Global Development: Views from the Center
November 14, 2008
Still more on the First G-20 Summit
Posted by Nancy Birdsall at 04:59 PM
Here's my wish list (as a development economist especially concerned with the effects of the financial crisis and a subsequent global downturn on poor people in emerging markets and low-income countries) for the G-20 Summit. I’ll return to ask how they did next week.
- G-20 countries announce a combined global fiscal stimulus of at least 2 percent of global GDP. That would be on the order of $2 trillion.
- The G-8 process gets permanently folded into a G-20. 20 is a big number – smaller would be better – but it has the benefit of not opening the Pandora's Box as Colin Bradford puts it, of which countries should steer the global economy. This group exists, its finance ministers have met regularly for almost a decade since the Asian financial crisis (and thanks to Larry Summers and colleagues at the Clinton Administration Treasury for its creation then), and so be it.
- China, India, Brazil and some Middle East oil economies with high reserves contribute to IMF financing, to ensure the IMF has another $1 trillion (that's trillion with a "t") (Simon Johnson) to help developing countries at risk right now implement the counter-cyclical fiscal policies that the G-20 finance ministers called for -- to protect their own growth prospects and jobs as well as keep the global economy afloat.
- In exchange, in a sensible Grand Bargain the emerging market economies -- and the rich oil economies of the Middle East -- get more quotas in the IMF (that is, make a greater financial commitment and get more votes) and contribute to special funds to deal with global issues at the World Bank climate change (e. g. change mitigation and adaptation and agricultural R&D).
- And finally, that the G-20 heads of state note the absence of any representation of the the low-income countries where reside 1 billion of the world's poorest people, and commit to sustaining aid flows, which historically have tended to amplify real business cycles in aid-dependent countries, following instead of compensating for private flows. Otherwise those countries will be forced into a terrible choice, between populist and inflationary spending, or undue fiscal and monetary tightening -- because of mistakes in the rich world over which they had no control.
October 21, 2008
Did U.K. Give Zoellick a Nudge on World Bank Selection Process?
Posted by Lawrence MacDonald at 01:05 PM
According to an article by Heather Stewart and Larry Elliott in the Guardian early last week, the U.K. development secretary, Douglas Alexander, brokered a deal to throw open selection of the president of the World Bank to candidates from any country:
Backed by European governments and developing countries, Alexander overcame resistance from the U.S. and Japan to secure a reform he described last night as "a significant step forward."
Since the creation of the World Bank in the aftermath of World War II, the president of the United States has by tradition nominated a single American as the president of the World Bank. The bank's executive board has always approved the nominations, even as Europe and Japan emerged as major post-World War II donors and the relative importance of Washington's support for the bank declined.
The U.S. prerogative came under sharp scrutiny during the most recent leadership transition, when Paul Wolfowitz was forced to resign as World Bank president during a scandal that coincided with the U.S. international reputation hitting a nadir due to the Iraq war and internationally unpopular positions on such issues as the International Criminal Court and climate change.
At the height of that 2007 leadership crisis, a survey of international development community opinion undertaken by CGD senior fellow David Wheeler found that large margins of American and non-American participants rejected the traditional U.S. role and preferred an open, transparent, competitive selection process. Earlier the reform of the World Bank governance, including selection of the president, was also among the recommendations of a CGD working group on how to make bank more effective in addressing 21st century global challenges.
A U.K. push for reform could help to explain the somewhat unexpected announcement by the current World Bank president, Robert Zoellick, in a pre-Annual Meetings speech on October 6, that he was setting up a high-level commission, headed by former Mexican president Ernesto Zedillo, to offer recommendations for the modernization of the bank's governance. Previously, Zoellick had avoided discussing governance of the World Bank, even when addressing audiences eager to hear his ideas on the topic.
What's changed? Among other things, last December the United Kingdom boosted its contributions to the International Development Association, the bank's soft-loan window, by a whopping 49%, displacing the United States, which for the first time since the bank was created is no longer the No. 1 donor.
Pay the piper, call the tune?
August 14, 2008
Tiger, Tiger Burning Bright: The World Bank Undermines Own Conservation Efforts With Fossil Fuel Projects
Posted by Robin Kraft at 11:48 AM
This is a joint posting with Vijaya Ramachandran
The World Bank Group's board appears to be operating under a severe case of cognitive dissonance, supporting efforts to save tigers - threatened in India and Bangladesh by habitat loss due to climate change - while helping build coal-fired power plants that will only speed up this process.
Back in June the Bank launched a campaign to help governments develop and better manage forests inhabited by endangered tigers, including in the Sunderbans. This massive mangrove forest spans the India-Bangladesh border and is home to the Bengal tiger. While the Bank has a less-than-stellar conservation track record in Sunderbans, more important is the fact that this impoverished World Heritage site would be one of the hardest hit by climate change, whether from rising sea levels or the disappearance of the glacier that feeds the Ganges river.
