House Committee Tells U.S. Treasury to Heed Calls for Redesign of Clean Tech Fund

Controversy over the World Bank's proposed design for a multibillion dollar Clean Technology Fund (CTF) reached a House subcommittee last week. When the hearing ended, Rep. Luis Gutierrez (D-IL), the chairman of the subcommittee, voiced support for CGD senior fellow David Wheeler's scenario for a successful fund. Wheeler had urged that the CTF be redesigned to rapidly drive down the price of zero-emissions renewable power so that it becomes cheaper than electricity from coal and other fossil fuels -- thereby helping to avert a climate disaster.The hearing began with David McCormick, U.S. Treasury under secretary for international affairs, explaining the purpose of the fund to members of the House Financial Services Subcommittee on Domestic and International Policy, Trade, and Technology. The CTF, he said, would "reduce the growth of greenhouse gas emissions in developing countries by helping to finance additional costs of deploying clean energy technologies."Wheeler, one of four expert witnesses, focused his testimony on how the fund would be used. He first invited the committee members to imagine two scenarios for the CTF:

Imagine, if you will, that it is now 2015, seven years after the creation of a multilateral fund for clean technology.

• In Scenario 1, the World Bank's Clean Technology Fund (CTF) has provided developing countries with billions of dollars to make coal-fired power plants and other energy projects marginally more efficient but has done little to stem the alarming rise in greenhouse gas (GHG) emissions…We are on course for a planetary disaster.
• In Scenario 2, the U.S. Congress, led by the decisions of this committee, has insisted that the World Bank use the Clean Technology Fund to catalyze deployment of climate-friendly renewable energy on a very large scale…Renewable energy options such as solar thermal power are now cheaper than coal and other fossil fuels and provide a growing share of base load power around the world. Seven years later, we are on course for a major success in the struggle against climate change.

Both scenarios are utterly plausible. The decisions that this committee makes will determine which path we follow. Do we collectively have the strategic vision to seize this enormous opportunity? If we fail, future generations -- including our own grandchildren -- will surely ask: "Why didn't they do something more?"

Drawing on his previous research, Wheeler lauded the Bush Administration for offering $2 billion over three years to help developing countries meet their energy needs without accelerating climate change. But he cautioned that the current CTF design fails to meet this promise. Moreover, he said, the World Bank's continued funding of high-emissions fossil fuel projects (see the Tata Mundra project in India and a similar project in Mmamabula, Botswana) raises doubts about whether it is a suitable organization to administer the fund.Wheeler explained that the rapid increase in global greenhouse gas emissions demands that the international community use clean technology funds not merely to improve efficiency but to catalyze a transformation in energy costs. "The Clean Technology Fund (CTF) must be focused on making renewable energy cheaper than energy from fossil fuels, particularly coal," he said.Wheeler's written testimony provides a rough sketch for what such a strategy might entail:

Solar thermal power provides a useful illustration, because it is one of the most promising renewable options for base load power…A recent study indicates that public financing through the CTF can close the cost gap between solar thermal and coal-fired power in a 5 to 10 year program that expands capacity at 500-1000 MW/year (Wheeler and Ummel, 2008). We estimate that total Clean Technology Fund subsidies for this program would be $4 - $8 billion – easily within range for a serious multilateral effort.

(For more on solar thermal, see Wheeler’s slide show: World Bank Power Projects: Crossroads on Renewable Energy)Wheeler said that a Clean Technology Fund is vital to addressing global climate change, but only if it is designed to achieve rapid reductions in the cost of zero-carbon electricity. He concluded with three recommendations.

• Congress should not agree to provide American taxpayer support for the CTF as it is currently proposed. Instead, Congress should instruct the U.S. Treasury to inform World Bank management that U.S. support will only be forthcoming if the proposal is revised to ensure strategic use of the CTF to make zero-emissions renewable energy cost-competitive with energy from fossil fuels.
• To do this, the CTF must focus on renewables that have the potential to be cost-competitive within a few years, and exclude projects that merely improve fossil-fuel combustion efficiency. In particular, the CTF should exclude all proposals for coal-fired power.
• The revised proposal must include a commitment by the World Bank to adopt carbon accounting as rapidly as possible, certainly no later than within a year of CTF authorization and before any funds are actually disbursed. Without carbon accounting, the World Bank cannot select the most cost-effective projects, track progress on emissions reduction, or fulfill the Clean Technology Fund's mandate of helping developing countries bridge the gap between dirty and clean technology.

The other witnesses -- Brent Blackwelder, president, Friends of the Earth (FOE); Jacob Werksman, program director at the World Resources Institute (WRI); and Andrew Deutz, director of International Institutions at The Nature Conservancy (TNC) -- raised similar concerns over the World Bank's financing of fossil fuels. Blackwelder and Werksman also both expressed support for prioritizing zero-carbon energy production in future projects. On the eve of the hearing, FOE joined 120 environmental groups from around the world in a statement opposing the World Bank's proposal (read the civil society statement).Notwithstanding some minor differences among the witnesses in degree and focus, Rep. Gutierrez said he was impressed by the level of agreement on the core issue of how the fund should be used:

This is the first panel I've had where…there are differences, but I can see all of you headed in the same direction. [This is] unusual in my sixteen years here in Congress.

Financial services committee chairman Barney Frank (D-CT) also attended the hearing and expressed reserved support for the CTF, mentioning the possibility of a one-year authorization of $400 million. But he also noted that there would be conditions that will need to be worked out, and emphasized the administration and World Bank must "allay the fears" that are "well-grounded in history…not paranoia." Noting concerns over the bank's previous financing of coal-fired projects, Frank cautioned that the committee would be reluctant to authorize the bank's administering of the CTF if it was simultaneously pursuing policies that run counter to the CTF objectives.In the end, both Congressmen and witnesses expressed optimism over the Bush Administration's interest in combating global warming by promoting clean technology in the developing world. Frank noted that the CTF showed "signs of progress," and Chairman Gutierrez concluded his comments by responding to Wheeler's scenarios for 2015 and expressing hope for the future:

…Mr. Wheeler, we're going to work on the second outcome that you suggested for this money. We're going to take into consideration all of the witnesses, because…as I listen to all four of you, it's the second outcome that you all agree we should work on.