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David A. Wirth Boston College Law School President’s Day Renaissance Weekend Laguna Niguel, California © 2014. David A. Wirth. All rights reserved. World Bank May Ignore Climate Fears : Predicted Warming Doesn't Justify Loan Limits, Memo Says August 31, 1989|LARRY B. STAMMER | Times Environmental Writer ….. The paper "sort of sets (the bank) up for inaction," said David A. Wirth, senior attorney for the Natural Resources Defense Council, a Washington-based private environmental organization. Wirth charged, for example, that the document makes little mention of the importance of reducing deforestation and even less to the need for energy conservation by consumers. "They are now coming out with a very low-ball policy paper so nobody can accuse them of not dealing with the issue," Wirth said. "On the other hand they are dealing with it in a way that suggests business as usual. "While there's an urgent need for the bank to come out with an aggressive greenhouse (effect) policy, the quality of that policy is crucial." …… I. The Big Picture II. Energy Portfolio III. Global Environment Facility IV. Climate Investment Funds V. Clean Development Mechanism VI. Carbon Financing Intergovernmental Panel on Climate Change (IPCC)(1990) United Nations Conference on Environment and Development (Earth Summit)(1992) UN Framework Convention Convention on Biological DIversity IPCC Second Assessment Report (1995) Other Protocols Byrd-Hagel July 1997 Kyoto Protocol (COP3)(1997) World Bank 1946 International Bank for Reconstruction and Development (IBRD) – lends at roughly market rates 1960 International Development Association (IDA) -- concessional financing (low or zero interest) to lesser developed countries International Finance Corporation (IFC) – private sector Regional banks for Asia, Latin America, Africa, Eastern Europe and former Soviet Union Multiplier effects – Establish good practice standards in sectors such as energy Help to leverage additional private financing International organizations whose members are states Capitalized by member states. Voting power proportional to contributions -- e.g., in World Bank United States (15.85%), Japan (6.84%), China (4.42%), India (2.91%), Russia (2.77%), Saudi Arabia (2.77%). Governance structure Board of Governors (finance ministers) Board of Executive Directors -- World Bank 25 appointed or elected Staff (equivalent of secretariat) headed by President – World Bank always U.S. citizen, since 2012 Jim Yong Kim Work product: loans to borrowers (states). World Bank Group (IBRD, IDA, IFC) total $52.6 billion in loans, grants, equity investments, and guarantees in fiscal year ending June 2013 World Bank mission since McNamara: poverty alleviation Widespread agreement on desirability of maintaining “acceptable” increase in global temperature to 2°C/~450 ppm Developing Countries in the future will contribute the bulk of greenhouse gas emissions Greenhouse gas short term projections (http://www.epa.gov/climatechange/emissions) Energy use is a principal source of greenhouse gas emissions and increasing worldwide ENERGY POVERTY 1.4 billion people (20% of global population) without access to electricity. World Bank estimates that 1000 new large electric power plants will need to be built each year between now and 2050 to meet demand Source: D. Firestone, The World Bank and Sustainable Development: Legal Essays 29 (2013) The International Energy Agency estimates subsidies on all forms of energy outside the OECD at $250 billion per year, with non-OECD subsidies for petroleum at over $90 billion annually. Source: International Energy Agency, World Energy Outlook, 2006 <hppt://www.iea.org/Textbase/npsum/WEO2006SUM.pdf> (summary & conclusions) Considerable potential for investment in developing countries for renewables ……. 100 countries set targets, half in developing world. … and end use energy efficiency. Considerable social and economic benefits (reductions in prices and costs) Typically makes energy available per kWh cheaper than new supply Enhances access to poor IEA estimates that 89% of reductions necessary to get to 450 ppm scenario from renewables and efficiency, with half from energy efficiency improvements 1992 World Development Report – highlighted importance of addressing climate change 1993 Energy Efficiency and Conservation in the Developing World: The World Bank’s Role – emphasized win-win policies such as energy price reform and improvements in energy efficiency 2000 Fuel for Thought: An Environmental Strategy for the Energy Sector – recommended mainsteaming environment within country assistance strategies 2006 Climate Change, Clean Energy and Sustainable Development – energy efficiency as “quick-win, high-payoff” 2008 Investment Framework