The Challenge of Low-Carbon Development - World Bank Internet ...

Executive SummaryUnabated, climate change could derail development, with aone in four chance of a six-degree Celsius hike in temperaturethis century. Although industrialized countries are historicallyresponsible for the build-up of heat-trapping greenhousegases (GHGs), the United Nations’ goal of stabilizing atmosphericGHG levels requires urgent and concerted worldwideefforts. Choices and investments made in the next twodecades—in buildings, power plants, transport systems, andforest use—will irreversibly shape the global climate’s future.This evaluation seeks lessons for development and climatechange mitigation from the World Bank Group’s (WBG)far-reaching portfolio in energy, forestry, and transport.The assessment is not exhaustive but covers subsectors thatrepresent the great bulk of evaluable WBG activity withpotential GHG cobenefits. Over the period 2003–08 theWBG scaled up annual investments in renewable energyand energy efficiency from $200 million to $2 billion andhelped mobilize more than $5 billion in concessional fundsfor GHG reduction. In 2008 it adopted the Strategic Frameworkon Development and Climate Change (SFDCC),which triggered a spate of investment and analytic activity,too new to assess. Yet the WBG’s resources are smallcompared with the multitrillion dollar investments neededfor low-carbon growth. How can the Bank have the greatestimpact, both for development and for GHG mitigation?One important way the WBG can achieve leverage isthrough advice and support for favorable policies: removalof energy subsidies and of other biases against renewableenergy and energy efficiency. This topic was covered inPhase I of this evaluation series (IEG 2009).A second way is to act more like a venture capitalist—inthe public sphere as well as for private investments—by supportingthe transfer and adaptation to local conditions ofexisting technologies, policies, and financial practices. Bytaking modest risks in pilot projects, the WBG can identifya high-return portfolio of development solutions that canbe deployed on a large scale, as climate finance expands.The WBG has been successful in this kind of technologytransfer—but only when demonstration and diffusionmechanisms were well thought out. Global EnvironmentFacility (GEF) support has been crucial in mitigating clients’perceived risk, and expanded concessional funds willbe needed for larger-scale demonstrations. Support formore advanced technologies has usually been unsuccessful,though there could be niches such as land use where theWBG has a role.Third, the WBG can refocus on high-impact sectors andinstruments. Energy efficiency stands out among areas forintervention. Early results suggest, for instance, that distributionof compact fluorescent lightbulbs offers economicreturns that dwarf those of most WBG investments whileproviding significant cobenefits in carbon dioxide (CO 2)reduction, exemplifying the Strategic Framework’s call for“no-regrets” investments. To meet power demands, theWBG’s scarce human and financial resources will be bestspent helping clients find domestically preferable alternativesto coal power, such as through increased energy efficiency.Coal support should be a last resort used only whenlower cost and concessionally financed alternatives havebeen exhausted and when there is a compelling case thatWBG support would reduce poverty or emissions.Among forest interventions, indigenous and protected areasthat permit sustainable use have reduced tropical deforestationby up to two percentage points a year (compared withunprotected areas), thus promoting social, environmental,and climate goals. Among instruments, carbon financeneeds to be redirected away from hydropower, where ithas minimal impact on project bankability, to applicationswhere it can have more leverage. Long-duration loans arecritical for support of renewable energy. Guarantees havenot transformed the market for energy efficiency lendingbut could be increasingly important for renewable energyas investors seek reassurance that favorable policies will bemaintained over the long run.To pursue this agenda, the WBG should orient itself stronglytoward results and closely monitor performance. In this fastchangingarea, being able to understand what is working,what’s not, and why is a source of value for the institution,for its clients, and for the world.Evaluation FrameworkThis evaluation reviews a broad range of WBG activity inthe adoption and diffusion of emissions-reducing technologiesand practices. It addresses three main concerns:• What actions will deliver the greatest overlap betweenGHG mitigation and local development?• Where and how does the WBG have the highest leveragein promoting those actions?• How can the WBG best use feedback from ongoing experienceto improve performance?Executive Summary | ix