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Three months ago, the finance ministers of the U.S., UK, and Japan introduced a Clean Technology Fund to be administered by the World Bank in an effort to "help developing countries bridge the gap between dirty and clean technology."1 Smart and strategic use of limited clean technology financing is absolutely critical if we are to avoid catastrophic climate change. In April the bank's first draft proposal for operation of the Clean Technology Fund was greeted with dismay by many, including a CGD colleague who called it "A Cash Cow for Coal." Sadly, the latest revised draft still fails to grasp the urgency of the situation or recognize that standard procedures cannot avert a crisis. This leaves us seriously concerned about the ability of the World Bank to manage the resources that constitute our best (and perhaps last) shot at avoiding planetary disaster.

To the Bank's credit, the current proposal includes all the necessary buzz-words and wonk-speak ("The goal of the CTF is to have transformational impacts."), but what it means in practice and how projects will be evaluated is entirely unclear. The annex on "review criteria" contains no less than 11 possible criterion, including, "high scalability and replicability of low carbon investments, given carbon intensity of GDP and electricity generation, economic growth rates and sector expansion plans." What? My translation: "Given any and all considerations, everything is possible." 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.

Let's be clear about what is needed to limit the probability of catastrophe. Current annual global greenhouse gas emissions are about 53 gigatons of CO2-equivalent (GtCO2e). How much and how quickly this figure must fall depends on your risk tolerance and your definition of catastrophe. I believe there are three climatic "red zones" any reasonable and prudent person would try to avoid: 1) Average temperature increases of more than 2°C above preindustrial levels; 2) Atmospheric CO2 concentrations above 425 ppm; and 3) long-term CO2 concentrations above 350 ppm (we are currently at about 385 ppm).2

It turns out that the action needed to avoid any of these red zones is basically the same over the next 10-12 years.3 The long life of CO2 (20% still remains 1,000 years after release) means that meeting even long-term targets -- never mind short-term temperature thresholds -- requires serious short-term cuts. What kind of cuts? Total greenhouse gases emissions of about 40 GtCO2e in 2020 might give mankind a chance of avoiding the worst. If we assume the relative shares of gases and sources stays fairly constant, then we are looking at CO2 emissions from fossil fuel combustion of no more than 25 Gt in 2020 and probably less. Without any action (i.e. business as usual), global fossil fuel CO2 emissions in 2020 could be 40 Gt or higher.4

If we assume that the U.S. and European Union succeed in implementing current domestic proposals, and other developed countries follow suit, fossil fuel CO2 emissions from the North could -- optimistically -- be 10 Gt in 2020.5 Let's also make the courageous assumption that low-cost energy efficiency improvements financed by the North (in part by clean technology funds) reduce developing world business-as-usual emissions by 15%.6 I have tried to use optimistic assumptions at each step in this scenario and the result even then is fossil fuel emissions in 2020 of perhaps 30 GtCO2 -- still well above our 25 Gt target for a chance of success.

The bottom line is that getting down to something like 25 Gt or lower means introducing clean energy generation technology to the developing world quickly and on a tremendous scale, since that's where 85% of global energy demand growth will occur. Half-measures won't do it. Only widespread private sector adoption of clean alternatives will give us a shot. That means getting the cost of the clean alternatives below that of fossil fuels -- and fast. That has to be the primary objective of clean technology financing: to facilitate the rapid, private-sector uptake of carbon-free energy production. This transition will result in tremendous local health and economic improvements for developing world communities -- exactly the purpose of the World Bank in the first place. And today's high coal prices present a rare and likely temporary opportunity for strategic subsidization of key clean technologies at relatively little cost.

As mentioned earlier, the current results indicators for project approval include everything under the sun. So a reduction in absolute emissions or just the carbon-intensity of a project (see my colleague David Wheeler's blog on the Bank and super-critical coal or even national security concerns could all qualify a project for clean technology financing. This approach is asking for misuse, inefficiency, and climatic failure without a more concrete method for project approval (i.e. shadow pricing of carbon or attainment of strategic cost points for promising renewables -- more below).

