World Bank president Jim Yong Kim recently announced that the Bank would cut coal from its portfolio of investment projects.
New coal powered generation will now receive financial support only in “rare circumstances”. Gas will remain in the Bank’s investment mix but as a transitional fuel. But will this decision change anything?
The World Bank has led international development banks in its embrace of coal over the last five years, according to Oil Change International. The overall portfolios of the major development banks as well as the European Investment Bank and the European Bank for Reconstruction and Development, have been heavily weighted towards fossil fuel development rather than renewables.
The World Bank’s change in focus favouring renewable energy won’t have a great impact on the spending priorities in the near future because its last loan to a coal-fired plant was in 2010. Much larger will be the impact on other lending institutions. A reasonable expectation is that the decision to spurn coal will also permeate the domestic policies of countries continuing to build coal-fired power plants.
The new president Dr Kim has managed to get the no coal policy through the Bank’s board. In the past the strategy has been blocked by China, India, and Saudi Arabia.
Civil society has been pressing for change. No doubt the bank’s board was also influenced by the late 2012 report it commissioned from the Potsdam Institute. This describes what the world would be like if it warmed by 4°C – an almost unanimous prediction by scientists by the end of the century without serious policy changes: “The lack of action on climate change not only risks putting prosperity out of reach of millions of people in the developing world, it threatens to roll back decades of sustainable development.”
The International Energy Agency might also have been influential in the Bank’s change. The agency is emphasising the need to keep most coal in the ground to avoid catastrophic warming.
Electricity for Developing Nations
Lack of electricity is the major barrier to global poverty alleviation and the development of private enterprise. The marriage of the Bank’s focus on the poor with the delivery of cost-effective sustainable energy systems is now much more feasible.
While electricity grids are absent in remote areas, off-grid renewable energy systems are now bankable. The cost of solar power in particular has plummeted. The Bank gives the example of the cost of photovoltaic modules falling from US$3.40 per watt in 2008 to US$1.30 in 2011.
The three goals of the World Bank by 2030 are:
– universal access to electricity
– double the rate of improvement in energy efficiency
– double the rate of uptake of renewable energy.
The Bank’s annual present rate of investment in these goals is US$8 billion. This compares with the required annual investment rate for achieving these goals of $US600-800 billion – a doubling or tripling of present total financial flows. However the institution’s role is much greater than indicated by its scale of direct lending.
The Bank also leverages other lenders into the mix and fosters private-public partnerships. It advises electricity utilities on how to apply and raise finance. And it provides advice on reducing fossil fuel subsidies (which put government budgets in the red and deter investment in renewables) and on how tariffs can be set to be economically sustainable and manage demand. Raising awareness of energy efficiency – the least sexy and most under-exploited of initiatives – is also key.
The daunting challenges facing developing countries in integrating renewables into the energy mix will be appreciated by Australians who have been following the exciting efforts to pave the way for 100% renewables in this country, such as this report by the Australian Energy Market Operator, and this by the Global Change Institute at University of Queensland.
There are a number of ways in which renewables can contribute to a reliable electricity supply: concentrating solar, geothermal, biomass and hydro. The latter is a key in that is can be readily switched on or off to fill the troughs in supply or the peaks in demand; a reason why investment in hydro power is thought important in developing countries that have untapped water resources. While the social and environmental impacts of large water storages have been well documented, the Bank says it has learned many lessons from past experience.
Many countries do not need development banks to fund their energy investments and some are still investing heavily in coal-fired plants. China is an example. While massive investment in energy efficiency has halved power per unit of GDP in 17 years, the demand for coal will increase. This is due to the idiosyncrasies of the country’s electricity network together with a tripling of demand for energy by 2030.
It is easy to fall into pessimism about the chances of timely transformation of world energy supplies. But the policy shift by the World Bank is another domino fallen. Greater appreciation of the risks of climate inaction, the successful application of renewables, combined with global knowledge transfer, will surely see many more dominoes go down in the near future.
Colin Hunt is Honorary Fellow in Economics at University of Queensland.