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This study reviews the World Bank’s efforts in mitigating climate change, which have expanded rapidly in recent years. Seeking lessons on what works and what doesn’t, the report stresses five measures that offer attractive local benefits while fighting climate change: energy efficiency; forest protection; appropriate project finance; technology transfer; and accelerated learning.
The IEG report recommends that the World Bank Group rebalance its efforts toward higher-impact sectors and instruments, with relatively greater emphasis on energy efficiency, such as lighting and improvements in electricity transmission and distribution. The report also emphasizes the need for the Bank to actively assist clients to move away from coal, using energy-system-wide analyses to find cleaner, more cost-effective and financeable alternatives. It urges the Bank Group to take a public venture capital approach, incubating a portfolio of promising investments and rapidly scaling up the successful ones.
Findings (expanded) | Recommendations (expanded)
Also See: Protected Area Effectiveness in Reducing Tropical Deforestation:
A Global Analysis of the Impact of Protection Status
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Management Response |
Chairperson's Summary: Committee on Development Effectiveness
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Energy Efficiency can offer countries direct economic returns that dwarf those of most other development projects, while also reducing greenhouse gas emissions. In Ethiopia, for instance, a US $5 million investment in efficient light bulbs prevented the need to spend more than US $100 million to lease and fuel polluting diesel generators. In Vietnam, efficiency improvements have been a key element in expanding electricity access. And in China, energy efficiency lending through banks and energy service companies has yielded large energy savings. The report calls for a retargeting of industrial energy efficiency finance for greater effectiveness. |
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Slowing deforestation is one way to reduce greenhouse gas emissions. Globally, about one quarter of the world’s tropical forests are under some form of protection, and the World Bank has contributed significantly to this effort. Rigorous and globally comprehensive analysis by IEG finds that, on average, protected areas significantly reduce tropical deforestation, preserving carbon and biodiversity. Contrary to fears that protected areas can only function effectively by excluding people, the study found that, compared to strictly protected areas, deforestation rates were lower in areas that allowed sustainable use by local populations. Deforestation rates were lowest in forests under the control of indigenous people. |
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Long-duration loans have been important in facilitating investments in hydropower and wind power, for instance in Turkey. Loan guarantees and MIGA’s political risk insurance may become increasingly important for making renewable energy bankable. In contrast, the carbon market – whose development the World Bank helped to pioneer -- has not yet significantly catalyzed hydropower and wind investments. |
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The World Bank has played an important role in developing carbon markets, as institutional innovation that, in principle, can help to promote climate change mitigation. But at prevailing carbon prices, much of the Bank's carbon offset purchases have gone to projects where carbon's financial leverage -- and hence its catalytic impact -- was relatively small. For hydropower and wind projects, carbon sales add little to the investor's rate of return and do not address the fundamental need for up-front capital. Leverage is greater for methane-reducing projects. |
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Technology transfer– broadly understood to include diffusion of technical and financial innovations related to low-carbon development – has worked well when the logic of piloting and demonstration is well thought out, and when grants are used to mitigate the risk of pioneering efforts. For instance, an agro-forestry project in Colombia proved to ranchers that putting trees in pastures could increase profits – while incidentally boosting carbon storage and biodiversity. A project in China demonstrated how energy service companies could provide energy efficiency advice and financing to industrial firms, sparking the growth of this service industry. Technology transfer projects have, however, often failed or floundered in the case of more advanced technologies, or where there was no clear mechanism for diffusing know-how from recipients to the economy at large. |
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Accelerated Learning. For higher impact, the World Bank Group and the world at large need to learn faster what works and what doesn’t and focus on results, not just dollars committed. For instance, twenty years of forest management efforts have largely lacked rigorous measures of economic, social, environmental, and financial impacts which could have guided current international efforts in REDD (reducing emissions from deforestation and degradation). In contrast, a distinctive benefit of Clean Development Mechanism (CDM) projects is their requirement for regular, publicly-reported monitoring on output. For instance, CDM monitoring led to the rapid discovery that landfill gas projects, as a class, were significantly under-performing against expectations, prompting attention to improvements in appraisal and operations. |
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