The proposal also embodies the standard, country-based approach whereby the Bank responds to requests for financing or helps countries to develop plans of action that qualify for funding. But the optimal use of limited clean technology funds is the financing of projects with the best chance of promoting an energy revolution on a global scale. If the funding is dispersed primarily in response to national or corporate plans, I fear the Clean Technology Fund will become simply a financing mechanism for marginally-greener "sustainable development" instead of a fund designed to avert global catastrophe by quickly pushing high-potential clean technologies down the cost curve.
The atmosphere now requires an institution that acts like a venture capital fund, where emissions abatement is strategically maximized over a short period (say to 2020). An approach focused on the effects of technological learning and demonstration at scale may differ considerably from one that simply subsidizes the lowest-cost, clean alternative from a set of individual projects (i.e. lowest cost per ton of CO2 abated). Wind power (or even super-critical coal in some locales) may be the most cost-effective mitigation effort at present, but if intermittency will result in an expansion bottleneck down the road in a given grid, then the most efficient use of funds today may be the financing of technologies with less-limited potential in the near-term (like solar thermal with heat storage, for example). The primary decision-making should rely upon global analysis of the spatial and technical availability of renewables relative to projected energy demand and the cost-points required for specific technologies to see widespread adoption by the private sector. David Wheeler and I have been making these points in a forthcoming paper and a slideshow (World Bank Power Projects: Crossroads on Renewable Energy) that we have presented in a number of conferences and policy workshops during the past two months.

The lack of clear and specific objectives means there is no coherent thinking about what's actually required to avoid high probabilities of catastrophe. The fund should be seen as an emergency (and, in many ways, last-ditch) response to the climate crisis. I don't sense a real understanding, in either the draft document or our conversations with key Bank staff, of the limited window of opportunity. If the Bank's leaders really internalized the risks involved and the threat posed to its clients in the developing world, they would not allow for anything less than a truly transformational policy guided by a global strategy befitting of an international institution working for the world's poor.
It may be that the World Bank faces fundamental and unavoidable limitations when it comes to promoting truly transformation energy policy. It is institutionally hamstrung in ways that prevent it from acting as a venture capital firm might with similar resources. Yet, a venture approach is precisely what is required. Bank President Bob Zoellick has spoken of the need for the Bank to become "more of a venture fund for development," but we don't see this spirit as central to the current proposal.

The Bank will be releasing a revised proposal in a few days, and we hope it is able to take a more aggressive stance that reflects the state of the climate crisis. If it doesn't, donor countries yet to commit clean technology financing should think carefully about what kind of institution is capable of delivering the needed changes.

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1The initial U.S. contribution is expected to be $2 billion over three years, although the money is unlikely to be appropriated in the current Congress. It is expected that the international component of the UK’s Environmental Transformation Fund ($1.5 billion over three years) and part of Japan’s Cool Earth Partnership ($10 billion over five years) will also be made available to the fund.
2More than 2°C warming is often accepted as the threshold for "dangerous climate change" beyond which the damages and risk of runaway warming increase significantly. The 425 ppm and 350 ppm targets come from Jim Hansen's recent work. 350 ppm is the estimated long-term maximum concentration for maintaining a planet similar to that on which civilization evolved. 425 ppm refers to the estimated concentration at which glaciation of Antarctica began.
3Based on modeling using the SiMCaP EQW-PATHFINDER program developed by Malte Meinshausen and Bill Hare.
4This figure is based on energy demand modeling by McKinsey and Company. It assumes oil and gas prices far lower than present and, therefore, likely underestimates the effects of the ongoing transition to more carbon-intensive coal.
5Emissions figures presented here are based on International Energy Agency (IEA) data. The 10 Gton CO2 figure assumes the EU reduces emission 30% below 1990 levels and the U.S. and other Annex 1 countries reduce emissions by about 20% from 2005 levels by 2020. IEA emissions figures are generally lower than those from other sources, so these numbers are optimistic.
6Figure based roughly on energy efficiency modeling done by McKinsey and Company (http://www.mckinsey.com/mgi/publications/Curbing_Global_Energy/executive_summary.asp). It assumes all energy efficiency improvements with an IRR of 10% are implemented in the developing world and that the effect on total emissions is proportional to the effect on total energy demand.

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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.