Study: World Bank loans exacerbate climate change

The World Bank has a difficult task at hand; it must continually work to provide the impoverished with access to energy while at the same time, mindfully investing in technologies that do not further compound the effects of climate change. Heike Mainhardt-Gibbs, a consultant with the Bank Information Center (BIC), examines the World Bank’s approach to energy sector investments in her February 2009 study, World Bank Energy Sector Lending: Encouraging the World’s Addiction to Fossil Fuels. The assessment finds that even with important gains in renewable energy and energy efficiency in recent years, the World Bank Group’s overall lending approach to the energy sector does not support developing countries’ transition towards a low-carbon development path.

First, World Bank fossil fuel lending is on the rise. During its 2008 fiscal year, the World Bank and International Finance Corporation (IFC) increased funding for fossil fuels by 102% compared with only 11% for new renewable energy (solar, wind, biomass, geothermal energy, small hydropower). On average, fossil fuel financing by the Bank is still twice as much as new renewable energy and energy efficiency projects combined and five times as much as new renewable sources taken alone. During the last three years, the Bank spent 19% more on coal than on new renewable energy. Bank lending to coal projects will make a low-carbon transition difficult given that coal emits almost twice as much CO2 as natural gas per unit of energy.

Secondly, Bank fossil fuel projects have a clear impact on global CO2 emissions. “When the fossil fuels involved in the World Bank and IFC lending projects for the 2008 fiscal year are combusted, the project lifetime CO2 emissions from this one-year of financing will amount to approximately 7% of the world’s total annual CO2 emissions from the energy sector, or more than twice as much as all of Africa’s annual energy sector emissions,” emphasized Mainhardt-Gibbs. Clearly, the World Bank’s investments in fossil fuel-based energy are far-reaching and yet none of their current climate change initiatives adequately incentivize for a reduction in financing for fossil fuels.

Finally, the Bank must carefully reassess its approach to financing the development of fossil fuels. They share the blame – and thus the shame – for the global climate change crisis. “The Bank’s continued lending focus on fossil fuels commits many developing countries to fossil-fuel based energy for the next 20 to 40 years,” Mainhardt-Gibbs noted. When developing countries eventually take on GHG emissions reduction targets of their own, the World Bank’s current approach to energy will make meeting these targets more difficult and costly for these countries.