But the Bank's commitment to poverty reduction and biodiversity stands in stark contrast to its bread-and-butter financing choices. As the Bank planned its save-the-tiger campaign, the International Finance Corporation (IFC), the Bank's private sector arm, was putting together a deal to finance $450 million of the misguided $4+ billion Tata Mundra Ultra Mega coal-fired plant in India. Financing 10% of the cost of a plant being built by India's largest company will help propel India's power sector emissions to third highest in the world within a few years, behind China and the U.S. Is this a smart use of scarce international public resources?
The IFC also just announced that it is facilitating a $97 million syndicated loan and also investing $25 million of its own funds to help build a 60MW coal plant in Indonesia. Presumably a country that has almost tripled its generation capacity since 2000 does not need dollars from abroad for such a small-scale project. But the IFC persists in its investments in coal fired power plants. Indonesia's power sector CO2 emissions will soon jump from 23rd in the world to 17th, putting it ahead of South Korea, Spain and Canada.
These power sector investments stand in stark contrast to the Bank's save-the-tigers program. With one hand the Bank is trying to reverse the precipitous decline of tiger populations and help improve the sustainable use of forest resources - with the other it is undermining this work by financing coal plants that can only leave the natural world worse off. Alternatives are now well within reach (see recent work by our colleague David Wheeler). It is now time for the World Bank Group to show real leadership on the issue of climate change.
July 28, 2008
World Bank Caucus Launched on the Hill
Posted by Sarah Jane Staats at 03:22 PM
The U.S. Congress launched a new bipartisan Caucus for Congressional-World Bank Dialogue at a packed event on Capitol Hill July 16. The caucus, co-chaired by Kevin Brady (R-TX) and Betty McCollum (D-MN), provides a forum for members of Congress to engage the World Bank, parliamentarians and policy experts on poverty reduction, global development and trade.
As many Hill and Bank-watchers know, World Bank rules prevent its president and senior staff from testifying before Congress and restrict discussions to closed-door meetings. While some argue this protects the bank from type of congressional meddling that has hobbled USAID, it also means that the bank misses opportunities to educate and inform Congress about its work through public, congressional testimony. Reuters' reporter Lesley Wroughton says in her article U.S. lawmakers and World Bank seek to bridge gaps that in this sense, the new caucus "hopes to deepen, and in some cases launch discussions between the bank and the U.S. Congress on development, poverty and trade issues."
Rep. Brady said that "with the world changing at a rapid pace, this new caucus makes sense." Rep. McCollum similarly cited new global challenges including climate change, rising food prices and energy security that are placing new demands on Congress and the World Bank. And Rep. Phillip English (R-PA) argued "now more than ever the United States needs to focus on its international relationships and its international strategies, and focus on multilateral institutions that make a real difference." Other founding members of the group include: Spencer Bachus (R-AL), Ander Crenshaw (R-FL), Joseph Crowley (D-NY), Gwen Moore (D-WI), Mike Pence (R-IN), Gregory Meeks (D-NY), Henry Waxman (D-CA), Maxine Waters (D-CA), Jerry Weller (R-IL) and Brad Sherman (D-CA).
World Bank President Robert Zoellick described the World Bank's efforts to promote inclusive and sustainable globalization that reduces poverty, promotes education, empowers women, and spurs economic growth. He said that an increasingly integrated world could no longer exclude the developing world, including emerging powers such as China and India.
It's great to see Republicans and Democrats on the Hill taking a closer look at the World Bank and global development; especially in the midst of broader conversations U.S. policymakers are having on ways to overhaul foreign assistance under the next administration. Much of the emphasis so far has been on modernizing U.S. bilateral aid (see New Day, New Way and Modernizing U.S. Foreign Assistance), so the new caucus is a welcome reminder that Washington's role in the multilateral aid institutions matters just as much.
Three cheers to the co-chairs, founding caucus members and to the World Bank itself for launching this forum. Kudos also to the German Marshall Fund for its support in convening the group. In the absence of a much-needed Congressional Global Development Caucus, the World Bank-Congressional Caucus can make valuable contributions, including helping to identify congressional champions for global development.
While the founding members of the group are strong supporters of U.S. engagement in global development, comments at the launch however suggested there were at least two prevailing views about the role of the caucus. Some participants described it as a forum to exchange ideas with experts and aid officials and to increase support for the World Bank. Others suggested it should be a venue to hold the World Bank in check and ensure "macro-economic belief systems" (as described by one member of Congress) don't interfere with the World Bank's poverty reduction goal. Clearly there will be plenty for the caucus to discuss!
Of course, there is a wide range of congressional caucuses -- from the Congressional Black Caucus to the Congressional Bike Caucus -- each with varying degrees of activity and influence. I'm hopeful that this one will gain momentum as we head into a new administration and Congress, and that it will play a much bigger role on the Hill in the months to come.
July 22, 2008
World Bank Revisits the Meaning of "Absolute" Poverty
Posted by Nancy Birdsall at 05:12 PM
This is a joint posting with Martina Tonizzo
The World Bank has announced a new poverty line on the basis of revised estimates of Purchasing Price Parity (PPP) price levels around the world. In the working paper that explains the basis for the new line, poverty measurement guru Martin Ravallion and his co-authors make two proposals.
