World Bank Rebuffs Experts' Call for Carbon Accounting

Climate policy experts from think tanks and academia have urged the World Bank to begin calculating the social and environmental costs of carbon emissions from the projects it funds and to include these calculations in project assessments. But bank officials rejected the calls, saying that the calculations were too difficult and politically sensitive.

The calls for carbon accounting--and for a more strategic and energetic World Bank approach to tackling climate change generally--came during a high-level consultation with World Bank officials that CGD senior fellow David Wheeler organized in early September. About 25 experts from Washington's leading development and environmental research organizations took part in the half-day discussion of a 97-page bank document, "Development and Climate Change: A Strategic Framework for the World Bank Group" (PDF, 18 mb), which will go before the board of the World Bank on September 23.

Several experts said that including a shadow price for carbon in project assessments would reveal the true social and environmental costs of carbon-intensive power projects, such as coal-fired power plants, and would thus help to channel the bank's grants and loans to clean, low-carbon renewable energy, such as wind and solar.

Dennis Whittle, chairman and CEO of Global Giving, and online development philanthropy tool, argued that simply calculating and publishing the cost of CO2 emissions in project documents could have a powerful effect on project selection. "Don't require project officers to change their investment behaviors. [Carbon accounting] will make them conscious ... They'll start having discussions with government and implementers--'What can we do to do better?'"

Smita Nakhooda, of the World Resources Institute, supported the call for carbon accounting, saying it is not a way to "impose new conditionalities or new restrictions on development objectives. Rather, it lays the groundwork for going to the developed countries who do in fact have the responsibility of meeting the additional costs of taking a lower carbon approach."

But bank officials argued that they faced both technical and political obstacles to carbon accounting. World Bank advisor Gary Stuggins pointed out that the World Bank "hasn't come close to being able to agree what a carbon shadow price is. We brought in two Nobel Prize-winning economists to try to break this knot, and they couldn't agree."

Although calculations of the true price of carbon emissions vary widely, several well-established sources could serve as benchmarks to inspire the demonstration effect mentioned above. For example, Lord Nicholas Stern, author of the U.K.'s Stern Review on the economics of climate change, estimated the price at about $77 per ton. The Nobel Prize-winning Intergovernmental Panel on Climate Change put the price at $75 per ton. Meanwhile, the right to emit a ton of CO2 is currently trading at $30.24 per ton on the European Climate Exchange and $2 per ton on the voluntary Chicago Climate Exchange.

The shadow pricing debate illustrates a larger set of political challenges for the World Bank's climate strategy. Bank insiders say that China and India have especially resisted such calculations over fears that they will restrict developing countries' use of bank financing. Advocates of carbon pricing argue that rich countries could be called upon to pay the difference between cheap but dirty coal and more expensive but clean renewables, and that the difference would narrow rapidly as technological change and economies of scale drive down prices.

This diversity of stakeholders has made drafting a broad strategy for addressing climate change particularly difficult, according to Michele de Nevers, senior manager in the World Bank's Environment Department.

"The [strategic framework] is meant to articulate the role that the World Bank will play for a fairly large range of stakeholders," de Nevers said. "We have part-one shareholders [rich countries], we have our part-two shareholders [developing countries], and we have a large range of private sector, civil society, and other groups that articulate their ideas about what the World Bank should be doing."

David Wheeler, who chaired the meeting, argued that the bank could play an effective leadership role despite these constraints.

"The bank played a huge role in reorienting the trade policy discussion to take into account development and poverty concerns. Officials felt no hesitancy about going into the halls of the powerful in the developed world to make that case," Wheeler said. "So why not do it in this case, as well?"

Expressing a similar view, Eduardo Saboia, advisor to Brazil’s representative to the World Bank executive board, called for the bank to take a more vocal stance on the link between climate change and development. "If you don’t address climate change, you can’t get to development; you will not be able to solve the climate issue without solving the development issue." But he also underlined the injustice of implementing carbon accounting in the developing world before anywhere else, and the disconnect between strong intellectual property rights on technology that hinders transfer to the developing world. "If it's a global emergency, then the same flexibilities that you see for TRIPS and health could be applied," he said.

But Warren Evans, the bank's environmental group sector director, said the bank should not get ahead of the international negotiations that could culminate in a new international agreement on climate change as early as late 2009.

"We’re looking at what we are going to do for the next three years, not the next 15 years," Evans said. "The negotiations that are going on are really going to frame what the World Bank ought to do in the long term."

The most passionate intervention came from CGD research assistant Kevin Ummel, who pointed out that he was one of the few people at the table young enough to expect to live to see climate catastrophe if the bank and others fail in their current efforts. He argued that, while adaptation is important, the possibly catastrophic effects of climate change given even moderate temperature increases make mitigation the real priority today.

"My great fear is that 50 years from now we will be sitting around here and having the same discussion. And the only difference will be that we will be saying, in effect, 'Too late. We lost the chance. We are past the tipping point.' And at that point, we are just doing adaptation," Ummel said.

Still, De Nevers argued that fossil-fuel energy, particularly coal, is too important for economic development to abandon. "Renewable energy accounts worldwide for only about 1 percent of total energy, and 1 percent of electricity," she said. "While it's desirable to expand that, if at the same time we want to expand access to energy for the 50 percent of the population in Africa that doesn’t have any access, how can we do that if we rely only on renewable energy resources?" she said.

World Watch Institute president Chris Flavin commented that the increasing cost of conventional energy is reshaping the energy sector in favor of renewables. "These dramatically higher prices not just for oil, but in many cases for coal and natural gas, are going to change the economics and generally make it more economical to invest in the low-carbon and zero-carbon technologies," said Flavin. This would set the stage for rapid growth if the bank and others help secure financing or other incentives.

Center for Global Development president Nancy Birdsall sought clarity on six issues the strategic framework neglected to address in detail. Birdsall posed these six questions:

1. Would the World Bank consider sponsoring a prize-like mechanism to promote renewables in developing countries modeled after Advanced Market Commitments for vaccines?
2. Could the World Bank set shadow prices that it would use in the economic analysis of projects? This would draw attention to the most costly as well as the most cost-effective power projects.
3. Is the World Bank adequately addressing climate change issues in its policy dialogue that are not specifically related to power projects, such as repealing energy subsidies?
4. Will the World Bank push for a carbon offset program that provides incentives for renewables to promote alternatives to supercritical coal and other fossil fuel energy sources?
5. How does the World Bank plan to address intellectual property rights linked to technology development and deployment?
6. an the World Bank lobby ahead of the next international climate agreement to take the place of the Kyoto protocol, promoting carbon monitoring and compliance?

While a few of the questions generated limited discussion, none received a definitive answer and most were left hanging.

Toward the end, the World Bank's Stuggins recounted a story that illustrates a shared understanding of how high the stakes are: "I went home and my kids asked, 'What are you doing [at work]?' So I explained to them what's at stake and the timeframe and the kinds of changes that need to take place. And there was this pregnant pause at the dinner table, when one of my kids looked up at me and said: 'Don’t screw up, Dad.'"

The paper will go through two more discussions. The first, by the World Bank's board of directors on September 23, and the second, an October 12 discussion by the Development Committee, the global assembly of finance ministers and central bankers who represent the bank's share holders-essentially all the nations of the world.

Neither discussion is likely to result in significant changes in the document. Might this qualify as the World Bank screwing up?