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Rebecca Harris

Rebecca Harris

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Dirty Loans and Dirty Hands: Is the World Bank Fit to Serve?

Posted: 04/25/11 06:19 PM ET

In light of its recent and sizable loans for large scale fossil fuel projects with questionable benefit to the poor, civil society asks, is the World Bank an appropriate steward of international climate finance?

On Thursday, April 14, Friends of the Earth hosted a panel held in conjunction with the Spring Meetings of the World Bank/IMF in Washington, DC entitled "World Bank, Energy Finance, and Climate Change: Something Old. Something New?" The panel dissected the World Bank's role in energy and international climate finance within the context of the Bank's ongoing review of its energy sector lending strategy, the institution's request for a general capital increase as well as the recent developments from the UNFCCC COP-16 naming the World Bank interim trustee of the Green Climate Fund. Friends of the Earth's Karen Orenstein moderated the diverse panel of global civil society representatives, presenting perspectives from both the global North and South.

In her opening remarks, Orenstein drew attention to President Obama's request to the U.S. Congress for over $117 million in new funds for the World Bank. In the context of the Bank's affinity for fossil fuel-lending and the known and dire effects of climate change upon the world's most impoverished, many are pondering why the World Bank's bad behavior should be rewarded.

According to Orenstein, between July 2008 and December 2009, $1.5 billion was linked to fossil fuel-related infrastructure and policy lending, over and above the World Bank's fossil fuel-related energy sector lending. She also cited research from the Bank Information Center's Heike Mainhardt-Gibbs, suggesting that between 2006 and 2010, World Bank direct fossil fuel financing increased by approximately 400%.

Sunita Dubey from groundWork/Friends of the Earth South Africa further illustrated the Bank's troublesome lending record with case studies from World Bank loans for two massive coal-fired power plants: Eskom in South Africa and Tata Mundra in India. Last April, the World Bank approved a $3.75 billion loan to South African power utility Eskom for a 4800 megawatt coal-fired power plant, the world's 4th largest, the funding for which was highly contested by global civil society. Similarly, in 2008, the International Finance Corporation (IFC), the World Bank's private sector arm, approved a $450 million loan for a 4000 megawatt coal-fired power plant in India. Though the IFC claimed that "cheap and reliable electricity would help improve the competitiveness of Indian manufacturing and services industries," as Dubey pointed out, the on-the-ground realities are different in that "approximately 40% of the population are not connected to the grid and hence will not be served in any way by Tata Mundra."

Such loans have civil society asking whom these large sums of public funds are benefitting. Dubey noted, in the case of South Africa, the average resident pays up to 7 times more per unit of electricity than big business, due to special pricing agreements (SPAs) between multinational companies and the South African government. She explained that, as a result, some companies actually receive electricity at a price lower than production costs while the poorest are left in the dark.

The reality is, mega power plants, such as Eskom and Tata Mundra, are not an effective means of providing energy to the poor. A recent study by Oil Change International concluded that World Bank fossil fuel investments do not result in improved energy access for the impoverished. Specifically, the report found that of the 26 World Bank Group fossil fuel projects reviewed, none " clearly identify access for the poor as a direct target of the project," a shocking revelation for an institution who's stated raison d'être is poverty alleviation.

Furthermore, Oil Change International's Elizabeth Bast argued that fossil fuel financing neither serves the needs of the poor nor is it the most cost-effective energy choice to do so. When the public health and environmental externalities associated with fossil fuel-based energies are incorporated into the price of such energy choices, they exceed the cost of renewable alternatives. Bast cited a recent Harvard Medical School study that estimated the environmental and social costs of coal to be between 9 to 27 cents per kilowatt hour in the U.S.

Many believe that the World Bank's track record should exclude them from management of the international climate funds. Lidy Nacphil of Jubilee South-Asia Pacific Movement on Debt and Development spoke to the World Bank's role in international climate negotiations and the newly created Green Climate Fund. Although the December creation of the Fund was viewed as progress, lingering concerns about the World Bank's role as interim trustee remain. Nacphil attested that the Bank should be disqualified from this role due to the institution's long history of "financing dirty energy and projects that are reducing access to energy by people of the South, financing of energy projects that involve extractives and promoting the flow of resources from the South to the North." She also cited the institution's role in providing energy to big business to the detriment of community members and supporting privatization projects that ultimately result in expensive energy for communities.

As though the aforementioned weren't enough reason to reconsider the Bank's role in climate finance, Nacphil also pointed out the undemocratic governance structure of the World Bank, arguing that the institution is "controlled by rich countries (donors)" and that there is a lack of strong representation of countries of the Global South. She asked, "How can you have a democratic fund managed by the undemocratic World Bank?"

With regard to international climate finance, civil society asks: Is the Bank fit to serve? As the World Bank is handing billions to polluting coal plants that serve the needs of industry over the poor with the right hand, the left is grasping for funds to assist developing countries cope with the devastation of climate change. Given the disastrous environmental and social costs of its large scale fossil fuel investments that rarely meet the needs of the impoverished, the World Bank's rap sheet should certainly disqualify it from management of such funds.