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The World Bank and IMF Are Getting It Wrong on Climate Change

Rich donor countries are working to deprioritize poverty reduction and economic development in the global south.

By , the director for energy and development at the Breakthrough Institute, and , an associate director at the University of Chicago’s Development Innovation Lab.
Senegalese President Macky Sall shakes hands with Kristalina Georgieva, the managing director of the International Monetary Fund, at a conference in Diamniadio, Senegal, on Dec. 2, 2019.
Senegalese President Macky Sall shakes hands with Kristalina Georgieva, the managing director of the International Monetary Fund, at a conference in Diamniadio, Senegal, on Dec. 2, 2019.
Senegalese President Macky Sall shakes hands with Kristalina Georgieva, the managing director of the International Monetary Fund, at a conference in Diamniadio, Senegal, on Dec. 2, 2019. SEYLLOU/AFP VIA GETTY IMAGES

With more than 3 billion people still living on less than $5.50 a day, poverty reduction is central to human flourishing. It’s also key to preventing the worst effects of climate change—people are much less vulnerable to climate shocks if they aren’t poor.

That should be the main task of the two key multilateral institutions tasked with reducing poverty and promoting development: the World Bank, which provides loans and grants for development projects, and the International Monetary Fund (IMF), which helps poor countries overcome currency crises and keep their finances stable.

Now, however, both institutions are under pressure from their rich donor governments to sideline economic development and poverty reduction—and shift focus to reducing carbon emissions. The IMF recently proposed the creation of a $50 billion Resilience and Sustainability Trust to help countries tackle climate change, where support could be contingent on recipient countries’ plans to reduce emissions. Similarly, the World Bank has unveiled a climate action plan promising to align all future projects with the Paris Agreement to slash emissions. Already, the World Bank has severely restricted investments in natural gas projects, no longer funding exploration, development, production, or transportation of gas in the developing world.

With more than 3 billion people still living on less than $5.50 a day, poverty reduction is central to human flourishing. It’s also key to preventing the worst effects of climate change—people are much less vulnerable to climate shocks if they aren’t poor.

That should be the main task of the two key multilateral institutions tasked with reducing poverty and promoting development: the World Bank, which provides loans and grants for development projects, and the International Monetary Fund (IMF), which helps poor countries overcome currency crises and keep their finances stable.

Now, however, both institutions are under pressure from their rich donor governments to sideline economic development and poverty reduction—and shift focus to reducing carbon emissions. The IMF recently proposed the creation of a $50 billion Resilience and Sustainability Trust to help countries tackle climate change, where support could be contingent on recipient countries’ plans to reduce emissions. Similarly, the World Bank has unveiled a climate action plan promising to align all future projects with the Paris Agreement to slash emissions. Already, the World Bank has severely restricted investments in natural gas projects, no longer funding exploration, development, production, or transportation of gas in the developing world.

In their zeal to reach emissions targets, rich countries are conflating two things, both of which are crucial to avoid the worst effects of climate change. Mitigation—the reduction of emissions—mostly needs to take place in rich and middle-income countries, which are responsible for the vast majority of carbon emissions. Adaptation—improving resilience to a warming climate—is lifesaving in poorer, more vulnerable countries. Adaptation requires investments in better housing, transportation, education, infrastructure, water management, agricultural technology, and other sectors. And it requires reducing poverty—so that more people have the resources to cope with weather-related extremes. Until now, these kinds of investments have been the bread and butter of the World Bank and other development institutions. By shifting development funding to emissions reduction, they are taking money from the poor and making them less resilient than they would otherwise be.

The shift of focus from poverty to climate is unjust, ineffective, and disastrous for the world’s poor. It’s unjust because rich countries are forcing the World Bank and IMF to deprioritize poverty reduction despite this mission being vital to protect developing countries from the climate shocks caused by rich countries’ emissions. It’s ineffective because poor countries make up only a tiny fraction of global emissions—and their share will remain small even if they were to grow rapidly using fossil fuels. And it will be a disaster for the 3 billion people struggling to escape misery because every dollar spent on the new carbon-reduction mission is a dollar that could instead go into education, medical services, food security, and critical infrastructure.

The poorest countries should not be forced to pivot to emissions reduction to qualify for loans.

Rich countries—the majority shareholders of both agencies—are responsible for pushing the shift away from poverty alleviation. The Biden administration states that the World Bank should be at the forefront of cutting emissions and minimize support for fossil fuels. Germany argues that the climate co-benefits of development projects must be increased to at least 30 percent—a vague metric whose meaning Berlin has not specified. Sweden wants the World Bank to take on a transformative role to align developing countries with global temperature and net-zero targets. While most of these proposals mention adaptation, they show little understanding that making poor countries more resilient will entail energy-intensive investments in housing, transportation infrastructure, and agricultural technology. Resilience also goes hand in hand with economic development and higher incomes, which in turn require the availability of cheap, reliable, and abundant energy.

The countries hit hardest by the new priorities will be the world’s poorest, which are eligible for highly concessional World Bank loans. Emissions from these countries will remain very low for decades to come, even if their economies grow rapidly and without action to reduce emissions.

Prioritizing carbon mitigation over adaptation and poverty reduction in low- and lower-middle-income countries stands the relationship between climate change and development on its head. The basic fact is that the world’s poorest are also the least resilient to the effects of global warming. Rich countries, on the other hand, have the resources to protect their citizens. Nothing illustrates this better than the rapid decline in deaths from weather-related events—such as floods and storms—in developed countries. Such deaths have plummeted to a tiny fraction of their historical levels because citizens no longer live in slums and shacks, seas and rivers are largely contained by well-engineered dikes, hospitals have a reliable source of electricity, and emergency services are there when needed. If organizations ostensibly committed to development take funding from climate resilience and adaptation to spend on reducing carbon emissions, they will exacerbate the harms of climate change for the world’s poor.

Developing countries are on the record rejecting these changes. By pushing climate mitigation on African countries, the West will “forestall Africa’s attempts to rise out of poverty,” Ugandan President Yoweri Museveni warned last October. President Lazarus Chakwera of Malawi reminded rich countries that they are responsible for the climate crisis and must provide resources to poor countries for adaptation. Nigerian Vice President Yemi Osinbajo has eloquently described why a ban on financing of fossil fuels would be devastating for Africa. And in a TED Talk that has been viewed 1.4 million times, Rose Mutiso, a Kenyan activist and scientist, said forcing emissions mitigation on the world’s poor is widening economic inequality and equivalent to “energy apartheid.” She continued: “Working in global energy and development, I often hear people say, ‘Because of climate, we just can’t afford for everyone to live our lifestyles.’ That viewpoint is worse than patronizing. It’s a form of racism, and it’s creating a two-tier global energy system, with energy abundance for the rich and tiny solar lamps for Africans.”

To address climate change, rich countries must cut their emissions while supporting the poorest countries to reduce poverty and become more resilient. To achieve this, poverty reduction must remain central to the mission of the World Bank and IMF. A coherent strategy on climate change would differentiate among countries. The poorest countries eligible for concessional financing should not be forced to pivot to emissions reduction to qualify for loans. Climate action in these countries should focus on poverty reduction, increasing energy access, and building resilience through investments in housing, transportation, infrastructure, and agricultural technology.

Vijaya Ramachandran is the director for energy and development at the Breakthrough Institute. Twitter: @vijramachandran

Arthur Baker is an associate director at the University of Chicago’s Development Innovation Lab. Twitter: @AW_Baker

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