have had limited causal impact on these reductions. <strong>The</strong>large client firms enjoyed good credit and were respondingin part to China’s vigorous pursuit <strong>of</strong> energy efficiencygoals in the Five-Year Plan. Still, if CHUEE countedall its project costs, but counted as beneficiaries only theminority <strong>of</strong> clients who said they had no other potentiallender, CHUEE’s overall ERR was 38 percent (about half<strong>of</strong> which was carbon emission reductions, valued at $19/ton <strong>of</strong> CO 2).Economic and financial returns fromsubprojects are not consistently monitored.Economic and financial returns from subprojects are notconsistently monitored across projects. <strong>The</strong> energy efficiencyprojects in Bulgaria and Romania, unlike the others, monitorex post results. In Romania, where most projects wereindustrial, financial returns ranged from 15 to 87 percent. InBulgaria, which had a more diverse portfolio, returns rangedfrom 13 to 37 percent. <strong>The</strong> Russian project (still in progress)reports a mean ratio <strong>of</strong> annual energy cost savings to projectcost <strong>of</strong> 20 percent, but this value is problematic, reflecting anabstruse but crucial methodological issue. 2Projects with energy savings targets arefalling short <strong>of</strong> those targets.All the projects with energy savings targets are falling short<strong>of</strong> those targets, <strong>of</strong>ten by a large margin. Croatia stands at3 percent, Bulgaria energy efficiency at 6 percent, and OTPat 19 percent. (Note, however, that these projects are stillongoing through 2010 or 2011, and final outcomes may differas experience progresses and data are reexamined.) <strong>The</strong>shortfall is evident even after allowing for the low disbursementrate <strong>of</strong> some projects.Appraisal <strong>of</strong> potential GHG savings appears to have usedinconsistent and, in some cases, erroneous values relatingCO 2to energy. Reported achievements <strong>of</strong> CO 2savings areroughly commensurate with actual energy savings, exceptfor the Bulgaria project. <strong>The</strong>re the implied CO 2saving/energysaving ratio appears to be unusually high. Overall itis difficult to reconcile high financial rates <strong>of</strong> return withunderachievement <strong>of</strong> energy targets. Further investigationinto monitoring and appraisal methodologies is needed.Post-project sustainability and catalytic impacts. <strong>The</strong>clearest case <strong>of</strong> sustainability is in Russia, where someparticipating banks have begun to make loans withoutIFC resources, using IFC’s energy efficiency CalculatorTool. For Central Europe the case is less clear. BeforeIFC’s Commercializing Energy Efficiency Finance Programstarted operation in 2003, there was no bank inmarkets like the Czech Republic, Hungary, or Slovakiathat specifically targeted energy efficiency or renewableenergy financing. With significant input from the financeprogram’s technical assistance team, two banks have createddedicated internal units and developed productsspecifically for the energy efficiency/renewable energymarkets. With the expiration <strong>of</strong> the subsidized guaranteeprograms, however, some <strong>of</strong> the banks involved in theenergy finance program have discontinued lending forstreet lighting and residential energy efficiency or havereverted to previous collateral requirements.<strong>The</strong> catalytic impact <strong>of</strong> the WBG projects on the broaderenergy efficiency finance market is difficult to evaluate because<strong>of</strong> the impact <strong>of</strong> the financial crisis, because monitoringand evaluation was not generally set up to track diffusion,and because rising energy prices throughout theregion (figure C.1) would be expected to encourage energyconservation regardless <strong>of</strong> WBG intervention. <strong>The</strong> RussiaSustainable Energy Finance Program does have as an indicatoradoption <strong>of</strong> energy efficiency lending by nonpartnerbanks and reports three instances. Observers <strong>of</strong> Hungarianbanking find it difficult to pinpoint diffusion impacts <strong>of</strong> theIFC projects.In Russia, joint IFC-IBRD technical assistance and analyticwork, including an enterprise survey, highlighted thetremendous scope for pr<strong>of</strong>itable energy efficiency in theRussian economy. This work estimated that up to 40 percent<strong>of</strong> energy consumption could be cost-effectively reduced.WBG analytic efforts provided key inputs to theRussian government as it drafted a new energy efficiencylaw, recently adopted. <strong>The</strong> impacts <strong>of</strong> the law will dependon yet-to-be-adopted implementation regulations.Direct Investments in Energy EfficiencyIFC’s energy efficiency emphasis has been on the use <strong>of</strong> financialintermediaries, but it also makes direct investmentsassociated with energy efficiency. Often energy efficiency isincidental to plant modernization or expansion. In othercases, energy efficiency is the main goal, as in installation <strong>of</strong>waste-heat recovery equipment.Mainstream investmentsIn 2005, IFC began to review projects to determine whetherthey could be claimed as having energy efficiency content.Over the period fiscal 2005–08, 48 such projects were identified.IFC assigned a notional proportion <strong>of</strong> each investmentto energy efficiency. In total, $392 million <strong>of</strong> IFC’s$1.96 billion investment (in projects valued at $3.96 billion)was considered to be energy efficiency. Ten projectsaccounted for more than 80 percent <strong>of</strong> the notional energyefficiency investments.IFC has supported some CO 2-intensive cement and steelcompanies in replacing obsolete, inefficient production38 | Climate Change and the <strong>World</strong> <strong>Bank</strong> Group
