World Bank Energy Sector Lending: Encouraging the World’s

Addiction to Fossil Fuels

Heike Mainhardt-GibbsBank Information Center – March 2009

World Bank and Climate Change

Difficult task of providing energy access to the poor while protecting them from climate change

– Country specific and politically sensitive

Clean Energy Investment Framework pledges to transition to a low-carbon economy

8 out of 9 people harmed by climate change will be living in countries that are currently classified as ‘developing.’

Importance of the World Bank

Global GHG reduction targets dependent on overall development path, especially energy sector

World Bank plays significant role in developing countries:– Direct energy and extractive industries investments– Key institution determining development models– Development policy loan programs (regulations, tax policies,

investment codes, etc.)– Technical assistance/expertise– Convening power between governments and companies

Aim of Study

Assess World Bank Group’s core portfolio of energy sector financing

Determine trends in funding for different energy sources

Assess against goal of transitioning to a low-carbon development path

Estimate contribution to global GHG emissions

Main Findings

Approach to energy sector does not provide transition to low-carbon economy

Gains in renewable energy and energy efficiency do not compensate for highly imbalanced financing in favor of fossil fuels

Financing for fossil fuels on the rise, especially for coal

Significant contribution to global GHG emissions

What is the most valuable and appropriate role of the World Bank?

Suggestion: If the Bank is truly going to benefit the poor, it must significantly change and improve the development model for developing countries - not simply lead them down the same carbon intensive, unstable economic path of developed countries.

World Bank Group Financing for Fossil Fuels, Renewable Energy and Energy Efficiency

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

19981999

20002001

20022003

20042005

20062007

2008

2007

$, M

illio

ns

F os s il F uels

L arg e Hydro

R en ewables w/o L gHydroE nerg y E ffi c ienc y

World Bank Group Financing for Fossil Fuels (million $)

FY1998 FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008World Bank 577 618 599 592 544 255 291 313 758 575 199

IFC 521 229 935 373 794 488 499 409 590 824 2,988

Sub-total 1,098 847 1,534 965 1,338 743 790 722 1,348 1,399 3,187

MIGA (guarantees) 185 205 239 230 193 312 155 75 118 152 0

Total 1,283 1,052 1,773 1,195 1,530 1,055 945 797 1,465 1,551 3,187Total Adjusted for Inflation (2007$) 1,593 1,288 2,125 1,398 1,760 1,188 1,035 845 1,505 1,551 3,137

Fossil Fuels on the Rise

FY06 – FY08 represents an increase for three consecutive years, which did not take place any other time

FY08 highest year, exceeding next highest by 48% or $1 billion

World Bank Group Financing Three-Year Average (2007$)

million $percent change million $

percent change million $

percent change million $

percent change

Fossil Fuels 1,505 78% 1,551 3% 3,137 102% 2,064 61% Coal 119 1283% 140 18% 1,041 642% 433 648%Large Hydro Power 180 -46% 777 333% 1,529 97% 829 128%Energy Efficiency 399 91% 206 -48% 1,108 438% 571 160%New Renewable Energy 176 15% 435 147% 485 11% 366 58%New RE & EE* 576 59% 641 11% 1,593 148% 937 73%

FY2006 FY2007 FY2008 Three-year Average

Three-year Average Trends

Important gains in new renewable energy and energy efficiency (73%)

Low baseline for new RE and EE relative to oil and gas

Overall funding amount – fossil fuels 2 times new RE and EE combined and 5 times new RE sources

19% more for coal then for new RE

New RE by Institution, FY05-08 (2007$)

World Bank ($466.2 Million)39%

GEF ($213.6 Million)18%

Carbon Offsets ($148 Million)12%

IFC ($278.7 Million)23%

MIGA ($86.9 Million)7%

GPOBA ($8.5 Million)1%

Breakdown of IFC Energy Sector

IFC Current Energy Sector Generation Commitmentsmillion $ % share

Coal 1,173 29%Oil 427 11%Gas 879 22%Hydro 738 19%Wind 58 1%Geothermal 65 2%Other renewable 45 1%

Source: Concentrating Solar Power (CSP) Financing and the Clean Technology FundPresentation by Dana R. Younger, World Bank Infrastructure DepartmentClimate Investment Funds CTF Trust Fund Committee

CO2 Emissions of World Bank Fossil Fuel Lending (FY2008)

When the fossil fuels involved in the Bank projects are combusted:

97.42 MMTCO2 annually; and

2,072 MMTCO2 project lifetime emissions 7% of World annual CO2 emissions from the energy sector

Note: Does not account for relevant policy lending, technical assistance, or several fossil fuel projects lacking data.

Comparison to Country and Regional Annual Energy Sector CO2 Emissions (2005 country estimates, US EIA)

Country / Region MMTCO2 Country / Region MMTCO2

Portugal 64.97 Africa 1,042.92

Israel 65.01Central & South America 1,096.16

Chile 66.19 India 1,165.72Korea, North 73.50 Japan 1,230.36Philippines 78.06 Middle East 1,450.81Austria 78.17 Russia 1,696.00Vietnam 80.38 WBG FY08 Lifetime 2,072.00WBG FY08 Annual 97.42 Eurasia 2,577.82Iraq 98.13 Europe 4,674.75Romania 99.34 China 5,322.69Greece 103.16 United States 5,956.98Nigeria 105.19 North America 6,987.78Czech Republic 112.83 Asia & Oceania 10,362.49World Total 28,192.74

Main Conclusions

Bank is still spending five times as much on fossil fuels as for new renewable energy sources

Continued emphasis on fossil fuels commits many countries to carbon intensive energy sources for 20-40 years

Increase in coal projects makes low-carbon transition difficult (coal emits almost twice as much CO2 as natural gas per unit of energy)

Main Conclusions

None of the Bank’s climate change initiatives address assistance to fossil fuels – no incentives/strategies to reduce

Future developing country GHG reduction targets will be more costly

Oil and gas projects aimed at export to developed countries do not encourage UNFCCC Annex I countries to reduce their GHG emissions from fossil fuels

World Bank’s Approach to Energy Sector: Moving Forward

Fully recognize and correctly change role in energy sector as it relates to climate change– GHG emissions contribution – throughout value

chain– Furthering world’s reliance on fossil fuels (long-term

commitments, exports to Annex I countries)

– Ensure benefits to and protection of the poor

World Bank’s Approach to Energy Sector: Moving Forward

Carefully reassess approach to fossil fuel projects– GHG emissions reporting– Costs associated with CO2 damages included in

cost-benefit analysis– Evaluate availability of private sector funding– Comprehensively assess alternative energy

options and benefits/costs to the poor

World Bank’s Approach to Energy Sector: Moving Forward

Provide political leadership – convince countries it is in their best interest

Push the envelope to help developing countries leap frog to better energy technologies (e.g. super critical coal technology does not equal a low carbon project)

Hire more staff (especially IFC) with renewable energy expertise

Report more accurate data on energy sector activities Revise Energy Strategy and IFC Performance Standards to

provide incentives to reduce fossil fuel development