First, they suggest a new line below which people should be considered poor in absolute terms: $1.25. At 2005 prices $1.25 was the average "national" poverty line in the world's 15 poorest countries. That makes it a sensible line for a global absolute measure. Poor (below that line) in the poorest countries is surely absolutely poor. The Economist magazine may be right in worrying that the new poverty line of $1.25 will not have the sticking power of the older simpler $1 line -- which was in fact, confusingly, $1.08 in 1993 prices. The $1.25 line is equivalent to $1 in 1996 US prices -- too bad we are not still in 1996….
Second, Ravallion and co-authors suggest that differences in different countries' choice of poverty line indicate that the definition of poverty is in fact subjective and depends on the social context. Poverty is in other words in part a relative concept -- the income or consumption status of your fellow citizens affects your notion of poverty. Countries' poverty lines rise with consumption with an overall elasticity of 0.7 (see Figure 1). They note that their new more extensive data on poverty lines across countries suggests that relative poverty is a more prominent concern among developing countries than the less complete data of the past on poverty lines implied.
For the first time (as far as we know), World Bank poverty experts will begin using both the absolute poverty line and "relative" poverty lines in future reports of analyses of over 500 household surveys spanning over 100 countries.
Reporting on relative poverty represents a small crack in the World Bank's two-decade long focus on an international absolute poverty -- since the 1990 World Development Report, and may turn out to be more interesting and controversial than Ravallion's quiet announcement in a technical paper. For one thing it ensures that poverty we will have always with us, since as "relative poverty" lines rise with rising incomes in the developing world, millions of people will shift from non-poor to poor in relative terms.
The idea of relative poverty also makes room for new thinking about the meaning of poor, middle class and rich in developing countries. At $3 a day are people in developing countries "middle class" as Banerjee and Duflo suggest, or far below what one of us considers a secure middle class life (see here and here).
July 08, 2008
Another Banner Year for IFC -- NOW Is The Time for A Big Push into Renewable Energy
Posted by Vijaya Ramachandran at 10:40 AM
This is a joint posting with David Wheeler
The International Finance Corporation, the private sector investment arm of the World Bank, is set to have yet another banner year with profits in the range of $2 billion. As the IFC's equity stakes in services, telecommunications and particularly in oil and gas have grown, so have its profits. In FY07, IFC invested more than $8 billion of its own money and mobilized nearly $4 billion more. In Sub-Saharan Africa, it invested about $1.4 billion, doubling its investments from the previous year. In FY08, these numbers look to be even larger. If the IFC continues on its current path, in five years its portfolio will be larger than that of the World Bank itself.
What should the IFC do with these profits? Last year, the IFC signed an agreement to transfer $1.75 billion to IDA, so that the World Bank could increase its lending to countries which qualify for its low-interest loans. The IFC also allocated $100 million for micro equity funds for small business development, also for IDA countries. Clearly the pressure is on for the IFC to do more of this, but is this really the best use of IFC profits? We think not.
As more money is poured into IDA, there is a real risk of investing in projects of decreasing quality, just to get the money out the door. More importantly, by transferring money into IDA's conventional projects, the IFC loses the opportunity to exercise its unique comparative advantage -- leveraging equity stakes in privately held companies on behalf of poor people in developing countries. Nowhere are the opportunities greater -- or poor people's needs more urgent -- than in private-sector investment in low-cost renewable energy.
And profitable opportunities are ripe for IFC leadership. Recent research has shown that baseload-scale solar thermal power is now lower-cost than high-efficiency coal-fired power at a carbon dioxide emissions charge well below the level consistent with the European Union's new climate action plan, and far below the level recommended by the Stern Review (Wheeler and Ummel, 2008, forthcoming as a CGD working paper; see the presentation slides). Using carbon charges to guide project selection is now feasible (but yet to be included in the IFC's accounting of oil and gas projects), because new bilateral and multilateral clean technology funds are available to finance the incremental cost gap between dirty and clean power. The IFC has an unprecedented opportunity to finance major shifts toward clean energy as opposed to changes at the margin. It can play a central role in dramatically boosting global demand for renewable energy, and thus helping to drive down costs through learning and economies of scale.
We know that bureaucratic incentives are powerful and that the IFC will be under tremendous pressure from its (currently) larger partner, the World Bank to transfer its profits to IDA. Contributions to IDA will in turn lead to less pressure from the World Bank on issues like carbon shadow pricing -- why bother when business as usual is yielding such high profits? But the IFC must take a different path. Now more than ever, it needs to focus its considerable resources and talent on solving the greatest market failure the world has ever seen.
July 02, 2008
India Sees (Some Of) the Light on Solar Thermal Potential
Posted by Kevin Ummel at 01:20 PM
On Monday, one week in advance of the climate-themed G8 Summit in Japan, the Indian government released its first ever national climate change action plan. In line with previous statements by India and other developing countries, no specific emission targets or timetables were presented. That fact -- which is no surprise to anyone following the issue -- nonetheless seems to be garnering most of the press attention. Far more important and interesting were Prime Minister Manmohan Singh's comments in an associated speech. Said Singh:
We will pool all our scientific, technical and managerial talents, with financial sources, to develop solar energy as a source of abundant energy to power our economy and to transform the lives of our people.
