What does the world need from the World Bank on climate change?

The World Bank Board can be effective without raising the bar already set; it only needs to ask Bank managers for two things: implementation, and consistency. For an institution like the World Bank, it’s important that different activities not work at cross-purposes.  The risk is real.

Last week, the World Bank made yet another commitment to support the global effort to address climate change. The announcement, that the Bank will serve as a secretariat for a coalition of Finance Ministers that aim to drive “stronger collective action on climate change and its impacts” is a welcome initiative that can contribute to a stronger global agenda for addressing climate change. But is yet another commitment really what the world needs right now from the Bank to address this urgent crisis? Under Jim Kim’s presidency, the Bank established numerous initiatives and policies to advance a broad climate agenda, but it often fell short on implementation as well as ensuring individual projects and programs were consistent with this agenda. We would argue this is where the focus should be going forward, and that senior management and the Board must demonstrate strong leadership on both fronts.

Implementation

World Bank implementation of its climate commitments is key because 1) most have yet to be fully implemented and 2) they can make a difference.  In the last four years, the World Bank undertook nine different initiatives, and announced eight new policies, for action on climate.  The initiatives are all active, in various stages of implementation, and of varying importance. Among the most consequential are the Carbon Pricing Leadership Coalition and the Nationally Determined Contribution (NDC) Partnership, which includes the NDC Support Facility.

The idea of CPLC is to promote carbon pricing as a tool to shift whole economies away from fossil fuels.  Launched in 2015, it has 32 national and sub-national government partners. It was recently boosted by the creation of the Coalition of Finance Ministers for Climate Action, with 26 countries signed on to common principles, the six “Helsinki Principles,” that promote national climate action, especially through fiscal policy and the use of public finance.*

The NDC Support Facility, as its name implies, is designed to support countries to implement their NDCs.  While the Facility itself is small, by providing technical assistance in areas countries need to achieve their NDCs.  It is complemented by the WB-managed Climate Action Peer Exchange (CAPE) which provides peer learning, knowledge sharing, and mutual advisory support.  Both are relatively low-cost, high-impact activities.

Older initiatives too need robust implementation to ensure effectiveness.  For the nine post-Kyoto climate funds managed by the Bank, pledges total roughly $10.4 billion, but reported disbursements only add up to $3.3 billion.  So, close to 70% remains to be disbursed. This can be impactful if it helps countries establish or model low-carbon, resilient development.

As for WB policies, the most impactful, in terms of curbing fossil fuel support, are its coal policy (2013) to limit financing of coal-fired power plants to “rare circumstances,” and its upstream oil and gas policy (committed to in 2017, effective 2020) which similarly ends financing for upstream oil and gas, except for gas in the poorest countries.  Also important are commitments to report greenhouse gas emissions (effective this year) and apply a shadow price of carbon in economic analysis (effective July 2020). So far, only the coal policy has been implemented, so follow-through in the coming year (-plus) will be critical for impact.

Consistency

While we agree with Emerson that “a foolish consistency is the hobgoblin of little minds,”** for an institution like the World Bank, it’s important that different activities not work at cross-purposes.  The risk is real. Case in point: for coal, while the policy applies only to coal-fired power plants, the point is to not support coal power*** whether mining, transporting, or burning it, or transmitting the power it produces.  This requires that the Bank pull away not only from supporting coal-fired power plants, but the mines, railroads, transmission lines and other infrastructure (“associated facilities”) supporting its exploitation.

A second example of inconsistency: while coal plants and upstream oil and gas are not to be financed by World Bank investment loans, such projects may receive indirect support through WB development policy finance (DPF), or technical assistance/advisory services (TA/AS), or through financial intermediaries.  A recent study**** found $30.7 billion of DPF and TA/AS in 121 operations from FY2014-18 targeting energy, with roughly half involving oil, gas, or coal.  Since such support reduces the cost of these investments, these can amount to subsidies or incentives for fossil fuels. A consistent policy would ensure that these other forms of WB finance are covered in excluded expenditures.

Leadership

This brings us to the third element needed at the Bank—leadership.  World Bank staff respond to incentives, including institutional priorities as articulated by Bank leadership.  While Jim Kim, who stepped down as WB President in January, clearly articulated the Bank’s priority in addressing climate as essential to fulfilling its mandate to end poverty and raise shared prosperity, it is unknown how David Malpass, the new President, will prioritize this issue.  However, it is not only the President who has the final word on Bank priorities—the Board, made up of 26 Executive Directors, has an important role to play too. While not monolithic, the Board has reaffirmed its determination that the Bank fulfill its climate commitments, including during the Bank’s Spring Meetings.   And the Board can be effective without raising the bar already set; it only needs to ask Bank managers for two things: implementation, and consistency.

Footnotes
  1. *The original countries that joined are: Austria, Chile, Costa Rica, Côte d’Ivoire, Denmark, Ecuador, Finland, France, Germany, Iceland, Ireland, Kenya, Luxembourg, Marshall Islands, Mexico, Netherlands, Nigeria, Philippines, Spain, Sweden, Uganda, and the United Kingdom. Since the formal announcement (April 13, 2019) four more countries have also signed on: Colombia, Fiji, Guatemala and Norway. Principle 3 is “Work toward measures that result in effective carbon pricing.”
  2. **Ralph Waldo Emerson, "Self-Reliance," 1840.
  3. ***Aversion to coal is not ideological, but based on coal’s harm to climate, health, and environment, costs that are often ignored or underestimated. A study modeling the effect of coal use for power generation on life expectancy found that the use of coal predicted a decrease in life expectancy in countries with moderate life expectancy at the baseline year (1965) including Poland, China, Mexico, and Thailand. In India and China, years of life lost were estimated up to 2.5 years and 3.5 years, respectively. See Erica Burt, MPH Peter Orris, MD, MPH Susan Buchanan, MD, MPH: Scientific Evidence of Health Effects from Coal Use in Energy Generation, University of Illinois at Chicago School of Public Health, April 2013, p.8.
  4. ****Heike Mainhardt, World Bank Group Financial Flows Undermine the Paris Climate Agreement: The WBG contributes to higher profit margins for oil, gas, and coal, Urgewald, March 2019.