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Speeches & Transcripts

Addressing the Financial Challenges of Climate Change

June 27, 2008

Graeme Wheeler, Managing Director, The World Bank GLOBE International, Tokyo G8+5 Legislators Forum Tokyo, Japan

As Prepared for Delivery

The Rt. Hon. Elliot Morley, Members of Parliament, Governor Tanami, Mr. Kuroda, and
other esteemed participants. Thank you for the opportunity to exchange ideas with all of
you on the very important topic of climate change.

As one of the eight lucky signs of Buddhist philosophy, drami or “the endless knot”
illustrates, citizens of the world – across countries and over time - are connected in a web
of mutual interdependence.

This is especially true in respect of the immense challenge of global warming. We see its
consequences. We know that over the past 30 years, the area of the globe affected by
drought has doubled and that the snow and ice covers in the Eastern Himalayas have
declined by a third. Each year, rainforests equivalent in size to Poland are being
destroyed, while the world’s deserts expand by an area equivalent to that of Austria.

We also know that climate change is much more than an environmental issue. It is a
political, economic, development, and human rights issue for billions of people. Climate
change is one of the two greatest development challenges of our time. The other is the
plight of the one billion citizens of this planet living on under a dollar a day. The benefits
of globalization are passing them by and they are becoming increasingly economically,
politically, and socially marginalized. Low income countries – and particularly the
extreme poor - are the most vulnerable to the effects of climate change. We saw this
during the 1990s when two billion people in developing countries were significantly
affected by climate-related disasters compared to less than 25 million in developed

It is cruel and ironic that those people who are the least responsible for causing the
problem are also the most vulnerable and least able to adapt. Climate change will be felt
most acutely in Africa where 95% of farming is rainfall dependent, and in low-lying
areas like Bangladesh, and small island states.

Why is climate change such a difficult challenge?

First, the intersectoral connections are complex. Global greenhouse emissions come
from multiple sources. About a quarter comes from electricity and heating, while
emissions from land use changes, such as deforestation and agriculture, exceed those
from transportation and industry. Recent increases in energy prices illustrate a deeper
connection. Higher energy prices have increased fertilizer and transport costs, stimulated
bio-fuel production, and helped to increase the price of staples.

Second, there are serious equity and moral issues. Today’s greenhouse gas problems are
mostly generated by developed countries with energy use per capita on average five times
that of developing countries. Yet over the next two decades, developing countries are
likely to emit 70% of the increase in greenhouse gas emissions. Levels of greenhouse gas
emissions that have generated wealth in industrialized countries cannot be sustained, but
other countries have urgent development needs. In rural areas, particularly in South Asia
and Sub-Saharan Africa, four out of five people currently live without electricity.

Third, are the difficult issues of sequencing and competitiveness. Even though
governments learned from the Great Depression that the pursuit of self interest through
competitive devaluations and high protective barriers made everyone poorer, the current
trade round negotiations demonstrate how difficult it is to reduce subsidies. Yet, the
adjustment and competitive issues are much more far reaching in the case of climate
change. Controlling greenhouse gas emissions will probably result in higher energy
prices, and the economic costs of transitioning to new technologies are enormous.
Investments in energy infrastructure of around US$170 billion a year are likely to be
needed in developing countries to reduce the present infrastructure gap. Decarbonizing
these investments could require additional investment in the order of US$30 billion per

What policies are needed to address climate change?

An effective response to climate change must combine both mitigation – to avoid the
unmanageable, and adaptation – to manage the unavoidable.

The challenge in front of us is immense. Climate change is probably the most complex
challenge facing policymakers in their lifetime. Several things account for this - the
interdependencies, the suspicion among the parties about adjustment burdens, and the
huge uncertainties around the cost of financing corrective measures and the impact these
will have on output growth over the next three decades.

Yet, there needs to be a global response to this issue. Capital is highly mobile and if
policy measures are not harmonized across countries, energy intensive industries and jobs
will relocate across borders to more policy-accommodating environments.

But a global response will be impossible if developing countries have the perception that,
behind the global policies promoted by industrialized countries, there is a potential threat
to undermine economic and social development in emerging economies.

