With only a few days to go in the UN climate talks in Cancún, many questions remain on the outcomes, including on one of the most important issues currently on the table – climate finance. Finance in the context of the climate talks refers to funding for developing countries to address climate needs – financing for clean energy development, support in adapting to climate change impacts, and assistance with forest protection.
There is a window of opportunity in Cancún to set up a Global Climate Fund that would funnel money to developing countries to assist them in dealing with climate change. Developing countries are strongly supportive of funding under the United Nations because of the possibility of an inclusive, open, and transparent process for creating a fund with representative governance.
Some developed countries have been less supportive of this fund under the UN, and they instead point to existing institutions – such as the World Bank and regional development banks, bilateral aid through Export Credit Agencies and development agencies, and private sources of funding – as alternative locations to send climate-related funding.
Despite some recent changes in rhetoric, however, most of these existing institutions have extremely poor track records – and indeed, current records – on energy lending. The World Bank funded a whopping $6.2 billion in fossil fuels in FY2010, compared to only half that amount for renewable energy and energy efficiency. The World Bank’s fossil fuel lending has actually increased significantly over the past five years. And the Export Import Bank of the United States funded $4.4 billion in fossil fuel projects in FY2010, compared to only $331.6 million in renewables.
The World Bank in particular seems poised to position itself as the trustee for a new Global Climate Fund under the UN. This raises some serious concerns: how can the World Bank effectively oversee climate finance funding while its energy portfolio continues to fuel the problem?
The level of involvement of the World Bank in the Global Climate Fund could vary depending on how the trustee role is defined, but the concern remains that the World Bank, and indeed, the large majority of existing financial institutions, have not proven themselves able to play net positive roles in terms climate change.
The response from the development banks to the request that they phase out of climate-harming fossil fuel projects is that those projects are needed to increase access to energy for the world’s poorest. But the World Bank’s own analysis shows that almost none of its fossil fuel lending – and indeed none of its oil or coal projects since 2003 – has gone towards increasing energy access for the poor. Instead, these massive, highly polluting projects have gone to highly polluting heavy industry and mining.
The World Bank and regional development banks, as well as Export Credit Agencies and bilateral aid, have important roles to play in setting market signals for clean energy development and increasing energy access. If international financial institutions want to be trusted with additional funds for climate-related finance, they must change their core energy lending portfolios to stop contributing to climate change and instead consistently support solutions for the environment and development.
It is critical that substantial funding for clean energy development, adaptation, forest protection, and energy access is not only pledged, but also reaches and is effectively used in developing countries in the coming years. The ability of developing countries to leapfrog dirty energy, prepare for climate impacts, protect forests, while at the same time increasing energy access to the poor will make a world of difference, both in climate change and development. All of the institutions involved in international aid and development need to get on the same page to be able to do this.
If you’re in Cancún, we have a side event tonight (Wednesday, December 8th, 8:15 – 9:45 pm at Jaguar Room in Cancunmesse), with the Sierra Club, Bank Information Center, Christian Aid, Center for International Environmental Law, Vasudha Foundation India, and groundWork South Africa, on this very topic. Please join us!
Climate and Energy Finance: Funding transformation or propping up the past? An examination of existing patterns of international energy public finance, the World Bank’s Energy Strategy Review, and its implications for climate finance architecture.