Banking on Coal

Why is the World Bank subsidizing one of the planet's dirtiest fuels?


With the U.N. climate change conference in Copenhagen getting under way this week, the pressure’s on for world leaders to come up with some sort of climate agreement. Despite the appearance of a unified plea for action, however, not everyone is playing ball. And one of the shirkers is especially surprising: Even as governments are weighing tough choices to bring down emissions and cope with rising temperatures, the World Bank is financing — and plans to continue financing — coal projects to the detriment of renewable energy. In effect, the World Bank is sending the message that coal is not just an acceptable fuel, but also a resource that should be developed with international funding. It’s a betrayal of everything the World Bank’s member countries are supposed to be working for.

The bank’s recently released draft Energy Strategy, which will guide its energy lending and influence partner institutions for the next seven to 10 years and announces its investment in coal, is very, very bad news. Although the proportion of coal to renewable energy is falling, the shift is too little too late. Back in 2004, the World Bank’s Extractive Industries Review recommended that the bank "phase-out support for oil by 2008, and formalize its moratorium on lending for coal projects immediately." That was five years ago. Today, the World Bank strategy notes that "In some countries, electricity from coal is significantly cheaper" and the bank "could use its traditional financing instruments to support client countries to develop new coal power projects under certain conditions." Indeed, the Bank Information Center finds that bank funding for coal has increased almost 200 percent between 2007 and 2009.

But even if it saves costs in the short term, each newly constructed coal plant has a life of about 50 years, during which it will emit carbon; rehabilitation extends the life of the plant by an additional 20. So even as World Bank donor countries are fighting political battles to cut emissions, their dollars are funding new World Bank coal projects that will cancel out any hard-won gains.

It’s hard to understand why "coal" isn’t a dirty word in the halls of the World Bank — an institution whose mandate is built on the idea of sustainable development. According to the U.S. Energy Information Administration, coal is the most carbon-intensive of the fossil fuels and is the fastest growing carbon-emitting energy source. Coal’s share of world carbon dioxide emissions is projected to increase to 45 percent in 2030, meaning that nearly half of all new pollutants can be traced back to coal. Perhaps most outrageous of all is that climate change driven by such investments will disproportionately affect the poor, those who’ve had the smallest role in producing emissions.

Mining the stuff also wreaks havoc on the environment. Open pit, strip, and underground mines all cause severe erosion, leach toxic chemicals into nearby streams and aquifers, and push animals and plants out of their habitats. Coal is particularly harmful for public health. A 2009 Environmental Defense Fund study estimated that between 6,000 and 10,700 annual deaths can be attributed to the 88 coal-fired power plants and companies receiving public international financing, including from the World Bank.

Yet even knowing coal’s blemished track record, the bank is not only subsidizing coal projects but doing so to an increasing degree. During the 2008 fiscal year, the World Bank and International Finance Corporation (IFC) increased funding for fossil fuels by 102 percent compared with only 11 percent for what it categorizes as new renewable energy such as solar, wind, biomass, geothermal energy and hydropower projects under 10 megawatts. On average, fossil fuel financing by the bank still accounts for twice as much as all new renewable energy and energy efficiency projects do, combined. Bloomberg News reported that thanks to World Bank financing, India’s Tata "ultra mega" power plant will have the dubious distinction of being one of the world’s 50 largest greenhouse gas emitters once it begins operation in 2012. At this very moment, the bank is considering a loan for the South African electricity company Eskom that would commit $3.75 billion for the 4,800-megawatt Medupi coal-fired power station, currently under construction. According to Reuters, if approved, this will represent the single largest World Bank loan awarded to post-apartheid South Africa — and yes, it’s for a coal plant. 

Of course, the bank does know and admit that cutting emissions is a goal it should strive for. But its rhetoric and actions on the topic are mismatched. Whereas the institution claims in its Energy Strategy that it "support[s] countries in their efforts to shift to a low-GHG-intensity path," the hard data on bank support for coal paints another picture. For each thoughtful, renewable project that the bank supports, such as its $20 million investment in the Yemeni Al-Mokha wind farm, there is another coal-fired power plant or emissions-intensive hydropower project on the horizon.

What does this mean in the context of Copenhagen? World Bank-financed projects are a significant source of the world’s greenhouse gas emissions, and they’re set to grow. When the fossil fuels involved in the World Bank and IFC lending projects for the 2008 fiscal year are combusted, the projected lifetime CO2 emissions from this one year of financing will amount to approximately 7 percent of the world’s annual CO2 emissions from the energy sector. That’s twice the amount of Africa’s annual energy-sector emissions.

What’s even worse is that sustainable alternatives to coal exist. The World Bank could use its sizable energy investment portfolio (more than $7 billion) to promote low-carbon development that helps (rather than hurts) emissions targets. It could push the political consensus to do the same. But it’s not doing either — a failure of great magnitude for an institution that’s supposed to lead by example, not follow the path of least resistance.

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