Transcript Deep Dive Greenhouse Implications of Energy Policies

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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
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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.
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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
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Concentration in energy sector
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Concentration in particular countries, particularly those with more political and
economic leverage – “China” Development Mechanism
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Support for questionable projects, e.g., destruction of HFC23
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Problems in determining additionality
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Backlog in approval of projects
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Verification
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Leakage from Kyoto system
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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.
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