibility to ensure that its behavior advancesprograms have been valuable in exposing that inadequatelending for energy efficiency <strong>of</strong>ten reflects wider credit marketfailures, including onerous requirements for collateral.However, it is important to note that, contrary to expectations,although market transformation programs were <strong>of</strong>tenconceived as temporary, WBG experience indicates thatthese actions proved difficult to discontinue even as banksor firms gained familiarity with energy efficiency lending.<strong>The</strong> Panel finds that the WBG could focus even more extensivelyon these less usual categories <strong>of</strong> transition financing,but needs to pay careful attention to the incentives that willhelp convert such demonstrations <strong>of</strong> market potential intocommercial local finance as rapidly as possible.<strong>The</strong> Panel also applauds the report’s attention to the importance<strong>of</strong> technology development or promotion andits transfer or diffusion. Technological innovation requiresspecial conditions to be successful. <strong>The</strong> report argues thatinnovations are more apt for WBG support when thePhoto by Dana Smillie, courtesy <strong>of</strong> the <strong>World</strong> <strong>Bank</strong> Photo Library.the quality <strong>of</strong> international institutions that regulate carbonfinance markets, rather than acting principally as a puremarket player pr<strong>of</strong>iting from expanding market scale.Both the report and the Panel underline the importance<strong>of</strong> market transforming measures. <strong>The</strong> Panel confirms theview in the report that loan guarantees, innovative forms <strong>of</strong>insurance for joint ventures and other types <strong>of</strong> commercialorganizations that encourage the international transfer <strong>of</strong>technologies, can be valuable. Likewise, investment in newservice providers such as energy service companies (ESCOs)or transmission and distribution loss reduction programsare especially valuable in climate-related activities. WBG<strong>Bank</strong> can help defray risks that are peculiar to a certainenvironment or when the supported innovations are particularlyadapted to conditions, inputs, or skills found indeveloping countries. <strong>The</strong> barriers to technology diffusionare very <strong>of</strong>ten related to institutional factors such asthe character <strong>of</strong> competition and industrial structure. Dependingon market structure, competitors may resist thediffusion <strong>of</strong> technology and the WBG must have a realisticstrategy and realistic goals that take this into account. <strong>The</strong>report argues that in numerous cases international supportwas essential to mitigate up-front risk and to pay for globalbenefits <strong>of</strong> knowledge created.Statement <strong>of</strong> the External High-Level Review Panel| xxvii
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