World Bank Energy Strategy Must Address Energy Poverty and Climate Change

Athena Ballesteros and Tom Nagle, Guest Bloggers, cross-posted with permission from the World Resources Institute

The World Bank is in the final stages of drafting a new energy strategy due late April 2011. The strategy has drawn so much attention because of its potential to address two major challenges confronting developing countries – energy poverty and climate change. While the strategy could be an opportunity for the institution to tackle both challenges simultaneously, some stakeholders are concerned that it may sway too much in one direction, addressing one challenge while undermining the other.

To balance these differing opinions, the World Bank embarked on an eight month consultative process with input from client and donor countries, civil society, the private sector, and others. We studied the reports of the consultations carefully to distill important messages emerging from the process. There appears to be some areas of resounding agreement, while in other areas, differing perspectives emerged. The overarching message delivered to the World Bank is a demand for investments in the energy sector that produce sustainable development outcomes.

Areas of Agreement

Many stakeholders have prompted the World Bank to shift its focus to small-scale, distributed, renewable energy-based generation technologies such as solar home lighting systems or village micro-grids powered by run-of-river mini hydropower systems. Such technologies can directly address the largely unmet energy needs of the 1.5 billion poor without access to electricity, particularly in rural areas. This message was consistently delivered in various parts of the world. For example:

  • At the meeting in Nairobi, the private sector called for a focus on renewable technologies due to the abundance of resources on the continent, while government participants pointed to its cost-effectiveness in the long-run. Participants from academia and think tanks highlighted the efficacy of decentralized renewable energy systems in meeting the economic and social needs of the poor.
  • Similarly, in Laos, non-governmental organizations pointed to the impacts of the export-oriented hydropower project (Nam Theun 2) on the resource-dependent poor. Participants from the private sector and the public utilities recommended that future energy investments focus on tapping local renewable resources, including solar and hydropower, to meet the income-generating needs of the poor within the country.
  • In the Netherlands, the government expressed a preference for the World Bank to avoid commercially viable centralized generation projects, while Dutch private sector and NGO participants pointed out that decentralized generation would have the greatest poverty reduction impacts.

Such consensus also emerged from diverse interest groups and countries on the value of the World Bank investing in energy efficiency, supporting integrated resource planning in the energy sector and across sectors, and modernizing household fuels for cooking and heating.

Areas of Disagreement

The areas where stakeholders diverged have been familiar issues of contention on the World Bank Board. In some cases, differences of opinion between interest groups within the same country came to light. One of the most hotly contested issues was the World Bank’s role in fossil fuel lending. For example:

  • In Bangladesh, participants from the private sector, public utilities, and some members of parliament argued strongly against any prohibitions on the continued development of their abundant domestic coal resources, as they see it as a constraint on the country’s development goals. In contrast, the Bangladeshi government expressed a preference for developing low carbon energy sources and using coal-based resources only in exceptional cases.
  • In consultations with African energy ministers, South Africa argued against the World Bank discontinuing lending for fossil fuel-based projects claiming that they have no viable alternatives for baseload power vital to their pursuit of economic growth and industrialization. Instead, they prefer to see the World Bank invest in cleaner coal technologies, while simultaneously investing in renewables.
  • Among stakeholders in Europe, there remained concerns that continuing World Bank investments in carbon intensive fuel technologies would counteract its efforts to mitigate climate change, leading to demands for a definitive phase out of fossil fuel lending.

Similarly, there were other issues that elicited a spectrum of responses including energy subsidy reform, financing additional costs of lower carbon projects, and large scale hydropower dams.

Our Recommendations for the World Bank

The World Bank’s leadership may find it challenging to balance all the diverse interests in one strategy document. However, what they can do is put in place a set of procedures that will allow them to objectively evaluate trade-offs and make investment decisions that support the sustainable development priorities of their clients. Such procedures, as we have argued earlier, should include:

  • Undertaking options assessments to investigate and transparently disclose the full range of energy options available to meet a client country’s demand before moving forward with any investment. Such assessments should be based on integrated planning processes at appropriate levels (regional, national or sub-national) that take into account resource availability and use in the energy and other sectors.
  • Valuing the net costs of shifting to low-carbon alternatives through the use of GHG Accounting tools to calculate the volume of emissions from projects as well as the use of pricing methods, such as market prices or shadow prices, to calculate the value of reducing or avoiding emissions in alternative options. This will help the World Bank assess the additional resources required from climate change funds to buy down the higher costs of lower carbon options. On a broader level, GHG accounting will also help the institution manage and reduce the emissions of its overall investment portfolio.
  • Engaging stakeholders in inclusive and transparent processes when making investment decisions to ensure equitable, pragmatic and sustainable outcomes.
  • Adopting robust environmental and social standards for energy investments, particularly large hydropower given its serious ecological and social footprint. Although designed for the private sector, many of the environmental, social, and human rights standards articulated in the draft IFC performance standards would provide a strong basis for safeguards at the World Bank. The energy strategy would also need to articulate standards for providing accessible means for dispute resolution for affected stakeholders.

We believe that the writing on the wall is clear – stakeholders across countries and interest groups would like the World Bank to devise an energy strategy that supports sustainable development in developing countries. It is imperative that World Bank leadership not dismiss the often polarizing debates as unnecessary noise, but instead hear the clarion call for meaningful reform in defining the institution’s role in promoting a sustainable energy future.

Maria Athena Ronquillo-Ballesteros is a Project Manager at WRI’s Institutions and Governance program. Tom Nagle is a research intern for the International Financial Flows and the Environment project at WRI.

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