The World Bank Can Lead the Way to Zero-Emissions Power

January 28, 2008

In a recent blog post, I criticized the World Bank Group’s International Finance Corporation (IFC) for continuing to support massive coal-fired power projects. The blog focused on Tata’s Mundra plant in India and the Clean Development Mechanism guidelines that provide the rationale for IFC support. But such a critique without constructive alternatives is insufficient: developing countries need power. They justifiably ask: “Why should we abandon cheap energy from coal when the US and other high-income carbon emitters continue to exploit it?”

The facile answer is that coal’s huge carbon content makes it socially and environmentally costly, and that power consumers and investors everywhere should face the true costs, via carbon charges or cap-and-trade regulation. But we are far from global regulation of carbon emissions. Even if the UN’s 2009 Copenhagen climate change conference creates a global regulatory architecture, it will take at least a decade to implement. Meanwhile, unless something else is done, the world will witness a massive surge in greenhouse gas emissions from new coal-fired power plants in developing countries. And the resulting acceleration in global heating will be felt most harshly by poor people in developing countries, who have the fewest resources and least capacity to adapt.

Fortunately something else can be done–by the World Bank Group and many other multilateral and bilateral financing institutions that work to foster development. These taxpayer-supported institutions don’t need a Copenhagen agreement to incorporate the global environmental cost of coal into their project assessments and financing decisions–they can and should do so immediately. The resulting calculations will show that coal is not cheap at all. Indeed, when full social and environmental costs are included–as the multilaterals’ own guidelines require–coal is more expensive than currently-available zero-emission technologies such as solar and wind. By accounting for coal’s true cost and switching to renewable energy, the World Bank and other multilaterals can avert massive increases in emissions, and they can jumpstart the commercialization of clean technologies at a scale sufficient to challenge the dominance of fossil energy systems.

The process that the Bank and other multilateral financial institutions should follow in such an assessment involves three simple steps:

• Adopt an explicit carbon accounting charge that can be defended as consistent with atmospheric safe limits for carbon loading. In view of the current scientific consensus, it will be very surprising if this is below $50/ton for carbon dioxide.
• Add this charge to cost estimates for all proposed fossil-fuel energy projects (oil and gas as well as coal), with and without carbon capture and storage. Costs should also be adjusted for local pollution factors, fuel supply risks and risk insurance.
• Compare the results with generating costs for locally-feasible zero-emissions options, with an appropriate learning-curve adjustment. This adjustment is critical for huge institutions like the Bank, which can generate aggregate global demand large enough to affect learning curves.

I have recently done these calculations for a huge coal-fired power plant in Botswana that the World Bank Group is considering for financial support (pdf). I’ll be sharing the calculations–and have more to say about the Botswana case–in subsequent posts.

Meanwhile, the bottom line is good news indeed. According to my calculations, the most environmentally benign option, a solar thermal technology, has cost parity with an efficient coal-fired design at a carbon dioxide charge of just $35.50/ton — far below the charge ($82/ton) recommended by the widely-supported Stern Review on the Economics of Climate Change. Moreover, since solar thermal technology and other low-carbon options are in the initial segments of their learning curves, it is entirely possible that volume production will ultimately reduce their costs to market parity with coal-fired technologies, even without any charges for carbon emissions.

For now, though, the World Bank and other development institutions will have to cover the market cost gap between coal-fired and zero-emissions technologies. Where will the additional money come from? Given the urgency of the global climate crisis, and rising concern among the donor countries that finance the World Bank Group and fund the Clean Development Mechanism, rich-world subsidies to jumpstart the market for zero-emissions power generation in the developing world would be a popular and smart investment. And in fact, the US has just proposed that international donors contribute several billion dollars to a Clean Technology Fund for exactly this purpose.

Here’s hoping that the World Bank Group will begin to consider these factors as it weighs the wisdom of financing coal-fired plants in the developing world.

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1. Per Kurowski Says:
   February 1st, 2008 at 4:41 pm

   Fighting an emergency with tools that allow the rich to buy indulgencies for their sins and the poor being excused because they can’t afford to buy those indulgencies is a deeply flawed system that only sends the message that the sinning is really not that serious and allows everyone, primarily the world leaders, that cozy feeling that comes from being able to say we are doing our part.
   Now, either the global environment emergency is so serious as some say in which case we have to start working on an absolute no excuse scheme; were first come first serve does not give any special privileges; or we have to denounce the whole green movement as a gigantic fraud set in movement by clean energy interest.
   I am not enough of a scientist to even get a feel for a real absolute truth, and so I don’t invest a lot of time in that; but as I have seen environmental deterioration that any human eye could determine as bad; and as I have the feeling that the risks of not doing anything and later discovering that the emergency was for real are a thousand fold higher than acting as if there was an emergency and later turning this was not so I am perfectly clear where I have to stand now for my children and theirs and theirs and theirs.
   ¿They need a coal plant in India because they really need it? Ok let’s see what equivalent coal plant can be closed down.
   ¿You want us to substitute the building of coal plants with other low carbon options? Well if you pay for the full cost differential that’s one thing, you are obviously free to do that, but since it seems that there might not be enough money to go around doing that at the current investment an running cost differentials between coal and low carbon options…please put all the money you can into research so as to lower the differences. The time when in this flooding we could use buckets, seems long gone.
   And stop the bs. The US is by far the most intensive consumer of energy but you have a Nobel Prize winner that does not even dare to introduce a big gasoline tax in the presidential debate…even though the US urgently needs that for much more than the environment.
   Friends if the emergency is really serious then please let us act seriously and not mock our own descendants

2. Jim Holm Says:
   February 1st, 2008 at 11:10 pm

   As you know, I’ve been working on an alternative to CCS for several years now.
   Thank you for the use of your data.
   Has anyone thought about talking to PBMR about coming up with a second product intended specifically for existing coal burning power plants? I can’t find any reason it won’t work.

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