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

non-Annex I countries. The World Bank’s Carbon FinanceUnit (CFU) has led, through its extensive activities in CleanDevelopment Mechanism markets, to expanding the roleof, and the infrastructure for, carbon trading between developedand developing nations. However, there has beencriticism of the environmental quality of many projects thatthe WBG has supported, including industrial gases, hydropower,and fossil (gas and coal) power plants, which maywell have been either profitable in themselves or were pursuedprimarily for the purpose of national energy diversificationand security policies. In addition, although the CFUwas promoted as a market maker that could act as a carbonoffset buyer until the private market flourished, the WBGcontinued to build up its trading after that private marketwas fully established. Finally, as a vehicle for catalytic financeand technology transfer, the IEG finds the CFU’s recordis at best mixed. The Panel suggests that the WBG hasa public responsibility to ensure that its behavior advancesprograms have been valuable in exposing that inadequatelending for energy efficiency often reflects wider credit marketfailures, including onerous requirements for collateral.However, it is important to note that, contrary to expectations,although market transformation programs were oftenconceived as temporary, WBG experience indicates thatthese actions proved difficult to discontinue even as banksor firms gained familiarity with energy efficiency lending.The Panel finds that the WBG could focus even more extensivelyon these less usual categories of transition financing,but needs to pay careful attention to the incentives that willhelp convert such demonstrations of market potential intocommercial local finance as rapidly as possible.The Panel also applauds the report’s attention to the importanceof technology development or promotion andits transfer or diffusion. Technological innovation requiresspecial conditions to be successful. The report argues thatinnovations are more apt for WBG support when thePhoto by Dana Smillie, courtesy of the World Bank Photo Library.the quality of international institutions that regulate carbonfinance markets, rather than acting principally as a puremarket player profiting from expanding market scale.Both the report and the Panel underline the importanceof market transforming measures. The Panel confirms theview in the report that loan guarantees, innovative forms ofinsurance for joint ventures and other types of commercialorganizations that encourage the international transfer oftechnologies, can be valuable. Likewise, investment in newservice providers such as energy service companies (ESCOs)or transmission and distribution loss reduction programsare especially valuable in climate-related activities. WBGBank can help defray risks that are peculiar to a certainenvironment or when the supported innovations are particularlyadapted to conditions, inputs, or skills found indeveloping countries. The barriers to technology diffusionare very often related to institutional factors such asthe character of competition and industrial structure. Dependingon market structure, competitors may resist thediffusion of technology and the WBG must have a realisticstrategy and realistic goals that take this into account. Thereport argues that in numerous cases international supportwas essential to mitigate up-front risk and to pay for globalbenefits of knowledge created.Statement of the External High-Level Review Panel| xxvii