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James Wolfensohn, President April 6, 1998 Dear Mr. Wolfensohn, Thank you for the reply from Dr. Watson dated December 2, 1997, in response to letters sent to you in June and in November. We appreciate the opportunity to gain greater clarity on the World Bank's role in financing fossil fuels, which has important implications for how the world addresses climate change. We would suggest that this letter be viewed as the first step in a dialogue that should involve other NGOs and stakeholders--from North and South. It is our most sincere hope that NGOs and the World Bank can get beyond arguing over gigatons of carbon, and move toward a more constructive approach that builds support--among donor governments, within the Bank and within developing countries--for energy investments that are more sustainable, and that meet the growing energy needs of the world's poorest 2 billion. First we would like to reply to some of the claims made by Dr. Watson which are troublesome and suggest either misunderstanding or miscommunication. 1. Financing Ratios Dr. Watson wrote: "In one case on financing ratios, once confronted with the facts you have admitted that your results were off by a factor of nearly 17, yet have not seen fit to issue a correction or a retraction. Other accusations regarding greenhouse gas emissions exaggerate the real situation by a multiple of five but you have not acknowledged estimation errors, to the detriment of my organization's reputation and your credibility." We have never admitted that our calculations were off by a factor of 17 nor of five. We are eager to learn where exactly Dr. Watson gleaned this misinformation. We did make a minor modification in our calculations--reducing them from 9.8 to 9.5 gigatons, because of a small error in our methodology that was brought to our attention after the release of the report. It was a relatively insignificant correction compared to the still significant total, and did not change our conclusion that fossil fuel projects funded by the World Bank over the past 5 years will eventually release more than all global annual carbon emissions for 1995. Annexed to this letter is a longer list of troubling errors and omissions we found in the Bank's own Carbon Back Casting Study, whose objective was not to calculate carbon emissions in the Bank's portfolio, but to assess whether a shadow price for carbon would encourage investment in low carbon alternatives. Perhaps for this reason, the Bank's study was far less thorough than ours but was nevertheless used to respond to our comprehensive and thoroughly researched data on the carbon in the Bank's lending portfolio. Nevertheless, even while admitting to repeated underestimations of carbon flows in the data, that study arrives at a total figure of roughly 4.6 gigatons of carbon emitted from 154 projects funded by the Bank between 1990 and 1996, a little less than half our figure. The report's authors claim the Bank should only take credit less than one-third of the emissions related to projects it funds, or 1.4 gigatons of carbon. We differ, and suggest that an institution entrusted with the mandate of "sustainable development and poverty alleviation" should bear full carbon responsibility for all fossil fuel projects it is involved in, not cut off calculating its carbon responsibility at one-third of the whole, nor after an arbitrary timeline of 25 years (as this study does), and that--whether it is 1.4, 4.6 or 9.5 gigatons--such carbon emissions associated with World Bank energy projects financed over only 5 years are all alarmingly and inexcusably high given the fact that the poorest in developing countries will bear the highest burden of climate change. 2. Involvement of the Bank in our study In response to Dr. Watson's complaint regarding our failure to share our report in draft form with the Bank, we chose not to do so when repeated requests for advance copies of the World Bank's Carbon Back Casting Study (CBC Study) were denied. Had the Bank chosen to share its own work in advance, we could then foresee having embarked upon an open, collaborative process. Unfortunately, the Bank's own secrecy informed our decision. Furthermore, we placed our entire report on the internet, complete with our methodology, allowing for close scrutiny of our findings. While the World Bank has posted its own report on the web, it has failed to include its methodology for calculation of the carbon emissions associated with 50 projects it has assessed in a transparent manner. To facilitate a global, open dialogue and comparison of data within the NGO and scientific community, we suggest that the World Bank post its methodology for the CBC Study, in readily accessible HTML format on the web. We would willingly post your part in this exchange on our web site, for the sake of open discussion. In addition to assessing projects in hindsight, as the CBC Study has done, we are looking forward to the World Bank's following through on a promise made by you at the 1997 Earth Summit in New York City, wherein you stated that the World Bank would assess carbon emissions for projects in advance of approval, and, where there was cause for concern, explore other more climate-friendly options with client countries. We hope that carbon emissions associated with World bank projects will be assessed soon, and made public well in advance of approval by the Board in a more transparent manner than the CBC