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

part with a $198 million IDA credit. The hydropower plantcontributes 35 times as much to a tally of Bank disbursementsbut costs the Bank only 3.8 times as much in preparationand supervision. Overall, the hydropower project cost58 times as much as the energy efficiency project and 183times as much as the CFL component. Yet it generated onlyabout 20 times as much power and provided only about4.5 times as much capacity. This is not to suggest these twoparticular projects were substitutes or were inappropriate.Rather it serves to illustrate the order of magnitude of Bankcosts, client costs, and client benefits in energy efficiencyand renewable projects; it also suggests why preparation ofsmall energy efficiency projects has relied on trust fundsrather than Bank budget.The Way Forward for Energy EfficiencyEconomic and GHG returns to energy efficiencyinvestmentsEfficient lighting may offer extraordinarily high economicreturns, with substantial GHG reductions as a by-product.Promotion of efficient lighting may have large catalytic ordemonstration effects. A concerted, multinational effort topursue incandescent phase-out could lead to economies ofscale in production and distribution. Such an effort mightrequire considerable WBG staff time for preparation andcoordination but relatively low loan or grant amounts. Reductionof transmission and distribution losses also offersapparently high returns and scope for large investments.Scattered information from industrial energy efficiencyintermediation projects suggests that SMEs can achieveattractive rates of return through retrofits. But there mayalso be high returns in large, greenfield companies. Manycompanies operate at the state of the art in efficiency, butnot all do. A recent study in China found that large cementcompanies investing in new facilities failed to incorporatetechnologies that would have financial returns greater than35 percent (not taking into account carbon benefits) (Priceand others 2009). Globally, cement and steel account for15 percent of energy-related GHG emissions, about threequartersas much as coal burning, so this is an importanttarget for improved efficiency.Studies project large energy efficiencyopportunities in the building sector, wheremarket failures abound, representing alargely untapped area for WBG intervention.Studies project large energy efficiency opportunities inthe building sector, where market failures abound. Rapidurbanization during the coming decades will result in theconstruction of billions of square meters each year. Becauseof market failures, these buildings are likely to be energyinefficient and carbon intensive, and they will stand for decades.At the same time, demand for energy-intensive appliancessuch as televisions, refrigerators, and air conditionersis growing rapidly. As noted in Phase I of this evaluation,there is large scope for supporting policies for building andappliance efficiency.The WBG has modestly supported policy formulation but,with the notable exception of two Chinese projects, has notbeen deeply involved in implementation. There is considerablescope here for public-private coordination. The WorldBank could support policy implementation, and IFC (followingthe precedent of ELI) could work with manufacturersto promote more efficient and cost-effective productsand practices.Overcoming barriers to adoption and diffusionMany of the barriers to energy efficiency lending are in factbarriers to general lending: lack of liquidity, inability tomake long loans, and inability to rely on contracts. Hence,guarantees have been useful not as a temporary device toovercome banks’ unfamiliarity with energy efficiency, butrather the means to convince them to lend to enterpriseswith poor collateral. Future use of guarantees should bemore tightly focused on these targets. Technical assistancedoes appear to have helped some banks identify and marketenergy efficiency lending opportunities.Energy efficiency policies loom large as complements tofinance. China’s vigorous push for energy efficiency was amotivator for industrial investments. Hungary’s innovationsin municipal finance opened cost-saving, emissionsreducingopportunities. As noted in first phase of thisevaluation, cost-reflective prices are important motivatorsfor efficiency.Growing but largely unevaluated experience with CFL distributionprojects suggests that public policies can overcomehousehold barriers to adoption. Carbon financewould be another possible mechanism to pay for light bulbdistribution, because the carbon returns are large relativeto CFL costs. Further analysis is needed to determine whena one-time subsidized distribution of CFLs is sufficient totrigger follow-on adoption and diffusion.IFC could use its direct investments to promote energy efficiencyat three levels. First, just as it has encouraged clientbanks to market energy efficiency solutions to their ownclients, IFC itself could proactively seek new markets withlarge impacts. These could include, for instance, developersof large commercial buildings and residential developmentsthat are interested in pursuing low-energy buildingconcepts, including nascent proposals for “eco-cities.”Second, within its current client base, IFC could prioritizethe attention of energy efficiency staff to projects with the44 | Climate Change and the World Bank Group