World Bank Pressured over Record Fossil Fuels Lending

WASHINGTON -
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.