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Last week representatives of 40 countries meeting in Potsdam, Germany endorsed the World Bank's proposal for a multi-billion-dollar Clean Technology Fund (CTF) to help developing countries meet their surging energy needs without accelerating climate change. The proposal is set to go to the Bank's board in early July and senior bank officials say that they hope to raise at least $5.5 billion dollars for the CTF by the end of the year.

Done deal? Perhaps not. Although President Bush has pushed the idea as an alternative to mandatory cuts in greenhouse gases and pledged $2 billion as an initial three-year contribution, the U.S. Congress has yet to consider the project. A House Financial Services Committee hearing on the CTF this week is expected to focus on how exactly the money would be spent. Will it be used to help drive down the price of zero-carbon renewable energy, such as solar thermal power? Or does the bank propose to use it as merely another source of cash for business as usual, including such high-emission projects as coal-fired power?

A careful reading of the World Bank proposal suggests cause for concern. The proposal has undergone three main revisions, all of which you can see on the bank's website. CGD senior fellow David Wheeler and Kevin Ummel have been following the process closely. Kevin's recent blog post, Lost in Translation: How to Transform Good Intentions into Poor Policy and Ensure a Climate Crisis (A Primer by the World Bank), points out the underlying weakness in the second revision:

One gets the sense the Bank doesn't know what to do -- and it doesn't want to scare off its donors or clients -- so it's casting as wide a project net as possible. This is unfortunate, because only a well-conceived strategy that goes beyond project-level analysis to focus on dynamic programs and technological learning is capable of delivering the mitigation needed to avoid runaway global warming.

On May 15 th the World Bank released a third revision in preparation for the Potsdam meeting. But rather than tighten the criteria to ensure that the funds would be used to help drive down the price of zero-carbon renewable energy, the drafters simply reduced the amount of lofty language, so that the stated goals are more compatible with the particulars of a business-as-usual approach.

While the summary language still promises “transformational” impacts, the “Investment Review Criteria” that defines how the CTF money would actually be spent paints a different picture. Below is a comparison of excerpts from of the second and third revisions (with key text bolded for emphasis). In this case it's definitely the case that the devil is in the details:

April 29 Version

May 15 Version

The joint MDB country program should highlight how it is embedded in a country-owned strategy (such as an energy efficiency or energy security strategy, sector expansion plan, or low carbon growth strategy). It should also demonstrate how the investment program will result in a transformational shift to a low-carbon development path. As country needs differ it will not be possible to prescribe which policies, measures or technologies will achieve significant advances for all countries. Rather, the CTF will use criteria which will allow a generic assessment of transformative potential. (p. 16)

The investment plan should highlight how it is embedded in nationally appropriate mitigation actions by the country in the context of sustainable development, taking into account the priorities of economic growth and poverty reduction and increased access to energy for the country. As country needs differ it will not be possible to prescribe which policies, measures or technologies will achieve significant advances for all countries. Rather, the CTF will use criteria which will allow a generic assessment of transformative potential , consistent with the objectives of the CTF, and aim to maximize GHG reductions per dollar spent. (p. 18)

Tellingly, the revised language no longer requires that an investment program demonstrate that it will “ result in a transformational shift to a low-carbon development path.” Instead, investment plans will be required merely to pass a “ generic assessment of transformational potential.

April 29 Version

May 15 Version

Transformative Impact : Catalyze a shift to low-carbon technologies, policies and measures consistent with the transformational scope of the CTF and at the following scale…(p. 16)

Demonstration Potential : Accelerate deployment, diffusion and transfer of low carbon technologies, consistent with the objectives of the CTF, at the following scale…(p. 18)

The revised language no longer includes “transformative impact” in its criteria, but rather “demonstration potential.” The earlier draft calls for investments to “catalyze a shift to low-carbon technologies, policies and measures consistent with the transformational scope of the CTF,” but the newest proposal only mentions “accelerat[ing] deployment, diffusion and transfer of low carbon technologies, consistent with the objectives of the CTF…” Descriptions of the scale of investments still include “private sector” investments, in addition to “public-private partnerships,” but the revised proposal no longer includes language for private sector investments to “significantly move the market towards lower carbon intensity.”

In general, these revised review criteria remove language that would have required any form of strategic thinking when it comes to using CTF money. Wheeler has argued in a presentation given at the bank and elsewhere and in a forthcoming working paper that a strategic, focused investment program can drive solar thermal power to cost parity with coal-fired power in five to ten years, for a total cost of four to eight billion dollars, well within resources likely available to the CTF. That's transformational.

U.S. Treasury Secretary Henry Paulson seemed to have such an approach in mind when he spoke about the CTF during a commencement address at Hamilton College, just two days after the World Bank released the latest version of its mealy-mouthed proposal at the meeting in Potsdam. The U.S., Paulson said, is “working with nations around the world and with Congress to create a global clean technology fund that will be the only vehicle in the world focused solely on one of the most serious long-term environmental challenges we face…and that is helping developing countries adopt the cleanest, most efficient technologies available.”

Members of the House Financial Services Committee may want to ask witnesses whether the bank's much-revised proposal lives up to Sec. Paulson's lofty goals.

Disclaimer

CGD blog posts reflect the views of the authors drawing on prior research and experience in their areas of expertise. CGD does not take institutional positions.