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Good intentions but not much action by World Bank

The World Bank is soon to adopt a new energy lending policy, and never before have environmentalists, advocates and businesses involved in renewable energy lobbied the institution so hard. After two years of deliberations and study, capped by several weeks of public comment, the giant bank, a multi-lateral lending agency based in Washington and an institution of the United Nations, is about to issue "Fuel for Thought: A New Environmental Strategy for the Energy Sector." The final draft was to go to the bank's board in March.

It has been ten years since such changes in World Bank energy lending policy have been on the table. The bank, which is a profit-making and self-sustaining institution, lends money from a revolving fund to more than 100 member countries for purposes of investment, foreign trade and debt repayment. With a mission to combat poverty through development, it does not lend money to arms projects, to anything to do with nuclear, even the clean-up of radioactive waste, or to do with tobacco. Nuclear is off-limits because, in part, the bank says the risks and costs are not fully known.

Although specifics of the new environmental strategy were not being released in advance, it is clear that renewables -- including wind -- could benefit substantially. No firm figure can be put on how much the lending for renewables will change, since the strategy includes flexible "ranges" instead of specific targets, say bank officials. Green and sustainable energy groups have called on the bank to earmark 20% of its energy lending for renewables.

Although that will clearly not happen, the new strategy should mean that lending for renewables is "significantly higher," says Charles Feinstein, chief of the agency's Global Climate Change Unit. He says the upper end of a target range or "stretch" for renewables lending may not fall that far short of the 20% being called for. The nearest the bank's strategy will come to targets are so-called "indicators" that measure whether the bank is doing business as it should, says another bank official.

The new strategy will mean that individual energy projects are assessed earlier in the planning process. That means that pollution abatement, for example, will be part of the cost assessment. Currently, about 8% of the bank's total lending to the power sector -- which is about $2 billion -- is allocated to new renewable technologies, which includes small but not large hydro. Much of it is leveraged by the Global Environment Facility, a fund operated by the World Bank and two agencies of the United Nations.

Bank priorities are changing in ways that are not linked to global warming. Since 1993, it has shifted its energy focus to bolstering institutions and to aiding the restructuring of electricity markets and power sector reform. This means its portfolio has shifted away from the traditional co-financing of government owned energy projects. The bank is also now lending less money directly to energy projects because it prefers development to be by the private sector. It is currently involved in only about 200 MW of wind projects at various stages, ranging from assessment to nearing completion. "Clearly we've got an awfully long way to go," laments a World Bank official.

Lobbying pressure

Controversy about the bank's new energy lending guidelines had exploded in February when more than two dozen groups asked the bank to start prioritising renewables and to drop plans for a controversial pollution swapping program. Among the 26 groups were the non-governmental organisations Friends of the Earth and the Union of Concerned Scientists, the US Business Council for Sustainable Energy, whose members include Enron Corporation, owner of Enron Wind.

Their key demand was that the bank earmark one-fifth of its energy lending for renewables. The groups say the target is plausible, especially since it was in fact first proposed by World Bank staff. It was dropped, though, by more senior officials who wanted the bank to have more flexibility. The groups argue that the mandate is "clear and enforceable" and should not have been dropped. "It demonstrates the type of leadership that will make the bank's sustainable energy proposals a reality," they state. "We are united in our belief that clean energy technologies provide solutions to environmental problems while fuelling economic development in bank client countries."

The timing of the lobbying is crucial, says Andrea Durbin of Friends of the Earth. Although bank policies are regularly refined, the bank is also in the process of being restructured to make it more decentralised -- and supposedly more sensitive to regional issues. Durbin also says that much of the 8% of renewables in the portfolio is actually funded by the GEF, in which the bank is only the lead agency along with two agencies of the United Nations: the UN Environment Program and the UN Development Program. "It's time for the bank to mainstream these issues, not keep them on the sidelines," she says.