Hear! Hear! This is a forceful and welcome statement, especially since the "scientific, technical, and managerial talents" of India are no small contribution to this fight. The engineering skills found in Indian universities and large corporations such as the Tata Group are some of the best in the world. Deployed in earnest they would poise India for an energy revolution exceeding even the agricultural revolution of 40 years ago in its scale and impact. It appears that India's solar energy initiative would aim to provide at least 10% of the country's power over the next few years, a truly positive development.
Unfortunately, the document outlining India's energy strategy underestimates India's potential to begin implementing solar power right now. The solar thermal section, for example, oddly fails to mention recent advances in flat-panel, Fresnel-based systems, which are likely the cheapest and fastest to install. With U.S.-based Ausra opening a factory in Nevada to produce more than 700 MW of such systems annually, how about a licensed sister factory in Mumbai? After all, Tata Motors is already doing the same on the transportation side, introducing a European-designed, Indian-built compressed air car – reportedly as early as next month. Certainly there is political appetite in the U.S. for such cooperation, as evidenced by the pledge of a recent bipartisan Congressional delegation to India, led by House Speaker Nancy Pelosi, to expand "partnerships for facilitating trade and development of clean energy technologies." Anyone looking to support American 'green-collar jobs' would see a tremendous opportunity in India's ambitious clean tech goals.
So, let's think big: I've tabulated some conservative figures for low-cost solar thermal power potential in India. In fact, the numbers are very conservative: I've assumed that solar arrays are constructed only on currently uninhabited, uncultivated land with zero agricultural (crop or grazing) potential, sparse vegetation, and good solar radiation supply. I've also removed from consideration any reserves or areas of high biodiversity and land exhibiting anything other than lowest-cost construction potential (very flat, no sand dunes, etc.). And finally, I've retained only large, contiguous areas -- land tracts sufficient for 500 MW solar thermal installations (the scale reduces costs even further).
Even in India, where almost all of the land is used to house and feed a burgeoning population, that tight set of restrictions still leaves more than 16,000 square kilometers of potential solar thermal arrays, mostly in the arid northwest (see map). Recent advances in low-loss, high-voltage transmission lines mean it would be possible to provide all of India's electricity from this area. With heat storage, that land could conservatively generate 4 billion megawatt-hours of zero-emission, baseload power per year. This year, total fossil-fueled electricity production in India will likely be a bit above 600 million megawatt-hours. The bottom line is impressive: India's current potential for low-cost, solar thermal power is at least six times greater than current power production from fossil fuels. That potential comes without carbon emissions, local pollutants, or fuel price volatility. And there's another benefit (also not mentioned in the government's report) of particular relevance to India's future: Dry-cooled solar thermal uses 98% less water than coal plants. That little bit of water is used mostly to keep the mirrors clean.
On top of this physical potential are the incredible opportunities for learning and cost reductions with rapid expansion. My colleague David Wheeler and I simulate this process on the global scale in a forthcoming working paper and find the cost of displacing coal power to be far less than most expect (see World Bank Power Projects: Crossroads on Renewable Energy for a preview). With strategic financing from developed world donors, India could quickly -- far more quickly than the government seems to believe -- generate vast amounts of increasingly cheap solar power.
That the Indian government is signaling its desire to be an important player in this transition is a promising sign. Will developed world donors and the World Bank use the proposed Clean Technology Fund to fully exploit this potential? Or will habit, half-measures, and conventional wisdom fail the Indian people and the planet?
June 23, 2008
Congress Demands World Bank Reform as Condition for Clean Tech Fund Authorization
Posted by Joel Meister at 04:08 PM
The House Financial Services Committee will consider new legislation this week that would contribute $400 million in FY2009 to a multilateral Clean Technology Fund (CTF), administered by the World Bank, to promote low-carbon energy production in developing countries. Scheduled for mark-up on Tuesday, H.R. 6315 was introduced in the House of Representatives by Congresswoman Gwen Moore (D-WI) last Thursday with bipartisan co-sponsorship that includes Financial Services chairman Barney Frank (D-MA).
The bill is the product of a hearing held earlier this month that considered President Bush's pledge to contribute $2 billion to the fund over three years. CGD senior fellow David Wheeler was invited to testify at the June 5th hearing and lauded the Bush Administration for its efforts but cautioned that Congress should not authorize the World Bank to oversee such funds without critical conditions. Though imperfect, the text of H.R. 6315 suggests the committee members took David's advice to heart and incorporated many of his specific recommendations in the final legislation, which could transform the World Bank's energy investments in the developing world.
David's testimony emphasized the need for two policy changes to the current World Bank CTF proposal before any congressional authorization of funds:
- Use CTF funds to invest in projects that will make zero-emissions renewable-energy like solar thermal power cost competitive with energy from fossil fuels like coal; and
- Require the World Bank to adopt carbon accounting as rapidly as possible in projects' cost/benefit analyses
On the first point, the language of H.R. 6315 stipulates (emphasis added):
SUPPORT OF ZERO CARBON AND CLEANER TECHONOLOGIES
The Secretary of the Treasury shall seek to ensure that-
(1) the priorities of the Fund include supporting 'zero carbon' technologies, and improvements in energy efficiency in existing infrastructure that demonstrate an ability to be transformational in support of a country’s path toward low carbon development;
(2) the disbursement of amounts in the Fund demonstrate a preference for 'zero carbon technologies'; and
(3) funding from the Fund is provided to close the gap between higher cost, cleaner technologies and lower cost technologies.
