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World Bank policy loans creating fossil fuel project subsidies while undercutting renewable initiatives

A new Bank Information Center (BIC) analysis of the World Bank’s US$5 billion policy loans shows lender supporting investment incentives for coal and other fossil fuel projects in Southeast Asia, South America, Africa and the Middle East. These loans are threatening climate change efforts, indigenous groups and natural resources while undermining the Bank's own climate change commitments and forest protection efforts says the report.

Clearing for a coal mine, Central Kalimantan forest in June 2013 (photo courtesy Andrew Taylor/WDM).

Clearing for a coal mine, Central Kalimantan forest in June 2013 (photo courtesy Andrew Taylor/WDM).

World Bank policy loans are creating subsidies for coal, gas and oil projects and undercutting initiatives to build wind, solar and geothermal power infrastructure and protect vulnerable rainforests, including the Amazon, according to a new report by the Bank Information Center (BIC) and worldwide partner organisations.

The study, “World Bank Development Policy Finance Props up Fossil Fuels and Exacerbates Climate Change” examines seven World Bank policy operations from 2007 to 2016 totalling US$5 billion in four countries—Indonesia, Peru, Egypt and Mozambique—reveals that funds intended to boost low-carbon growth are instead supporting investment incentives for projects that put the climate, forests and people at risk.

One third of World Bank funding

According to BIC, an independent, non-profit, non-governmental organisation that advocates for the protection of rights, participation, transparency, and public accountability in the governance and operations of the World Bank Group and regional development banks, the report sheds light on the Bank’s “little-scrutinised yet highly influential” Development Policy Finance (DPF) operations. The DPF accounts for approximately a third of all World Bank funding—equal to more than US$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 (GHG) emissions, new investments in low-carbon infrastructure, especially in the energy sector, are critical. The BIC study examines DPF-funded policy reforms involving investment incentives for large-scale infrastructure projects.

– 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. However, the Bank’s policy lending does the opposite by introducing tax breaks for coal power plants and coal export infrastructure, said Nezir Sinani, Europe and Central Asia Manager at BIC.

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. The report points to several substantial climate change concerns and measures that contradict the World Bank’s climate change pledges. Key findings include the following:

  • In Peru, 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 World Bank DPF 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.
  • In Mozambique, Bank DPF-supported subsidies are slated to benefit four coal power plants, three coal port terminals and two coal transport railways. Other planned projects include one hydropower plant and one natural gas plant. No geothermal, solar or wind projects are targeted by the subsidies.

The authors urge the World Bank to heed its own advice on confronting climate change by providing the right incentives for a clear pathway to low-carbon development.  The report argues that the Bank must go beyond supporting some incentives for renewable energy to steer developing countries towards a low-carbon transition and calls on the World Bank to support incentives for more renewable energy through DPFs, and to be transparent about the measures and incentives tied to DPFs, as well as the projects that DPFs are slated to support.

– 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, Nezir Sinani said.

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