Conflicting priorities at the World Bank?

This Wednesday, The Guardian leaked the World Bank’s draft ‘Mobilising Climate Finance’ report, which is due to be presented to the G20 finance ministers in November. The report, which has been commissioned by the G20 finance ministers, explores avenues for scaling up climate adaptation and mitigation in developing countries (see, p.5) by outlining the Bank’s proposals for leveraging climate finance for developing countries. Given that this report is intended to provide a basis for the UN climate talks, which are due to continue in Panama next week, the proposals may prove critical in either initiating or hampering effective global action on climate change.

There are certain aspects to the report for which the Bank can be congratulated, namely the proposal for removing subsidies for fossil fuel use. Total fossil fuel subsidies for Annex II countries are estimated to lie somewhere between $40-60bn over recent years. The funding of fossil fuel projects in the name of development has long been a controversial issue at the Bank, not least because subsidising high carbon infrastructure is in stark contradiction with the Bank’s climate change objectives (an issue which we have explored in previous blogs). Moreover, in 2010, just over 20% of these subsidies went directly to oil, gas and coal companies, rather than to supporting consumers in developing countries. (See, p.21.) The proposal by the Bank to remove fossil fuel subsidies is therefore a surprising (and welcome) turnaround.

Yet while the Bank’s proposal to remove fossil fuel subsidies suggests a positive move away from providing finance to highly polluting industry, other features of the report are more concerning. The heavy emphasis on carbon offsetting, carbon trading, and using the Clean Development Mechanism (CDM) to achieve emissions reductions, for example, suggests a worrying move towards redirecting ‘climate aid’ money (which has already been pledged to developing countries) towards private markets that have been criticised as being ineffective.

There is a firm emphasis on leveraging climate finance from the private rather than the public sector, with the report praising the role that carbon offsetting can play in ‘catalysing low carbon investments’. Yet carbon offsetting has often been criticised for failing to achieve actual emissions reductions. Likewise, the Clean Development Mechanism has been criticised for allowing rich nations to avoid meeting their emissions reductions targets as it has, in some cases, allowed rich countries to gain carbon credits by funding low carbon projects which were already in the pipeline.

The report also discusses the potential for increasing low carbon investment by stimulating carbon markets. However the reliance on the private sector and on bolstering carbon markets is a high-risk strategy. Carbon markets have consistently failed to deliver; the EU Emissions Trading Scheme for example has been largely ineffective at delivering any substantial reduction in emissions across the EU. Furthermore, even within the report there is an acknowledgement that capital flows from offsetting initiatives have so far gone to a relatively small number of middle income countries rather than developing countries. Using public funds to support carbon markets therefore risks both diverting funds away from developing countries, and failing to achieve the climate adaptation and mitigation improvements that are needed.

Therefore despite the welcomed drive away from fossil fuel subsidies, many of the proposals being forwarded by the World Bank fail to offer a low carbon development path which will integrate developmental aims. Moreover, as accountability advocates, we also need to be asking questions about which actors were involved in developing this proposal, and whether citizens and decision-makers in developing countries in particular feel that their views have been accurately reflected with regards to global climate finance issues. How to reconcile climate change mitigation and adaptation with issues of development is no easy task, and will require the balancing of conflicting stakeholder views in the quest for a fair solution.