The language's "preference" for zero-carbon technologies is an encouraging sign, in addition to the requirement that efficiency improvement projects "demonstrate an ability to be transformational in support of a country's path toward low carbon development." While the legislation does not go as far as David's testimony, which suggested excluding all proposals for coal-fired power, the language certainly reflects the need for the World Bank to change its oft-cited business-as-usual approach of investing hundreds of millions in fossil fuel projects (see World Bank Clean Technology Fund Would Be Cash Cow for Coal).
David McCormick, U.S. Treasury undersecretary for international affairs, said coal plants would only be a "minor part" of CTF-funded programs in his testimony before the House Financial Services Committee, but recent statements by Bush Administration officials suggest the Bank may be planning to use CTF funds to rapidly expand investments in coal-fired power in India and elsewhere.
David argued that carbon accounting would be pivotal to changing the way business is done at the bank altogether, by requiring the institution to incorporate in project analyses a dollar cost, or charge, for every ton of emitted CO2. As David explained in his testimony:
Several major U.S. investment banks have already extended their conventional cost accounting to include carbon charges in their analyses of energy project proposals. Unfortunately, no such accounting policy currently exists at the World Bank.
…
The per-ton charge required to facilitate a switch to renewable alternatives is well within the range of the estimated social costs of climate change, which will be borne primarily by citizens of the developing world. That the World Bank has no policy for, or experience with, incorporating such considerations into project appraisal is worrying, especially given its role as an investor of donor dollars for projects intended to improve the welfare of the world's poor.
Section 2 of H.R. 6315 attempts to fill this gap in Bank accounting by amending the International Financial Institutions Act to explicitly require the use of greenhouse gas accounting by multilateral development banks "in analyzing the benefits and costs of all projects for which funding is sought from the bank." Section 2 further defines what that analysis would entail:
(b) SENSE OF THE CONGRESS. -- It is the sense of the Congress that adopting and implementing GHG accounting includes --
(1) calculating net carbon flows;
(2) establishing uniform calculation techniques, with provision for modification as professional standards evolve;
(3) making public the calculation techniques and the calculations;
(4) adopting and making public a uniform carbon charge rate which appropriately reflects the global social cost of a unit of carbon emissions; and
(5) performing carbon GHG accounting, including a full carbon charge for each project, defined as the net carbon flow multiplied by the carbon charge rate.
Even if the CTF authorization language fails to exclude outright coal-fired power projects from funding, the carbon accounting requirement would be a significant step forward in making zero-carbon alternatives more competitive with fossil fuels. Once investment project proposals more accurately reflect all of the associated social costs of production and operation, the cost gap between fossil fuels and renewables will shrink, and CTF funds will be much more likely to be invested in zero-carbon alternatives that could make a truly transformational impact. For example, David recently outlined a possible CTF program with carbon accounting that could make solar thermal power competitive with coal in 5-10 years at a cost of $4-8 billion (see World Bank Power Projects: Crossroads on Renewable Energy), well within the range of the current CTF design.
Language may still be added to the bill during the mark-up proceedings on Tuesday, that could potentially strengthen or weaken the bill. But as interested parties monitor the session on Tuesday, the drafters of H.R. 6315 should be commended for an ambitious legislative undertaking whose vision may finally prod the World Bank closer to a catalytic role in addressing our climate crisis.
June 09, 2008
House Committee Tells U.S. Treasury to Heed Calls for Redesign of Clean Tech Fund
Posted by Joel Meister at 03:39 PM
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.
June 06, 2008
CGD's David Wheeler Outlines Strategic Path for Clean Tech Fund in Congressional Testimony
Posted by Joel Meister at 12:36 PM
The U.S. House of Representatives Financial Services Subcommittee on Domestic and International Policy, Trade, and Technology held a hearing yesterday afternoon to examine the Bush administration's proposal to establish a multilateral Clean Technology Fund. CGD senior fellow David Wheeler was among the panel of witnesses invited to testify on the U.S. commitment of $2 billion over three years and whether the World Bank is a suitable home for these scarce financial resources.
We will soon be posting a more detailed summary of the hearing and issues discussed, but click here to view David's written testimony in the meantime. Here is a quick overview of his main recommendations:
I believe that Congress can help make the Clean Technology Fund a successful investment of taxpayer dollars by setting the following conditions for authorization.
- 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.
June 03, 2008
House Hearing to put World Bank Clean Tech Fund in the Spotlight
Posted by Joel Meister at 11:25 AM
Last week representatives of 40 countries meeting in Potsdam, Germany endorsed the World Bank's proposal for a multi-billion-dollar Clean Technology Fund (CTF) to help developing countries meet their surging energy needs without accelerating climate change. The proposal is set to go to the Bank's board in early July and senior bank officials say that they hope to raise at least $5.5 billion dollars for the CTF by the end of the year.
