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World Bank Pressured over Record Fossil Fuels Lending

Matthew O. Berger

WASHINGTON, Oct 12 2010 (IPS) - With new figures showing a record amount of World Bank funding for projects relying on coal power and other fossil fuels, the issue of reforming the institution’s energy lending was once again a hot topic at the World Bank and IMF annual meetings, which concluded over the weekend.

The figures, released by the Bank in mid-September, show it lent 3.4 billion dollars to coal projects, or one quarter of all its energy lending. If a transmission project meant to connect coal-powered stations to the grid in India is included, that number rises to about 4.4 billion dollars, according to an analysis by the NGO Bank Information Center (BIC).

This higher total also means that lending for coal-based power rose 356 percent from the fiscal year 2009, largely due to a June loan for a 4800-megawatt plant to be built in South Africa. That one loan, to utility giant Eskom, amounted to over three billion dollars.

But the Bank energy lending picture is more complicated than that. BIC also notes that the Bank numbers show that new renewable energy and energy efficiency lending combined for a record 3.4 billion dollars, though that figure is still short of the funding for coal projects alone. And they point out that fossil fuel lending is about equal to donor country commitments to the Climate Investment Funds created at the Bank in 2008.

Pointing to the key role they feel the Bank could play in promoting clean, low-emission energy, then, many NGOs and activists – and some governments – remain unhappy with the mixed and often contradictory record they see indicated by these numbers.

In light of these criticisms, the Bank has been conducting a review of its energy lending strategies, according to which it makes decisions on loans to energy-related projects, a draft of which is set to be completed in early 2011 before being finalised in the middle of the year.

The new strategy will try to bridge the gap between increasing energy access in poor countries while mitigating the impact of Bank-funded projects on communities, the environment and the climate.

A much-anticipated report assessing these impacts was released just last month. The study, by the Independent Evaluation Group (IEG), found the safeguards and sustainability policies meant to help Bank lending avoid these impacts have largely been effective, but that increased attention needs to be paid to environmental and social risks.

Between fiscal years 1999 and 2008, the proportion of Bank lending in the “very high impact” category shifted from five to 11 percent and that in the “substantial impact” category increased from 37 to 51 percent, while lending deemed to have a “low impact” dropped from 40 to 18 percent, the Sep. 23 report said.

The Eskom loan awarded earlier this year is seen by many groups as belonging in that high or very high impact category. The U.S. and several other countries abstained from voting on the loan after concerns were raised about its potential negative impacts, including the emissions from burning coal, a purported lack of impact on increasing energy access in southern Africa, the air and water pollution to be caused in the local area, and fears the loan repayment would weaken the South African rand.

In August the U.S. once again expressed its reservations over the Bank’s continued funding of fossil fuel-powered projects.

In approving additional funding for some Bank’s International Development Association as part of a broader foreign operations bill, the U.S. Senate included language warning that the Bank should develop a strategy that both increases its support for clean energy and phases out its support for fossil fuel projects, with the exception of those projects specifically aimed at providing energy access for the poor.

Whether a project meets this increased energy access criterion, though, is not always clear, as illustrated by the Eskom case.

A report released by the advocacy group Oil Change International ahead of last week’s meetings argues that none of the Bank’s oil- or coal-related lending in the past two years has prioritised energy access.

“World Bank officials justify massively polluting coal and oil projects by saying that they increase energy access for the poor – but that’s just not true,” said Oil Change International’s Elizabeth Bast. “Not only do the poor suffer the climate impacts of increased fossil fuel emissions and impacts from local pollution, but they are also not receiving the energy from the same projects that damage their livelihoods.”

The Bank will be asking the U.S. Congress for more money as part of the general capital increase Bank president Robert Zoellick announced at the institution’s spring meetings in April, but U.S. officials have expressed misgivings over the mixed history of Bank energy projects.

On the one hand, the Bank has invested in such projects as the South African Eskom plant, an oil- and gas-fuelled power plant in Albania, and, through its International Finance Corporation, a company developing new offshore oil fields in Ghana – which is currently facing corruption allegations, according to the NGO Bretton Woods Project.

On the other, the Bank is running programmes to help bring clean energy technologies to developing countries as well as several other climate-related funds. It also appointed a renewable energy expert, Daniel Kammen, as head of the institution’s efforts to improve renewable energy production and energy efficiency, a brand new position.

This chequered history is becoming more significant as the Bank and the IMF are poised to be significant sources for the climate finance money helping poor countries deal with and mitigate the effects of climate change.

At the time of the Eskom vote, the U.S. expressed the hope that the loan would be the last of its kind from the Bank. But, for now, it remains to be seen how the institution will rewrite energy lending strategy.

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