The World Bank, Coal and Energy Poverty

Justin Guay, Sierra Club - India Program Officer

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It is an often unchallenged premise that the road to development must be paved with fossil fuels. One which has lead international finance institutions (IFIs) charged with enabling development for the billions of poor around the world to heavily finance and subsidize them. The results of this lending are on prominent display at the World Bank. From fiscal year 06-10, World Bank lending for fossil fuels increased from $1.5 billion to $6.2 billion. In fact 2010 represented a record year for fossil fuel lending at the Bank with $4.4 billion for coal projects alone.

While the World Bank and other IFIs pursue this destructive lending the projects are often met with fierce resistance by local communities who refuse to shoulder the burden fossil fuels will exact. Projects which are coming online at a time of near crisis levels of climate change impacts; Impacts, which are overwhelmingly borne by the billions of poor in vulnerable areas of the world. It is truly a sad and cruel fate that the remedy offered by IFIs for a lack of modern energy service that restricts development opportunities, is a devils bargain that threatens to literally wash away the hard fought development gains of recent decades.

However, the Bank as well as other IFIs, (including the United States Export Import Bank, which is on a fossil fuel binge of its own) continue their incoherent lending when it comes to fossil fuels and climate change. They do so by maintaining that fossil fuels, particularly coal, are the cheapest forms of energy, and are therefore vital for eradicating poverty. Moreover, with a lack of leadership from the industrialized world it is impossible to let climate concerns trump the urgent necessity of poverty eradication.

Unfortunately the either/or narrative of eradicating poverty through fossil fuel development or addressing climate change falls painfully flat for a number of reasons. The first and foremost is the widely acknowledged fact that simple cost/benefit analyses fail to internalize the laundry list of costs imposed upon society (particularly the poor) by fossil fuels including climate change, human health impacts, and ecosystem impacts. In addition, fossil fuels are subject to significant price fluctuations. For example, due to its high dependency on oil to power its mining operations the price of “cheap” Appalachian coal tripled on the U.S. spot market from 2007-2008 to over $140/ton.

While concerns over the true cost of fossil fuels justifies a fundamental shift in lending practices, the deeper issue remains their inability to provide access to energy for the world’s poor. Nowhere is this issue more clearly illustrated than India where according to the UNDP and WHO 28% of the 1.5 billion people lacking access to electricity live. There are any number of reasons for the failure of centralized fossil fuel energy supplies to reach rural India including the high cost of grid extensions, and the countries notoriously “leaky” transmission system.

However, in spite of these issues the International Finance Corporation (IFC), a member of the World Bank Group, provided nearly $450 million dollars in 2008 to create one of the world’s largest point sources of greenhouse gas emissions the 4,000 MW Tata Mundra coal based power project in Gujarat. It then backed this colossal mistake with a further $1 billion in financing two years later to “strengthen the transmission network for bulk power transfers”.

What’s worse, in an Orwellian attempt to justify the project and the broader fossil fuels narrative Tata Mundra applied for carbon credits under the Clean Development Mechanism (CDM) of the United Nations Framework Convention on Climate Change. The applications was based on the faulty logic that supercritical technology employed at the plant would more efficiently burn coal thereby lowering levels of CO2 emissions.

The Executive Board of the CDM saw through this absurd attempt and rejected the project. However, with Indian supercritical coal technology attempting to position itself as a low carbon alternative eligible for carbon credits and the government’s coal ministry firing salvos at Jairam Ramesh for standing up to this destructive form of development it is absolutely vital that IFIs recant the false narrative from which this lunacy has sprung.

Ultimately, it is access to modern energy services that is a fundamental prerequisite to poverty eradication and economic development - an area where the fossil fuel led development narratives ultimate failure rests. Energy sector lending must ensure that energy access becomes the central priority of international financial institutions. Doing so clearly demonstrates the need to look for innovative solutions for the poor by supporting the rural market infrastructure for decentralized renewable energy rather than propping up the failed policies of the past. Because when the world’s children look back and ask why did you choose new coal? No amount of “pro-poor” rhetoric will be able to put a positive spin on the dark future fossil fuels will have forged.

This post appears courtesy of the Sierra Club India.

Check out more on Celsias:

Innovation for the Poor

What is Life After Peak Oil?

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  • Posted on Sept. 21, 2010. Listed in:

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