Done deal? Perhaps not. Although President Bush has pushed the idea as an alternative to mandatory cuts in greenhouse gases and pledged $2 billion as an initial three-year contribution, the U.S. Congress has yet to consider the project. A House Financial Services Committee hearing on the CTF this week is expected to focus on how exactly the money would be spent. Will it be used to help drive down the price of zero-carbon renewable energy, such as solar thermal power? Or does the bank propose to use it as merely another source of cash for business as usual, including such high-emission projects as coal-fired power?
A careful reading of the World Bank proposal suggests cause for concern. The proposal has undergone three main revisions, all of which you can see on the bank's website. CGD senior fellow David Wheeler and Kevin Ummel have been following the process closely. Kevin's recent blog post, Lost in Translation: How to Transform Good Intentions into Poor Policy and Ensure a Climate Crisis (A Primer by the World Bank), points out the underlying weakness in the second revision:
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.
On May 15 th the World Bank released a third revision in preparation for the Potsdam meeting. But rather than tighten the criteria to ensure that the funds would be used to help drive down the price of zero-carbon renewable energy, the drafters simply reduced the amount of lofty language, so that the stated goals are more compatible with the particulars of a business-as-usual approach.
While the summary language still promises “transformational” impacts, the “Investment Review Criteria” that defines how the CTF money would actually be spent paints a different picture. Below is a comparison of excerpts from of the second and third revisions (with key text bolded for emphasis). In this case it's definitely the case that the devil is in the details:
The joint MDB country program should highlight how it is embedded in a country-owned strategy (such as an energy efficiency or energy security strategy, sector expansion plan, or low carbon growth strategy). It should also demonstrate how the investment program will result in a transformational shift to a low-carbon development path. As country needs differ it will not be possible to prescribe which policies, measures or technologies will achieve significant advances for all countries. Rather, the CTF will use criteria which will allow a generic assessment of transformative potential. (p. 16) |
The investment plan should highlight how it is embedded in nationally appropriate mitigation actions by the country in the context of sustainable development, taking into account the priorities of economic growth and poverty reduction and increased access to energy for the country. As country needs differ it will not be possible to prescribe which policies, measures or technologies will achieve significant advances for all countries. Rather, the CTF will use criteria which will allow a generic assessment of transformative potential , consistent with the objectives of the CTF, and aim to maximize GHG reductions per dollar spent. (p. 18) |
Tellingly, the revised language no longer requires that an investment program demonstrate that it will “ result in a transformational shift to a low-carbon development path.” Instead, investment plans will be required merely to pass a “ generic assessment of transformational potential. ”
Transformative Impact : Catalyze a shift to low-carbon technologies, policies and measures consistent with the transformational scope of the CTF and at the following scale…(p. 16) |
Demonstration Potential : Accelerate deployment, diffusion and transfer of low carbon technologies, consistent with the objectives of the CTF, at the following scale…(p. 18) |
The revised language no longer includes “transformative impact” in its criteria, but rather “demonstration potential.” The earlier draft calls for investments to “catalyze a shift to low-carbon technologies, policies and measures consistent with the transformational scope of the CTF,” but the newest proposal only mentions “accelerat[ing] deployment, diffusion and transfer of low carbon technologies, consistent with the objectives of the CTF…” Descriptions of the scale of investments still include “private sector” investments, in addition to “public-private partnerships,” but the revised proposal no longer includes language for private sector investments to “significantly move the market towards lower carbon intensity.”
In general, these revised review criteria remove language that would have required any form of strategic thinking when it comes to using CTF money. Wheeler has argued in a presentation given at the bank and elsewhere and in a forthcoming working paper that a strategic, focused investment program can drive solar thermal power to cost parity with coal-fired power in five to ten years, for a total cost of four to eight billion dollars, well within resources likely available to the CTF. That's transformational.
U.S. Treasury Secretary Henry Paulson seemed to have such an approach in mind when he spoke about the CTF during a commencement address at Hamilton College, just two days after the World Bank released the latest version of its mealy-mouthed proposal at the meeting in Potsdam. The U.S., Paulson said, is “working with nations around the world and with Congress to create a global clean technology fund that will be the only vehicle in the world focused solely on one of the most serious long-term environmental challenges we face…and that is helping developing countries adopt the cleanest, most efficient technologies available.”
Members of the House Financial Services Committee may want to ask witnesses whether the bank's much-revised proposal lives up to Sec. Paulson's lofty goals.
May 20, 2008
Climate Change in Nashville: A Gathering Storm for the World Bank?
Posted by David Wheeler at 11:09 AM
I spent last Thursday with Al Gore and dozens of colleagues at the Climate Change Solutions Summit, near Gore's home in Nashville, Tennessee. Gore led several jam-packed sessions, whose common theme was the search for ways out of the impasse on climate change. Some sessions took the long view, searching for clues in the history of the industrial revolution and successful social reform movements. Others, like my own session, focused on concrete steps that can be taken now. I talked about two keys to success for the UN's Copenhagen climate change conference in December, 2009: transparency and accountability, through global public disclosure of CO2 emissions sources; and a strategically-targeted Clean Technology Fund (CTF), focused on making renewable energy cost-competitive with coal-fired power as quickly as possible. The CTF was first proposed by the US, UK and Japan in January, 2008. The World Bank has been assigned temporary management responsibility, but this may not continue after Copenhagen.