lines. Some <strong>of</strong> the companies involved emit more than10 million tons <strong>of</strong> CO 2annually—more than some countries—soefficiency gains could have global significance.Four cement projects replaced old wet process equipmentwith more efficient dry process production lines. Governmentpolicies, together with cost savings, motivated thephase-out <strong>of</strong> old facilities, and these companies likely hadgood access to credit, so IFC’s additionality is not clear.Two investments in an Eastern European steel companysupported replacement <strong>of</strong> open-hearth furnaces with modernblast furnaces. In this case, the combination <strong>of</strong> difficultcredit, low energy prices, and an IFC environmental andsocial action plan makes it plausible to attribute the efficiencygains to IFC’s intervention.In other cases, the basis for allocating investment amountsto energy is unclear. Two investments, totaling $55 million,supported airlines in modernizing their fleets. <strong>The</strong>se investmentswere entirely classified as energy efficiency, althoughthey conferred other benefits, such as safety, comfort, andreliability.In many cases, it is not clear if IFC’s directinvestments have led to improvements inenergy efficiency.and CO 2emissions, so it is impossible to quantify energyor GHG savings. Some <strong>of</strong> the projects were initiated beforeGHG monitoring was required. But even where required,compliance with monitoring is imperfect.<strong>The</strong> cleaner production initiativeApproved in January 2007, the three-year, $20 million CleanerProduction Lending Pilot is a proactive initiative to seekand promote energy, water, and materials efficiency opportunitieswithin IFC’s existing clientele. <strong>The</strong> program focusedon clients with good credit standings and environmental performance,enabling IFC to significantly reduce loan preparationtime and effort. Projects were identified either directlywith clients or via optional donor-funded energy audits.In 2009, the pilot was scaled up to a $125 million, threeyearCleaner Production Lending Facility, covering all realsector investments. To complement the loan funds, a$5 million Global Cleaner Production Facility (GEF-fundedvia the Earth Fund) will c<strong>of</strong>inance Cleaner Productionaudits. Clients will bear half the audit costs.<strong>The</strong> $20 million Cleaner Production Lending Pilot was fullycommitted to eight projects, with an average loan size muchsmaller than the IFC norm. Three <strong>of</strong> the projects employedthe donor-funded energy audits; in other cases, the clientsidentified energy efficiency savings. <strong>The</strong> projects’ projectedPhoto by Gennadiy Ratushenko, courtesy <strong>of</strong> the<strong>World</strong> <strong>Bank</strong> Photo Library.In one case, IFC invested in an American-owned distributionutility in an Eastern European country, with an explicitgoal <strong>of</strong> reducing technical losses, which stood at 12.6 percent.Five years after the initial investment, the goal had notbeen achieved: technical losses had actually increased to15 percent. Had the company reduced losses to 8 percent(a conservative target), it could have cut CO 2emissions by180 thousand tons per year.Most <strong>of</strong> these ex post identified energy efficiency projectslack baseline and monitoring data on energy efficiencyreturns to investment were 22–117 percent (with a median<strong>of</strong> 36 percent) and are projected to yield 1–19 kilograms<strong>of</strong> CO 2per year per dollar invested (or roughly an additional1–19 percent to the return on investment if carbonis valued at $10/ton <strong>of</strong> CO 2), with carbon returns mostlyproportional to financial ones.Total annual CO 2savings are estimated at 136,613 tons. Buta single company accounted for half those savings. Thus, significantresources are devoted to small loans that yield CO 2savings <strong>of</strong> just a few thousand tons <strong>of</strong> CO 2per year. Ex postEnergy Efficiency | 39
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Phase II: The Challenge of Low-Carb
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CLIMATE CHANGE AND THE WORLD BANK G
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Table of ContentsAbbreviations . .
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Figures1.1 GHG Emissions by Sector
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AcknowledgmentsThe report was prepa
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Executive SummaryUnabated, climate
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of some technologies, such as landf
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Scale up high-impact investmentsEne
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Appendix ARenewable Energy Tables a
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Table A.4Grid-Based Biomass/Biogass
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Figure A.4A. Hydro/biomass capacity
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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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Appendix JRecent WBG Developments i
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Hartshorn, G., P. Ferraro, and B. S
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IEG PublicationsAnalyzing the Effec