October 7, 2008—Even as global financial turmoil dominated the headlines, several countries joined forces in an effort to help developing countries address the challenges of climate change.
Ten industrialized nations meeting at the World Bank in Washington September 26 pledged $6.1 billion to two new Climate Investment Funds. The funds scale up energy efficiency, low-carbon technologies such as wind power and solar energy, and pilot new approaches to building climate resilience in countries threatened by climate change, as well as forest investments and renewable energy.
Such strong support for efforts to fight climate change “in the middle of financial turmoil” is encouraging, says World Bank Lead Environmental Economist Kseniya Lvovsky. “It shows the climate change agenda remains very important for international leaders.”
Indeed, climate change will be a key topic at the Annual Meetings of the World Bank and International Monetary Fund this month.
Among other events, the World Bank will present its new report, Development and Climate Change: A Strategic Framework for the World Bank Group, to development and finance ministers on October 12.
The Strategic Framework, reviewed over more than five months of consultations by 1,800 participants from 76 countries, defines the World Bank Group’s role in addressing a problem that is likely to cause the greatest distress to countries least responsible for it.
Economists estimate stabilizing carbon dioxide in the atmosphere could cost from $200 billion to more than $1 trillion per year over the coming decades. Tens of billions of dollars per year will also be needed to help the most vulnerable developing countries adapt to climate change.
With only about $10 billion a year available to developing countries from current sources, the challenge is immense, says Lvovsky.
Helping Countries Adapt is Key Role
The United Nations Framework Convention on Climate Change (UNFCCC) leads on policy formulation and cooperation at the international level on both greenhouse gas reductions (i.e. mitigation) and on adapting to climate change. Both are of equal importance to the parties to the Convention. Consistent with that, the World Bank Group’s emphasis is on helping some of the world’s poorest nations adapt to climate change and manage risks.
The Bank Group is working with other development partners to mobilize financing for climate change adaptation. Of the $6.1 billion pledged to the new funds, just under $1 billion went to the Strategic Climate Fund. A significant portion of the financing will be used to pilot programs to enhance climate resilience in 10 to 15 of the most vulnerable low-income countries.
Access to Energy Remains Priority
The Bank Group is also focused on improving access to energy. Some 1.6 billion people still don’t have electricity.
While conventional energy “will still be around for some time,” the Bank’s goal is to help countries develop their energy resources in a sustainable manner by supporting country-led programs in renewable energy, energy efficiency, and cleaner conventional technology, Lvovsky says.
The new Strategic Framework builds on recent jumps in World Bank Group financing for low-carbon energy:
- Funding for renewable energy and energy efficiency increased by 87 percent in fiscal year 2008, which ended June 30. Total commitments reached nearly $2.7 billion.
- The share of support for low-carbon energy projects rose from 28 percent in FY03-05 to 41 percent in FY06-08. Overall energy lending went from $7 billion in FY03-05 to $15 billion in FY06-07.
- Carbon finance activities have grown to $2.1 billion, through 10 funds, pooling stakes from 16 governments and 66 private companies. With significant leveraging, carbon finance is one of the main ways to support low-carbon investment.
About 30 percent of energy sector lending in FY06-08 went to helping people in developing countries get access to energy, with transmission and distribution at 12 percent. Energy access and low-carbon projects accounted for 66 percent of total World Bank Group energy lending in FY06-08.
The Strategic Framework predicts 50 percent of the Bank Group’s financing for energy will be low-carbon by 2011.
“The key for us—in our core mission of overcoming poverty—is to make sure developing country growth is not compromised because of the costs of climate change,” says Lvovsky.
New Opportunities for Renewable Energy and Energy Efficiency Projects
The new Clean Technology Fund will provide $5.2 billion in funding for scaling up low-carbon power and transport technologies and energy efficiency in buildings, industry, and agriculture.
Wind, geothermal and concentrated solar power, urban transport, and demand and supply-side energy efficiency efforts, are all potential areas of investment, says Rohit Khanna, a senior operations officer at the Bank.
The Clean Technology Fund will focus on deployment of technologies at scale, but would not support technologies that are still in the research stage. “We are looking at large-scale investments in technologies that are ready to take-off,” says Khanna. “We’re looking for opportunities where the pilots are already done and the sector is ready for the next phase of scaling up.”
“If the Clean Technology Fund can help drive concentrated solar power to where wind power is today, that will be a major achievement,” he adds. “The cost of wind has declined dramatically in the last decade, and if in five years we can accelerate the cost reduction of solar power, we will have made a huge impact.”
Funds Seen as Important Interim Finance
Funding through the Climate Investment Funds will go to programs that are in countries’ development strategies and have significant potential to reduce carbon emissions. A sunset clause will help ensure that the funds do not prejudice ongoing UN climate change negotiations.
“Hopefully there will be significant amounts of money that would become available for developing countries under a new climate agreement … Until that happens there is clearly a need to start ramping up resource availability and build the necessary knowledge base in the development community,” Khanna says.