In the transparency discussion, I cited CGD's CARMA (Carbon Monitoring for Action) website as a first step toward global CO2 emissions disclosure. My CTF discussion highlighted the disconnect between the World Bank's "transformational" rhetoric on climate change and its continued investment in huge coal-fired power plants, as well as its short-sighted proposal to use the Clean Technology Fund as an additional source of money for business as usual. I got a lot of positive feedback, and many participants (including some who may be powerful in a future Democratic administration) expressed dismay at the Bank's continued support for coal-fired power. One powerful Democrat got angry enough to call for shutting down the Bank.
During my day in Nashville, I was struck by the contrast with a meeting that I attended at the World Bank several weeks ago. At the invitation of the Bank's senior energy-sector managers, I gave a keynote talk (see one version of the slides here or below) on the Bank's energy policy and its implications for climate change. My talks at the Bank and the Nashville conference both focused on using the Clean Technology Fund to promote cost-competitive renewable power. While the content was similar, the reactions were strikingly different.
The Nashville audience regarded the climate crisis as imminent and potentially fatal, so they viewed a transformational CTF as essential. For most of the Bank's senior energy managers, on the other hand, this idea was clearly more of an annoyance than an inspiration. With some notable exceptions, they expressed "polite interest" while invoking several dismissive mantras: Renewable power is too expensive; trying to "pick winners" (e.g. solar thermal power) is not advisable; and the Bank's poverty-fighting mandate demands the cheapest possible power for poor countries. Rough translation: Coal is and should remain king for a long time in China, India, South Africa and other rapidly-industrializing countries that have major coal resources.
Having visited two different worlds in Nashville and the World Bank, I was struck by the potentially-dire implications for the Bank if the Democrats recapture the White House this year. Some of the Nashville participants were influential Democrats, to put it mildly. They clearly believe that the Bank is defaulting on its proper role as steward of the Clean Technology Fund, and some will probably act on this belief as top officials in the next US administration.
Since climate change is my topic, a weather metaphor may help clarify the stakes here. Washington is in the US tornado belt, and violent weather often bears down on DC from the southwest -- the direction of Nashville. Imagine the Bank's senior energy managers in a sound-insulated, air-conditioned room that is disconnected from the environment. Lightening flashes and thunder grumbles in the distance as a violent storm begins forming to the southwest, but they remain unaware. When the storm suddenly breaks overhead, it's too late to do more than dive under a table and hope for survival.
In Nashville, I saw such a storm brewing. If it strikes in November, the World Bank may find itself tossed into the dust bin of history. For my many dedicated, hard-working friends at the Bank, I think it may be time to heed Bob Dylan:
You don't need a weather man
To know which way the wind blows.
May 15, 2008
Be Careful What You Wish for: Fighting Corruption Is Good, But Not If It Means Stopping Development Assistance
Posted by Dennis de Tray at 01:02 PM
Senators Lugar and Bayh are again on the anticorruption warpath. Yesterday they issued a press release calling for "a Government Accounting Office (GAO) probe of the World Bank's anticorruption efforts." They want to make sure that the U.S.'s $950 million contribution to the International Development Association is not being "misspent and enriching corrupt foreign regimes." Certainly sounds reasonable, but is this really the right focus for a review of World Bank operations? In the chapter I wrote (along with Ted Moran) for The White House and the World: A Global Development Agenda for the Next U.S. President, a forthcoming CGD publication, I argue that it is not. I make three points in the chapter that bear on the Lugar-Bayh proposal.
- If the U.S. is to provide leadership on global anticorruption efforts, it has to get its own house in order. More taxpayer money has gone missing in Iraq and Afghanistan than the entire U.S. IDA contribution.
- The right focus in limiting corruption is on outcomes not processes. There is ample evidence that greater supervision budgets, more investigatory staff does little to limit corruption beyond tightly ringfenced donor projects.
- All countries, including the United States, have corruption problems. The challenge is to ensure that taxpayers get value for money. If we focus on making sure the road is built, built to specification and on time, and built at reasonable cost, we ensure the needed development outcome, and corruption becomes self-limiting.
If you don't share my concern that a focus on corruption above all else risks undermining development, consider the emerging story of infrastructure development in Africa. Everyone agrees that poor infrastructure is one of the greatest barriers to Africa's development. Yet, prodded by its critics, the World Bank has blackballed any and all construction firms found to have engaged in corrupt acts and listed them on a public website. Many of these are large, well-known multinational firms prominent in the construction sector. The immediate result of this campaign is that there are now very few firms "certified" to do World Bank construction projects in Africa, and even fewer willing to bid on anything related to infrastructure. Given Africa's urgent need for infrastructure, particularly in the energy sector, can this really be the outcome we want?