Feinstein acknowledges that the 20% target originally came from within the bank and that it has now been dropped. "Let's face it, there are varying viewpoints on the board and within bank management," he says. "There's no sense in promising things that can't be delivered." In some cases the bank has declined involvement in a wind project after studying it. Two years ago the bank's IFC, the International Finance Corporation, reviewed financing and taking a small stake in the equity of a $40 million, 26 MW wind farm in Costa Rica. But the original developer dropped out, the IFC stayed clear, and in the end just 6 MW of the proposal was built using Danish turbines. The IFC is an affiliate of the World Bank and aids less developed UN members by promoting private enterprise.

Meeting need

Much of the debate is over how the largest public financier of power projects in the developing world can help meet the needs of the two billion poor people in the world's rural areas who have no electricity, without exacerbating global warming. Large power projects are often favoured because they "move" large amounts of money to the developing world, say green advocates. In the bank, moving large amounts of money is seen as success, says Durbin. And in the absence of clear targets for cleaning up the bank's energy lending portfolio, it will continue to be biased towards more polluting, fossil fuel energy projects which contribute to global warming, she says.

Also at issue is that the bank has a stated mission of aiding economic development, says Daphne Wysham, research fellow at the Institute for Policy Studies in Washington. "Energy consumption is a key indicator of a nation's economic growth, so it is no surprise that roughly one-fifth of the World Bank's lending goes toward increasing energy and power supply in poor nations." Since the 1992 Earth Summit, the bank has approved fossil fuel projects to burn enough oil, coal and gas to add 1.3 times more carbon dioxide to the atmosphere than was emitted by all countries in 1995, says Wysham. "It is these emissions from which the Bank now hopes to profit," she says, referring to the bank's proposals to trade carbon credits, what environmentalists call its "pollution swapping" policy.

Central to the dispute is a "Prototype Carbon Fund," which would allow the bank to get into the market in pollution credits, projected to reach $150 billion dollars by 2020. It would take 5% from each trade it brokers. The groups are asking the bank to drop the plans. Some are saying the trading will contribute to climate problems by allowing nations and firms to skirt emissions reduction targets. Other members, however, such as private companies, would rather that pollution credit trading is handled in the private sector and not by agencies such as the bank.

Pollution swapping

Under such trading, industrial companies and countries reduce the overall contribution to global warming by, for example, building efficient new coal fired power plants in developing countries which are cleaner than those that would otherwise have been built. The driving force behind such investment is government legislation requiring them to reduce emissions. Since it is cheaper to build a clean power plant in a developing country than reduce emissions at home, the most economic option is to earn "pollution credits" abroad. Backers of such carbon trading say the system lowers carbon emissions while boosting power generation where it is most needed.

Opponents of such schemes call them "pollution swapping." Credits earned on reducing future pollution should not be used to offset mandatory requirements to cut current pollution, they argue. Such credits are simply converted into a "right" to keep polluting at home. The groups say the bank has developed its Carbon Fund idea with too little public input.

The bank's environmental policies have been contentious before. A document leaked from the US Treasury during last November's climate change conference in Buenos Aires commented: "The bank has a credibility problem, having long supported fossil fuels development." Indeed, the bank cannot even provide a detailed break-down of its past spending on energy. To this day energy lending is divided into just three overall categories that seem ultra-traditional, namely "power," "oil and gas," and "mining." No figures are available for its commitments to the differing electricity technologies.

Furthermore, an evaluation released a year ago by the GEF blasts the bank's energy lending policies, saying there is "no evidence" it has encouraged energy pricing or other policy reforms to make renewables -- such as wind and solar -- more commercially viable. The bank has not taken "meaningful action" to reduce the impact of its traditional role as financier of fossil fuel power development, say the evaluators. In fact, the GEF evaluators conclude the bank has actually reduced lending for renewables since 1991. The criticism carries more weight this year with the news that while renewables spending declines, the GEF has been increased by $2 billion over three years.

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