New analysis of the World Bank’s $5-billion-dollar policy loans shows lender supporting investment incentives for coal and other fossil fuel projects in Southeast Asia, South America, Africa and the Middle East, threatening climate change efforts, indigenous groups and natural resources. These incentives are in turn undercutting initiatives to build wind, solar and geothermal power infrastructure and protect vulnerable rainforests, including the Amazon.
The report, compiled by the Bank Information Centre (BIC) and worldwide partner organisations, examines seven World Bank policy operations from 2007 to 2016 totalling $5 billion in four countries—Indonesia, Peru, Egypt and Mozambique. It finds that funds intended to boost low-carbon growth are instead supporitn investment incentives for projects that put the climate, forests and people at risk. The BIC argues that the World Bank must go beyond supporting some incentives for renewable energy in order to steer developing countries towards a low-carbon transition.
The Bank’s little-scrutinised yet highly influential Development Policy Finance (DPF) operations account for approximately a third of all World Bank funding and equal more than $15 billion in 2016. DPF operations provide funding in exchange for national policy and institutional reforms mutually agreed to by the Bank and the borrowing government. As part of its Climate Action Plan, the World Bank identifies DPF operations as the main instrument for incentivising countries to transition to low-carbon economies. To meet national commitments to reduce greenhouse gas emissions, new investments in low-carbon infrastructure, especially in the energy sector, are critical. The BIC study therefore examines DPF-funded policy reforms involving investment incentives for large-scale infrastructure projects.
In Peru, the World Bank DPF measures provide subsidies to government-proposed public-private partnerships (PPP) that will develop: a liquid petroleum gas pipeline, a diesel/gas power plant and, in the Amazon, three natural gas pipeline networks and 26 new oil and gas concessions. They will also support two energy efficient street lights and the development of hydropower. No solar or wind power projects are planned.
In Indonesia, the DPF measures established subsidies for PPP infrastructure projects, which include four coal power plants and three coal transport railways (on the forest-rich islands of Kalimantan and Sumatra). There are no geothermal, solar or wind PPP projects in the works.
In Egypt, upcoming infrastructure projects targeted to receive DPF-supported subsidies include: more than a dozen oil and gas projects, 12.5 gigawatts of new coal power plants and 12 pending oil and gas exploration agreements.
DPFs have also introduced subsidies for coal in Indonesia, Egypt and Mozambique. In Indonesia, these subsidies have helped the country to become one of the world’s top coal exporters, while in Mozambique they are propping up coal infrastructure, thereby turning the country into a major coal producer. Mozambique is highly vulnerable to climate change impacts such as droughts, floods and cyclones.
Specifically, in Mozambique, the Bank also supports an accelerated rate of depreciation for oil and gas exploration, which significantly reduces the overall tax rates, and thus, government revenue, associated with these fossil fuel investments. Not only is this a significant fossil fuel subsidy but the loss to government coffers further threatens Mozambique’s debt sustainability crisis.
Bank-supported subsidies are also benefitting new investments for coal power plants in Indonesia and Egypt, contributing to the planned significant rise in coal’s share of the power generation mix for these countries - from 35 to 66 percent and from zero to 20 percent by 2022, respectively.
“The World Bank has pledged to help countries adopt a low-carbon development path specifically by phasing out fossil fuel subsidies and promoting a carbon tax” said Nezir Sinani, Europe and Central Asia Manager at BIC. “However, the Bank’s policy lending does the opposite by introducing tax breaks for coal power plants and coal export infrastructure. We also want a more rigorous climate- and forest-related assessment of DPFs before they are approved. This call has resonated with several World Bank Executive Directors who believe that the Bank’s approach to environmental and social safeguards should be applied to all types of its lending. At present, the Bank’s DPF falls outside the social and environmental safeguards applied to direct project lending.”
Kate Geary, BIC’s forest campaign manager and a report contributor, added that rather than using its development policy lending muscle to protect forests and combat climate change, the World Bank is helping to weaken vital environmental laws and governance and undermine local communities’ rights to the resources they rely on for their livelihoods.
According to the Intergovernmental Panel on Climate Change’s (IPCC) Fifth Assessment Report (2014), meeting the internationally agreed goal of limiting global average temperature increase to 2 degrees Celsius requires at least two-thirds of existing fossil fuel reserves must be left in the ground. BIC’s study shows that World Bank policies supporting oil and gas exploration subsidies directly contradict the 2-degree goal.
Each country examined in the study has potential to develop renewable energy, including vast solar and wind resources in Egypt and geothermal resources - among the world’s largest - in Indonesia. The assessment found that in Indonesia, Egypt and Mozambique, the DPFs did contain actions on new renewable energy laws with feed-in tariffs for one or more forms of renewable energy. However, the report finds that, when effectively used, the World Bank DPFs, could have removed further barriers to renewable energy investments. These barriers include, among others, inadequate legal frameworks, a lack of feasibility studies and a lack of incentives for geothermal exploration.
The report was published by BIC in collaboration with Derechos, Ambiente y Recursos Naturales (DAR) Peru, Egyptian Initiative for Personal Rights (EIPR), Greenpeace Indonesia, Friends of the Earth Mozambique, and 11.11.11 Belgium.
Image: Clearing for a coal mine, Central Kalimantan forest Credit: Andrew Taylor/WDM, taken on June 8, 2013 Licensed under:https://creativecommons.org/licenses/by/2.0/
For additional information:
