World Bank Energy Directions: Has the Bank fulfilled its commitments? What needs to change?

The World Bank’s last public energy strategy was its 2013 Energy Directions Paper, which pledged to transform the energy sector in client countries. Comparing the Bank’s energy sector portfolio from before (FY2010-13) and after (FY2014-17) the energy strategy’s publication, BIC found the Bank has not successfully fulfilled its energy pledges. A new energy sector strategy would enable the Bank to address its shortcomings and align its energy portfolio with its climate commitments.  

In July 2013, the World Bank Group (WBG) released the report Toward a Sustainable Energy Future for All: Directions for the World Bank Group’s Energy Sector (Energy Directions Paper). The approach outlines commitments for securing affordable, reliable, and sustainable energy and closely mirrors the objectives of the Sustainable Energy for All Initiative: achieving universal access, accelerating improvements in energy efficiency, and doubling the global share of renewable energy by 2030. BIC examined whether the public sector side of the WBG (IDA/IBRD) fulfilled the major commitments set out in the Energy Directions Paper by comparing the Bank’s energy sector portfolio before (FY2010-13) and after (FY2014-17) the energy strategy’s publication. Specifically, we sought to answer if the Bank had corporate indicators sufficient to measure its success and had met its Energy Directions targets. While we identified some positive results, largely the Bank has not met the pledges it made in the Paper. 

We evaluated all 30 commitments made in the Paper but only 18 had data available for review. Of these 18 commitments, we determined the Bank’s progress was sufficient for six commitments, not adequate for nine, and not quantifiable for three. The Bank successfully phased out direct support and public finance for coal power, increased support for large-scale renewables, and continued supporting projects for off-grid distributed renewables, electrification of rural communities, and access to clean cooking and heating, albeit at modest levels. 

However, the Bank also scaled up support for gas, a commitment rationalized as a “bridge fuel” to replace coal. The negative impacts of gas and oil co-development, particularly gas leakage and the extremely high short-term warming impact of methane, along with declining costs of renewable energy, undermine any justification of such efforts as climate-friendly or sustainable.[1] Following the implementation of the Paper (FY14-17), the Bank’s non-renewable energy investment projects totaled $12.5 billion, including $5.9 billion for fossil gas, while renewable energy and energy efficiency (RE/EE) projects together received $7.7 billion in financing. The fact that non-RE/EE financing exceeded RE/EE by more than 60 percent leads one to question the Bank’s priorities in this sector. Moreover, we found little progress on supporting universal energy access.

The Bank has an important role to play in financing renewable energy expansion and achieving universal energy access. To address its shortcomings and improve energy outcomes, the Bank should:

  1. Close the gap between financing commitments and disbursements. Irrespective of the reasons behind these gaps, the Bank must be fully transparent about how much of the finance it commits is effectively reaching the people who need it. An inconsistent flow of finance is less likely to be effective, especially for the low-income borrowers that IDA supports. The Bank should conduct an internal review to identify core reasons behind its shortfall in disbursements and seek ways to help borrowers effectively deploy funds.
  2. Expand the scope of the exclusion list for Development Policy Loans (DPLs). DPLs, Technical Assistance, and Advisory Services all need to be incorporated into the Bank’s climate and energy pledges. The Bank should have an Excluded Expenditures list for Development Policy Finance proceeds (e.g. budget support) that covers all fossil fuels. Likewise, the Bank should create a system of pre- and post-disbursement tracking and reporting for all DPLs affecting the energy sector to effectively monitor DPLs’ impact on final energy consumption.
  3. Monitor and report on progress towards meeting Energy Directions commitments. The Bank should establish a consistent set of definitions and performance indicators aimed at tracking and reporting project-level information for the Bank’s energy portfolio. The Energy Sector Management Assistance Program’s Multi-Tier Framework for measuring energy access is one way the Bank can reliably measure progress on global energy access and promote alignment with SDG7 and the Paris Agreement.
  4. Phase out fossil gas finance and link residual gas projects to corresponding increases in clean energy development. Considering the GHG emissions and potential for methane leakage, the Bank should stop financing all fossil fuels, including gas, by the end of 2021 in alignment with the European Investment Bank’s (EIB) policy.[2] For gas projects already in line for approval, the Bank should balance them with renewable energy projects so that reliance on fossil fuels can be reduced at a pace commensurate with the EIB’s target as it represents current best practice among the MDBs and the likeliest path to Paris Agreement alignment.[3]      
  5. Draft a new Energy Strategy. While these recommendations can each be addressed individually, they might be most effectively addressed if integrated in a new WBG energy sector strategy.[4] Certainly the changes in context since 2013 — the release of the IPCC’s 5th and 6th Assessment Reports (2014, 2021) approval of the Sustainable Development Goals and the Paris Agreement (2015), adoption of the Bank’s own Climate Change Action Plans (2016, 2021), climate commitments in the final replenishment reports for IDA-18 (2017) and IDA-19 (2020), and the Bank’s post-COVID goal to “build back better”— more than warrant an energy sector strategy that responds to both the risks and opportunities that the world now presents.  

To read our findings and more on how the World Bank can improve the sustainability of its work in the energy sector, see the full paper: Has the World Bank Met its Targets for Sustainable Energy

[1] See e.g. Union of Concerned Scientists, The Climate Risks of an Over-reliance on Natural Gas for Electricity, Oct. 15, 2013; and Environmental Impacts of Natural Gas, June 19, 2014  (accessed 6/16/20).

[2] The EIB’s energy policy covers all EIB activities including advisory services, technical assistance and all intermediated operations (including through investment funds or commercial banks)

[3] However, even the EIB approach leaves room for improvement. A more robust approach is laid out in Raising the Game on Paris Alignment,  Germanwatch, NewClimate Institute and World Resources Institute, March 2020.

[4] The Bank has avoided sectoral strategies for several years, but energy policy is important enough to warrant one, as other banks have done (EIB, 2019) or are doing (ADB).  Such strategies are subject to consultation and Board approval.  A new ‘directions paper’ could provide similar substance, but would not benefit from full consultation.