The World Bank's board on Tuesday agreed to a new energy strategy that will limit financing of coal-fired power plants to "rare circumstances," as the Washington-based global development powerhouse seeks to address the impact of climate change.
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The Bank will amend its lending policies for new coal-fired power projects, restricting financial support to countries that have "no feasible alternatives" to coal, as it seeks to balance environmental efforts with the energy needs of poor countries.
The impact of this energy strategy may not be seen immediately, since bilateral donors and the private sector will still continue to finance coal. Some analysts hope the new strategy could send a signal that coal is a risky investment and prompt countries to turn to alternative energy sources.
In its "Energy Sector Directions Paper," updated every 10 years, the Bank also backed increased support for hydro electric power, reversing its decision to abandon those projects in the 1990s under pressure from aid groups that warned they would displace people. For full report, see
Large-scale dams provide the Bank with a way to balance global energy needs with its pledge to help scale down greenhouse gas emissions.
Some environmental groups warned that while the energy strategy may have improved its coal policy, it has taken a few steps backwards on its funding of hydropower.
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"The World Bank ignores that better solutions are readily available. In the past 10 years, governments and private investors installed more new wind power than hydropower capacity," said Peter Bosshard of advocacy group International Rivers.
Under World Bank President Jim Yong Kim - the first scientist to head the poverty-fighting institution - the bank has launched a more aggressive stance to spur action on climate change. Kim has said it is impossible to tackle poverty without dealing with the effects of a warmer world.
Multilateral institutions like the World Bank have come under criticism for urging global action to cut emissions of carbon dioxide while simultaneously funding coal-fired power plants. Such plants are seen as one of the main causes of rising pollution from heat-trapping gases.
The World Bank argues funding coal-fired power plants is sometimes necessary to bring energy to the world's poorest nations and to help them eradicate poverty.
Analysts say coal is often the cheapest energy source in places like Kosovo, where the World Bank is mulling whether to support the country's plans for a coal-fired power plant.
Emerging market countries like Brazil and China - which relies heavily on coal for its ballooning energy needs - have previously blocked proposals to limit coal financing at the bank. They argue the developing world should use whatever means it can to catch up to advanced economies, and that limiting coal to only the poorest would be discriminatory.
The World Bank's strategy affirms "each country determines its own path for achieving its energy aspirations," likely a nod to the concerns of developing countries like China.
KOSOVO TEST CASE
"While it misses an opportunity to close the door for good (on coal lending) it only allows it in narrowly defined cases where there are no feasible alternatives," Justin Guay, a Washington representative for the Sierra Club, said about the new strategy.
Guay said there had been concerns China would not allow the new language to go through, as had happened with past proposals to cut back on coal funding.
The real test of the strategy may come next year, when the World Bank should decide whether to provide loan guarantees for the Kosovo power plant fired by coal.
The World Bank last approved funding for a coal-fired power plant in 2010, in South Africa, despite lack of support from the United States, Netherlands and Britain due to environmental concerns.
U.S. President Barack Obama in June said the United States would stop investing in coal projects overseas, part of a broad package of climate measures, and called on multilateral banks to do the same. The United States is the world's second-biggest emitting nation after China, and has sought to cut emissions of gas blamed for warming the planet.
(Reporting by Anna Yukhananov and Valerie Volcovici; Editing by Ros Krasny, Leslie Gevirtz and Andrew Hay)