for Clean Energy and Development – response to Gleneagles G-8 communiqué, 2005 2011 Energizing Sustainable Development: Energy Sector Strategy of the World Bank Group – prohibition on new-coal project lending to middle income countries. Leaked, stalled, discontinued 2013 Energy Sector Directions Paper – compromise to support coal only when a last result and no practical alternatives available. Where renewable not least-cost option, Bank will consider financial support if concessional financing available to cover difference. World Bank Group Energy Portfolio by Sector, FY2003-FY2010 (US$ in millions, nominal) World Bank Group Energy Portfolio Data at http://go.worldbank.org/ERF9QNT660. Broadly: • Portfolio mix, including large hydro (historically very constroversial) • Continued funding of coal • Support for fuel switching instead of renewables and/or end-use energy efficiency • Weak on treatment of subsidies • Greenhouse gas accounting –- especially shadow pricing (factored into rate of return/evaluation of economic viability) More Specifically … Category funded fossil fuel projects that supported increased use of “cleaner” fuels to displace more carbon intensive ones. Focusing solely on the categories for “renewable energy” and “energy efficiency,” rather than the broader category for “low carbon,” showed a decrease in these sectors’ shares of total energy investment, from 39% in 2009 to 26% in 2010. Renewable energy and energy efficiency financing established all-time highs in 2010, at $1.6 billion and $1.8 billion respectively, so did new fossil fuel thermal power generation, up to$4.3 billion, a fourfold increase over 2009. Source: Richard K. Lattanzio, The World Bank Group Energy Sector Strategy (Congressional Research Service, April 16, 2013) Established in 1991 as a $1 billion pilot program in the World Bank to provide funding for environmentally beneficial activities. $11.5 billion in grants and leveraged $57 billion in co-financing for over 3,215 projects in over 165 countries. World Bank serves as Trustee of the GEF Trust Fund and provides administrative services. Provides concessional funding in identified areas, including climate change. Serves as the financial mechanism for a number of major environmental multilateral conventions, including UN Framework Convention on Climate Change (UNFCCC). World Bank administers two funds established under auspices of UNFCCC in 2001: Special Climate Change Fund Least Developed Countries Fund Also administers Kyoto Protocol Adaptation Fund, established under KP in 2002 $5.2 billion Clean Technology Fund providing middle income countries with resources to scale up low-carbon, clean technologies. Not limited to World Bank, disbursed through the multilateral development banks to support effective and flexible implementation of country-led programs and investments. https://www.climateinvestmentfunds.org/ Green Climate Fund – established by FCCC COP with goal of $100 billion by 2020 World Bank temporary trustee Agreement that GCF will be “an operating entity of the financial mechanism” of the Convention. Equal representation of developed (donor) and developing (recipient) countries. Intended to operate “at arms length” from Convention. Hela Cheikhrouhou, a Tunisian national, Fund's first Executive Director, housed in Korea. Outstanding governance questions -• • • • how funds will be raised role of private sector level of "country ownership" of resources transparency of the Board More generally -- • • need for yet another new international climate institution? "balanced" support to adaptation and mitigation? Support for questionable projects, potential conflict of interest, “greenwash” already contemplated loans India: Coal Fired Generation Rehabilitation Project – 2009 $45 million GEF co-financed refurbishment and extension of life of 3 coal-fired power plants. Bank went through “Orwellian gymnastics,” produced “skull-splitting cognitive dissonance.” Governance questions Responsive to interests of donors? • Recipient countries? • Conference of the Parties of Framework Convention? • Coherence of proliferation of funds with different accountability mechanisms, purposes, governance structures Non-Annex I countries do not have quantified emissions reduction (mitigation) targets under the Kyoto Protocol. Some have unilaterally undertaken “nationally appropriate mitigation actions” (NAMAs) BRAZIL18 CHINA • Reduction in Amazon deforestation (range of estimated reduction: 564 million tons of C02 eq in 2020); •Reduction in "Cerrado" deforestation (range of estimated reduction: 104 million tons of C02eq in 2020); • Restoration of grazing land (range of estimated reduction: 83 to 104 million tons of C02eq in 2020); • Integrated crop- livestock system (range of estimated reduction: 18 to 