A range of policy instruments can be used to address mitigation - including direct
controls and emission standards, and incentives to improve energy efficiency, and to
invest in areas such as forestry that reduces carbon in the atmosphere. Solutions which
use the price mechanism to tax sources of carbon, or to establish tradable greenhouse gas
permits are the most promising. In practice, all instruments are likely to be applied but
the price mechanism offers the greatest benefits as it induces polluters to innovate and
reduce their emissions at the least cost.

Developing countries also need to begin reducing their energy subsidies. These distort
investment and carry substantial budgetary costs. In Indonesia, for example, spending on
fuel subsidies in 2005 exceeded the government’s combined spending on health and

Adaptation measures have a critical role to play. However, we do not know what the cost
of adaptation will be for developing countries. Estimates of annual costs range up to
US$90 billion by 2015 – and these estimates may well be too conservative. Much more
extensive research on the modeling of climate change impacts on individual countries is
needed. But on one key aspect, there is broad agreement. These adaptation measures
cannot be seen as an adjunct or add-on that is separable from traditional development
plans. They need to be deeply embedded into development strategies at the community,
regional, and national level.

Resolving these challenges will require extensive cooperation between multilateral
institutions and among sovereign governments. Similarly, public and private sector
partnerships will be key. Neither the public nor the private sector acting alone can hope
to achieve the multiple goals and necessary investment flows.

Role of the World Bank Group

Addressing climate change is central to the Bank Group’s development and poverty
reduction agenda. We are using our convening power and development databases and
knowledge to prepare a comprehensive Strategic Framework on Climate Change and
Development to guide our work.

Our Strategic Framework has several objectives:

  • It will integrate climate risk management, adaptation, and low carbon growth
    opportunities into our core development actions;
  • It will address funding shortages through existing and innovative instruments –
    including concessional public finance, market-based instruments, and private
    sector investment;
  • It will accelerate the deployment of climate friendly technologies, and foster new
    research and knowledge and capacity development for climate-smart

The recent steps to establish the large Climate Investment Funds show what is possible
when donors, recipient countries, and international institutions come together. These
funds are designed to support, in a transition mode, transformational investments across a
range of sectors.

The Clean Technology Fund, will invest in projects and programs that contribute to the
demonstration, deployment, and transfer of existing low carbon technologies that have
potential to achieve long term reductions in greenhouse gas emissions. The Strategic
Climate Fund will build experience on how to scale up investments to further support a
country’s own greenhouse gas strategies.

Our goal is to help develop markets and provide pilots that, if successful, can be scaled
up by the private sector. We helped to develop the carbon market and have developed a
range of insurance products to help countries cope with natural disasters. The World
Bank Treasury is currently developing the platform for the issuance of multi-country
catastrophe bonds that will pool the risks of several countries and transfer them to capital

GLOBE has a tremendously important role to play. Following the Gleneagles Summit in
2005, the climate change debate was often seen as a zero sum game with winners on one
side and losers on the other. Over the last three years, you have moved us toward winwin
proposals ranging from bio-fuels policies to innovative financing mechanisms, to
facilitating technology development and transfer. All these initiatives will help
negotiators move forward on a global post 2012 arrangement.

With your feet on the ground in the countries most affected by climate change, or those
most likely to be, you have real and practical experience to share and new ideas to
promote. You can help your governments to be active and constructive partners in
addressing climate change together with other governments. And you yourselves can
build relationships across borders to ensure that the crucial knowledge and technology
transfer necessary for success, takes place.

We, in the World Bank, have listened to the legislators; our hope is that the G8 leaders
meeting soon in Hokkaido, will do so as well.


In closing, I return to another insight from Asia – that of the four friends (the elephant,
the monkey, the rabbit, and the bird). By standing on each other’s shoulders, the bird is
able to reach the fruit for all of them.

Addressing climate change requires us to understand the web of mutual interdependence
characterized by the endless knot, and the wisdom of the four friends.

Climate change is much more than an immense development challenge - it is a major
threat to all our economic and political systems. Its policy dimensions embrace issues of
equity, ethics and security - and great vision, courage and leadership are necessary to
address them. Our quality of life, that of future generations and above all, the poorest
and most vulnerable on this planet will depend upon our willingness to act.

Thanks very much.