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

were adjusted toward market levels, and the intensity ofcarbon dioxide emissions dropped substantially. Subsidyremoval can threaten the poor, however. Recent efforts toassess poverty and welfare impacts systematically appearto have informed the design and implementation of pricereform efforts, though not necessarily with direct Bank involvement.Examples include Ghana and Indonesia, wherecompensatory measures were deployed in connection withfuel price rises.The Bank has rarely coordinated efficiency improvementswith subsidy reductions to lighten the immediate adjustmentburden on energy users.An exception is the China Heat Reform and Building EfficiencyProject, which links improved insulation with heatpricing. A growing number of projects sponsor nationwidedistribution of compact fluorescent light bulbs, but this hasbeen done in response to power shortages (Rwanda, Uganda)or to stanch utility losses (Argentina, Vietnam), rather thanto facilitate subsidy reduction.Despite emphasis on energy efficiency in Bank statementsand in Country Assistance Strategies, the volume and policyorientation of IBRD/IDA efficiency lending has beenmodest.Although the IFC has recently increased its investments inenergy-efficiency projects, World Bank commitments forefficiency were about 5 percent by value of energy financeover 1991–2007. This includes investments in demand-sideefficiency and district heating, and may also include somesupply-side efficiency investments. By this definition, about1 in 10 projects by number involve energy efficiency.Including a broader range of projects identified by managementas supporting supply-side energy efficiency wouldboost the proportion above 20 percent by number over theperiod 1998–2007. Globally only about 34 projects undertakenover the 1996–2007 period had components orientedto demand-side energy-efficiency policy. Among these,many attempts to promote efficiency have had limited successbecause the Bank has engaged with utilities, whichhave limited incentives to restrict electricity sales.There are several reasons why end-user energyefficiencyprojects, and especially policy-oriented projects, appear tobe under- emphasized in the Bank’s portfolio.The Bank has carried out some successful and innovativeefficiency projects. But internal Bank incentives workagainst these projects because they are often small in scale,demanding of staff time and preparation funds, and mayrequire persistent client engagement over a period of years.There is a general tendency to prefer investments in powergeneration, which are visible and easily understood, overinvestments in efficiency, which are less visible, involvehuman behavior rather than electrical engineering, andwhose efficacy is harder to measure. A general neglect ofrigorous monitoring and evaluation reinforces the negativeview of efficiency.The Bank- hosted Global Gas Flaring Reduction Partnership(GGFR) has fostered dialogue on gas flaring, but it isdifficult to assess its impact on flaring activity to date.Associated gas (a by-product of oil production) is oftenwastefully vented or flared, adding more than 400 milliontons of carbon dioxide equivalent to the atmosphere annually,or about 1 percent of global emissions. A modestlyfunded public-private partnership, the GGFR has succeededin highlighting the issue, promoting dialogue, securingagreement on a voluntary standard for flaring reduction,and sponsoring useful diagnostic studies. But only fourmember countries have adopted the standard. The GGFRhas emphasized carbon finance as a remedy for flaring, butthe use of project-level carbon finance is a mere bandagefor policy ailments that require a more fundamental cure.RecommendationsIn mid-2008, real energy prices were at a record high. Whilethis is burdensome for energy users, it opens an oppor tunityfor the Bank to support clients in making a transition to along-term sustainable growth path that is resilient to energyprice volatility, entails less local environmental damage,and is a nationally appropriate contribution to globalmitigation efforts.Clearly the World Bank needs to focus its efforts strategicallyon areas of its comparative advantage. This wouldinclude supporting the provision of public goods and promotingpolicy and institutional reform at the country level.Furthermore, the Bank can achieve the greatest leverage bypromoting policies that catalyze private sector investmentsin renewable energy and energy efficiency, including thosesupported by IFC and MIGA. The analysis in this reportsupports the following recommendations:Systematically promote the removal of energy subsidies,easing social and political economy concerns by providingtechnical assistance and policy advice to help reformingclient countries find effective solutions, and analyticalwork demonstrating the cost and distributional impact ofremoval of such subsidies and of building effective, broadbasedsafety nets.Energy price reform can endanger poor people and arousethe opposition of groups used to low prices, thereby posingpolitical risks. But failure to reform can be worse, divertingpublic funds from investments that fight povertyand fostering an inefficient economy increasingly exposedto energy shocks. And reform need not be undertaken120 | Climate Change and the World Bank Group