22 milliontons of C0 2eq in 2020); • No-till farming (range of estimated reduction: 16 to 20 million tons of C0 2eq in 2020); • Biological Nz fixation (range of estimated reduction: 16 to 20 million tons of C02eq in 2020); • Energy efficiency (range of estimated reduction: 12 to 15 million tons of C02eq in 2020); • Increase the use of biofuels (range of estimated reduction: 48 to 60 million tons of C02eq in 2020); • Increase in energy supply by hydroelectric power plants (range of estimated reduction: 79 to 99 million tons of C0 2eq in 2020); • Alternative energy sources (range of estimated reduction: 26 to 33 million tons of C02eq in 2020); • Iron & steel (replace coal from deforestation with coal from planted forests (range of estimated reduction: 8 to 10 million tons of C02eq in 2020); It is anticipated that these actions will lead to an expected reduction of 36.1% to 38.9% regarding the projected emissions of Brazil by 2020. China will endeavor to lower its C02 emissions per unit of GDP by 40-45% by 2020 compared to the 2005 level, increase the share of non-fossil fuels in primary energy consumption to around 15% by 2020 and increase forest coverage by 40 million hectares and forest stock volume by 1.3 billion cubic meters by 2020 from the 2005 levels. INDIA India will endeavour to reduce the emissions intensity of its GDP by 2025% by 2020 in comparison to the 2005 level. MEXICO Mexico aims at reducing its GHG emissions up to 30% with respect to the business as usual scenario by 2020, provided the provision of adequate financial and technological support from developed countries as part of a global agreement. 34% reduction in emissions based on a business as usual emissions trajectory by 2020. 42% reduction in emissions based on a business as usual emissions trajectory by 2025.Implementation dependent on provisions of financial resources, the transfer of technology and capacity building support by developed countries. SOUTH AFRICA Provides a basis for Annex I parties to implement their reduction (mitigation) commitments by undertaking projects in developing countries. “Certified emissions reductions units” (CERs) generated by such projects may also be traded. Approved by CDM Executive Board, established under auspices of Kyoto Protocol Have to satisfy test of “additionality” – reduction in carbon emissions that otherwise would have taken place 1997 World Bank Global Carbon Initiative to explore use of market mechanisms could support mitigation efforts and contribute to sustainable development Use pooled public and private funds to “convert normal energy projects into a portfolio of climate-friendly projects in return for the emissions reductions which they generated” Purchase and sell carbon credits, establish verification mechanisms, assist in design of CDM projects. 1999 World Bank Prototype Carbon Fund World Bank currently serves Trustee of 15 carbon initiatives, overseen by Carbon Finance Unit The first 10 funds and facilities established under first commitment period of the Kyoto Protocol are capitalized $2.3 billion Currently 150 projects in 65 countries. http://www.worldbank.org/en/topic/climatechange/brief/world-bank-carbon-funds-facilities Concentration in energy sector Concentration in particular countries, particularly those with more political and economic leverage – “China” Development Mechanism Support for questionable projects, e.g., destruction of HFC23 Problems in determining additionality Backlog in approval of projects Verification Leakage from Kyoto system Potential distorting effect of what is in effect a subsidy Price of CERs dropped from $20 per ton carbon equivalent in 2008 (beginning of Kyoto first commitment period) to 31 cents at end of 2012 (end of first Kyoto commitment period) More questions (courtesy of an anonymous knowledgeable observer): 1. Climate mitigation implies focusing primarily on middle income rapidly growing countries, especially China and India; this is arguably in conflict with giving higher priority to Africa and the LDCs 2. Reforming the governance of the Bank to give greater voice to developing nations is likely to mean more support for doing fossil fuel projects because China and India support them. Many NGOs support such reforms while also criticizing the Bank for having some continuing role financing coal projects. How can this tension be resolved? 3. Much of what needs to be done to address climate change requires support for early stage new technologies (e.g., carbon capture and storage (CSS)). This is contrary to traditional Bank practice due to the higher risks and associated costs. 4. Many long-lived energy investments such as hydropower projects may be at risk from climate change. What should the Bank's role and responsibility be with respect to such risks. ###