FINANCE:

Industrial nations divide on future World Bank anti-carbon policy

From Norway to New Delhi, leaders are struggling to define the World Bank's role in eradicating energy poverty while keeping a lid on carbon emissions.

The global financial institution currently is revamping its blueprint for funding energy projects, a document it hopes to present to its board of directors by mid-2011. But in doing so, the bank finds itself confronting head-on some of the formidable policy questions that it previously had been able to resolve on a project-by-project basis.

Those are: how to bring energy to the 1.5 billion people in the world who live in darkness and another 2.5 billion without access to modern energy fuels without underwriting a mammoth increase in the global level of greenhouse gases -- and what precisely should the bank's policy be when it comes to the construction of major coal-fired power plants in developing countries?

"Any energy solution or proposal will stir controversy and debate in the public arena," Lucio Monari, World Bank energy sector manager, said in a video the agency posted after a worldwide energy consultation that spanned 45 meetings in 37 countries.

"Between rich and poor countries, in particular, there is an awareness of the need to move to a low-carbon and climate change-conscious development, but at the same time, the issue is who is going to pay for it, and how is it going to be financed?" Monari said.

"Rich countries, obviously, would like developing countries to embrace low carbon more aggressively. Poor countries believe it is the responsibility of rich countries to finance and to provide the additional cost for helping them to undertake a low-carbon trajectory," he added.

The divide is borne out in dozens of submissions by environmental advocates, industry leaders and government agencies worldwide.

The U.S. Treasury, for example, calls for the World Bank to "materially raise the bar for coal projects" by, among other things, developing criteria to show that a plant will significantly increase power supplies for the poor, and to start examining alternative energy projects early enough to influence investment decisions.

U.S. suggests an eventual carbon cap on projects

It also gets behind a controversial proposal that the World Bank calculate the greenhouse gas emissions of energy-intensive projects as a way to pave the road for the World Bank to someday consider a carbon cap on certain or even all the agency's projects.

"Because World Bank financing of coal-fired generation will continue to be a sensitive topic, the Bank needs to be as transparent as possible about the conditions under which it will consider financing such projects," Treasury officials wrote.

India's Ministry of Power, meanwhile, stressed that for countries with a low per-capita level of emissions like India, the World Bank must first and foremost consider enhancing energy supply as the "overriding goal." The threat of emissions rise, government officials proposed, should be addressed by either ensuring that "every new plant is more efficient than the last" or that carbon intensity continues to decline.

India also argues that the bank should consider more efficient coal plants that use supercritical or ultra-supercritical technology as part of "low-carbon" development.

"The Bank's support should focus on enhancing India's ability to achieve energy self-reliance and security with minimum of conditions and certainly without the crippling emphasis on fossil fuels (especially coal) and climate change concerns," according to a summary of opinions at an April consultation with government and other groups in New Delhi.

The question of whether the World Bank should reduce or even end its lending for fossil fuel projects has played out in a spate of high-profile debates over the past two years -- particularly in India and South Africa. Both countries are sites of massive new coal-fired power plants funded either through the bank or its private financing arm, the International Finance Corp.

At each turn, the World Bank has come down on the side of supporting coal. At the same time, it has tightened its review process, beefed up loans for renewable energy and reduced the number of major fossil fuel projects coming before the board.

Blackouts and smoke, daily hazards in Africa

Environmental groups and their supporters are pressing hard for the bank to make a fundamental change in its lending policy. Just this month, the U.S. Senate said it expected the institution to "rapidly" phase out support for fossil-fuel projects, except those solely aimed at helping the world's poorest access energy.

Bank officials have argued that the institution already follows strict guidelines when it comes to coal lending, including reviewing alternative energy possibilities. But, they argue, while major coal projects are becoming rarer, they also are sometimes necessary.

In the agency's energy strategy approach paper, it notes that power generation in sub-Saharan Africa is about a tenth of the level of other low-income regions, and about 30 African countries have been experiencing frequent outages and load-shedding. That region alone needs about $40 billion worth of investment -- about $30 billion more than is currently being spent there. South Asia has the next-lowest per capita consumption, to the point where some companies simply generate their own electricity.

"Many developing countries face a lack of power supply, which is handicapping business and reducing growth. Hundreds of millions of households continue to rely on traditional use of solid fuels for cooking and heating, lack access to electricity, or both. These households -- and especially women and children among them -- are exposed to dangerously high levels of harmful smoke and deprived of income-enhancing opportunities," bank leaders wrote.

Meanwhile, the submissions to the World Bank's energy strategy consultation make clear that its clients continue to demand a right to dirty energy -- and are wary of industrialized countries trying to fight climate change on their backs.

"In our opinion, the right to energy access for meeting basic needs must prevail. The effects on the emission of greenhouse gases in these cases are not relevant," wrote officials with Fundación Energía sin Fronteras (the Energy Without Borders Foundation), an international energy group that focuses in sub-Saharan Africa, Central America and the Andean region.

Industrial nations, a spectrum of views

Industrialized countries that make up the World Bank's main donors appear divided over how the institution should approach sustainable energy growth.

Germany, like the United States, called for "clear criteria" to ensure that necessary coal plants are as clean as possible, and for the establishment of a "climate check" to ensure that greenhouse gas emissions and other climate risks are considered in any plan.

The German proposal lays out specific proposed criteria, including lending for coal plants in the poorest countries only if the nation "suffers from acute energy shortages" -- defined by electricity rates at or below 50 percent or severe generation shortages that have led to power rationing -- and if coal supply is ensured from either domestic or "reliable and affordable" outside sources.

Middle-income countries, meanwhile, should receive coal financing only for the most efficient plants with carbon capture and storage technology in place. The governments also should have in place a low-carbon development strategy, a national renewable energy goal of at least 20 percent by 2020, and "realistic strategy and political commitment" for phasing out fossil fuel subsidies before receiving a coal loan.

The Netherlands government went perhaps the furthest, calling for the World Bank to "phase out investments in gas, oil and coal projects as soon as possible" in favor of more renewable energy investments. Its position paper presses the bank to "include real fossil fuel costs, including price uncertainty, in economic analysis" of energy projects and to include the future supply risk of fossil fuels as part of its economic analyses.

The United Kingdom, meanwhile, took a pass on the question of coal lending, writing that the government's position "is being discussed" with ministers and "will be communicated in due course."

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