study's. 3. Energy for the poorest or the richest? We were pleased to note that Dr. Watson did not dispute one of our key findings, namely that 9 out of 10 World Bank-financed fossil fuel projects benefit wealthy multinational corporations based in the G-7. This is a key point. With World Bank-enforced privatization of energy supply and delivery, increasingly, the beneficiaries of World Bank-financed energy lending are not the women and children who must rely on biomass and smokey cow dung for fuel--your purported target group of beneficiaries--but instead some of the wealthiest corporations on the planet, corporations like Exxon, Amoco, and Shell. Furthermore, this energy is increasingly supplying power for energy-intensive industries, which then export their products back to the wealthy Northern countries, in order to earn hard currency to repay World Bank loans. The above point informed our statement that the World Bank is "undermining the intent (not the letter of the law) of the Climate Convention." While it is true that per capita emissions from developing countries are far lower than in the North, the sad truth is that energy delivery on a per capita basis--targeted at the energy needs of the poorest-- is not an explicit goal of the World Bank's energy strategy. As a result, a significant share of the largely fossil-fuel-based power production financed by the Bank is actually further impoverishing the poorest, who most desperately need energy for their basic survival needs; it is the poorest who end up paying the highest price for these energy development projects, while reaping few if any of the benefits. At the same time resettlement, environmental degradation, police harassment, and other indignities associated with large-scale energy development projects financed by the World Bank are all too common, as evidenced by several recent claims filed with the World Bank Inspection Panel (Singrauli, Yacyreta, and Bio Bio). The intent of the climate convention--not dissimilar from the stated intention of the World Bank--is to allow developing countries longer lead times in phasing out fossil fuels in order to allow them to address their overriding concern of poverty alleviation. Where we differ from the Bank is in assumptions that an increase in energy supply, not explicitly focused on the poor, will result in a "trickle-down effect" of energy delivery to the poorest, especially the rural poor. There is little evidence we have seen to support this. There is growing evidence to suggest, however, that what is "trickling down" from these fossil fuel developments is greater hardship, further disenfranchisement, less access to natural resources the poorest depend upon for their survival, and toxic waste. The Bank's "fact sheet" disputes our charge that the Bank is bypassing the energy needs of the rural poor. The fact sheet notes the numbers of projects financed over the past 15 years, millions of dollars spent on rural electrification, and the standard-- yet unproven-- formula that equates greater energy efficiency with greater benefits for the poor. Yet, in an April 30, 1997 meeting with NGOs, World Bank Industry and Energy Department employee, Kari Nyman, stated: "There is no magic pool of money to deal with the 80 percent of people without power in rural areas of India." His statement was supported by World Bank staffers Jean-Francois Bauer and Tjaarda Storm van Leeuwen, also present, who expressed unanimous agreement that universal access to electrical power for India's poorest was impossible for a long time to come, despite record expenditures on coal-fired power expansion. If the World Bank cannot achieve its stated goal of providing energy for the poorest, and knows it can't, why then does it routinely justify its energy investments by referring to the unmet energy needs of the 2 billion poorest? The fact sheet also states that "...a strategy which the Bank is fully committed to implement has been set out in Rural Energy and Development: Improving Energy Supplies for Two Billion People". Yet the rural energy paper has only been given the status of a "Good Practice" document. If the Bank was fully committed to implementing this paper, it would give it full policy status by issuing it as a mandatory "Operational Policy." The problem we see is that focusing on rural energy is not compatible with the World Bank's reform agenda for the energy sector which downgrades the role of governments and allows market forces to decide where and when energy investments take place. Meanwhile, in moving away from a "culture of approval" and toward a "culture of results," we request that the Bank begin to assess the success or failure of its energy projects in actually delivering energy services to the rural poor, and in meeting their energy needs--for cooking, heating, and lighting. That such a basic assessment exercise has not been done is inexcusable for an institution that repeatedly backs up its energy investments in the developing world by claiming the poor are its targeted beneficiaries. 4. Looking to the Future Dr. Watson noted six guiding principles for energy investments by the Bank: 1) mainstreaming renewable energy policy in energy
and environment sector dialogues with client countries; We question whether climate-friendly activity (to the tune of millions of dollars a year) that is supplemental to "business-as-usual" fossil fuel development financing (to the tune of billions of dollars a year) by the World Bank is either a prudent or an effective use of Bank resources. We are not alone in this sentiment. The 1998 "Study of the GEF's Overall Performance," (March 2, 1998) is unequivocal regarding the World Bank's efforts on climate change:
We also question the Bank's policy on "mainstreaming renewables," which is to promote a policy of removing all government subsidies for renewables. Yet how can the paltry amount of money invested by the World Bank in renewables ever hope to compete with the billions spent annually by the Bank on fossil fuels, which also have the historic advantage of World Bank and government support? Even a level playing field will not provide the needed boost to get renewables off the ground on a global scale, given the historic advantage and numerous subsidies fossil fuels have enjoyed for decades. Instead, an innovative World Bank renewable energy investment program would reverse the amount of money spent on fossil fuels and renewables. Such a proposal has been put forward by former director of the federal Solar Energy Research Institute under President Carter Denis Hayes. Hayes points out that this has been done before: with the computer chip in the 1960s, when massive government purchases, mostly by the Defense Department and NASA, led to design innovations and efficiencies of mass production. As prices fell, a large commercial market was created. Chip production skyrocketed, and prices continued to plummet. Today, millions of people have more computational power sitting on their desks than NASA had available for the entire Apollo space program in the 1960s. Hayes writes:
5. Investing in Carbon Emissions: Conflict of Interest? While the Bank could play an important role in helping to combat climate change by following the model Hayes lays out and by mainstreaming the goals of the GEF in its current energy lending portfolio, the World Bank is devoting a significant amount of staff resources toward development of a carbon offsets market, an effort which gives even more incentives to task managers to continue to push investment in fossil fuels, rather than investments in climate-friendly activity. The Bank assumes, in documents on its Carbon Investment Fund, a 5% commission on all carbon offsets, which it estimates will bring in $100 million per year. While this may lower the cost of greater energy efficiency for industry and capture emissions that might otherwise be released, it does nothing to provide greater energy supply to the world's poor, nor does it necessarily reduce greenhouse gas emissions. Most disturbingly, it places the Bank in the position of both generating and profiting from carbon trading, a clear conflict of interest. Furthermore, the Bank's own documents claim that the "win-win" scenario it will pursue in the carbon offsets business will be to go after "low-hanging fruit"--in other words, energy projects which should be internalized in the cost of fossil fuel investments, but because they aren't, are ripe for the Bank's picking--and profit! 6. Over-simplification? Dr. Watson accuses us of "over-simplifying the issues surrounding the very complex question of reconciling climate change and development." We may be "over-simplifying" an issue that is complex; but, if so, we are joined by hundreds of NGOs from all five continents who signed two declarations, delivered at Kyoto, calling for a phaseout in funding for fossil fuels by public institutions like the World Bank. (See attached petition.) We are also joined by, among others, the Italian Prime Minister who advocated, in a speech to the Senate, increased support by the World Bank for renewables and the Italian Senate, who unanimously resolved "to advocate a review of World Bank activities in the energy sector, with the adoption of a binding policy that envisages the progressive reduction of funding for non-renewable energy sources to the advantage of renewables..." Similar expressions of consternation regarding World Bank support for the fossil fuel industry are emerging from other Bank donor countries. There is a strong and growing number of decision-makers who see the elegant simplicity of reorienting funding from multilateral and bilateral aid agencies away from fossil fuels and toward renewables as a way of ensuring that developing countries like India and China are given greater economic incentives to pursue non-fossil fuel energy paths. Our report raises questions around the logical inconsistency inherent in the Bank's energy lending portfolio, namely: Why is the Bank investing just a little in climate friendly projects, and, at the same time, investing a disproportionately large amount in projects which fuel climate change? Can a publicly financed institution like the World Bank honestly justify spending the majority of its energy lending portfolio on fossil fuels when private financial flows in this sector vastly exceed the World Bank's? And, of critical importance, how many of the world's poorest are better off and are seeing their energy needs met by the World Bank's energy strategy? How many of them are worse off? While simple, these questions--and the Bank's answers--are not only important in their own right, but are important because the fate of the world's climate hangs on their truthful answers. Sincerely, Daphne Wysham, Institute for Policy Studies cc: Rob Watson, World Bank Environment Department Read IPS Fact Sheet on the World Bank's Carbon Back-Casting Study
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