There are many good people in the World Bank trying to foster development in some of the world's most difficult settings. If Bank staff, especially hard-pressed operations staff, are made personally responsible for protecting every dollar of development assistance, the system will simply freeze up. The great challenge for all of us, including the U.S., is to find ways of accelerating development in less-than-perfect environments. Put simply, if we want to be sure we don't lose a single dollar of U.S. taxpayer money to corruption, we should stay out of most of Paul Collier's bottom billion countries. If we think it more important to somehow make it less difficult for hard working and impoverished people in these fragile countries to improve their lives, then we need to keep our eye on the right ball: outcomes, not processes.
May 12, 2008
Lost in Translation: How to Transform Good Intentions into Poor Policy and Ensure a Climate Crisis (A Primer by the World Bank)
Posted by Kevin Ummel at 03:44 PM
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.
--------------------------------------------------
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.
April 21, 2008
Trade Policy for a New Deal on Hunger
Posted by Nancy Birdsall at 03:05 PM
This is a joint post with Arvind Subramanian
In a Q&A published today, CGD non-resident fellow Peter Timmer estimates that soaring global food prices and panicky starve-thy-neighbor rice export restrictions in Asia could lead to 10 million or more premature deaths in the region if the current high prices are passed along to poor rice consumers.
This is the latest piece of worrying evidence that rising food prices may signal the onset of a new kind of Malthusian era, in which elevated food prices are a long-term reality driven by three key changes: rapid demand for more and more energy-intensive food in fast-growing Asia, the competition that new biofuels are posing for land; and the effect of climate-change-induced drought on global agricultural supplies.
If that is the case, the world ought to focus on boosting the long-term global supply of food -- including via food-friendly trade policy. A new deal on hunger requires that trade help rather than aggravate food shortages around the world.
What are the key trade policies that are aggravating the current food crisis? The problem now is not subsidies by rich countries that for years kept food production high and suppressed global food prices, hurting small farmers in the developing world. Rather, it is biofuel mandates in Europe and subsidies in the U.S. that are encouraging farmers to supply the biofuel market, raising food prices. Corn-based ethanol production in the U.S. has increased fourfold since 2000 and now takes up about 20 percent of total corn production.
Meanwhile in the developing world, such countries as Ukraine, Argentina, Russia, Egypt, Saudi Arabia, India, Philippines, Indonesia, and South Korea have slashed import duties and reduced other restrictions on food imports and imposed or tightened restrictions on exports of foodstuffs. Each country is trying to keep domestic supplies high on the justifiable grounds of food security. Taken together, however, the aggregate effect is reduced global supply -- and the potential for reduced long term supply -- if governments pay farmers below global prices in producing countries. Meanwhile, the restrictions are driving world prices even higher for food importing countries -- by at least 10 percent and possibly much more according to new estimates -- as the non-poor in exporting countries benefit while the poor in importing countries literally go hungry.1 Without a collective agreement to undo these restrictions, the world's poor, already at terrible risk, will be even worse off.
The contours of trade policies friendly to a New Deal on hunger are clear. Industrial countries should eliminate any practices that reduce global food supply, including all forms of subsidies to biofuels that compete with food production. Developing country food producers should eschew export restrictions. And importing countries can also contribute. To reassure developing country exporters about future access should prices become volatile or even decline, they could agree now to lock in their recent liberalization -- a plus for all agricultural exporters.
We also propose that in a New Deal on Hunger, major developing country producers set aside for now their reasonable objections to traditional rich country agricultural protection -- the bone of contention in the Doha trade round -- at least in the case of food staples (if not cotton and cocoa). Rich countries would ideally reduce this protection on their own (as their taxpayers might well like in the case of domestic production subsidies). But for a hunger deal now their long-perverse agricultural protection is not a central issue -- and leaving it aside has the political virtue of greasing the wheels of a global deal on hunger.
Finally, to address the concerns of the poorest food-importing countries that have been worst hit by food shortages requires immediate action. In addition to traditional emergency food aid, all food exporting countries -- the U.S., Brazil and other big beneficiaries of the current price hikes -- could commit a small proportion of their exports as food aid (or far better contribute the cash equivalent), with this proportion increasing in line with any increase in world prices.
No one should assume these trade measures alone will address the fundamental problem -- that chronic hunger is the result of poverty not just limited food supplies. But trade should help not hinder.
The Doha round of multilateral trade negotiations, even if successful, will not address these policies. The initiative for a New Deal on Hunger must come from elsewhere. As former chief U.S. trade negotiator and current international development czar, Mr. Zoellick is ideally suited to the task. He should secure agreement that trade and development ministers will meet within a month to agree on the trade principles of a new hunger deal, aiming for a full-fledged agreement before the end of the year. Indeed his leadership on this issue, especially in eliminating U.S. protection of corn-based ethanol, would complete his transition from representing U.S. trade interests to the development needs of the world’s poor.
Now is surely the moment to make the needs of the world's poor more central to trade policy. That would be breakthrough never yet achieved by trade negotiators alone.
-------------------------
1Based on "Export Restrictions and World Prices" by Ivanic, Martin, Mattoo, and Subramanian (forthcoming).
April 11, 2008
The Global Food Crisis: Time for Action, Not Panic
Posted by Kimberly Ann Elliott at 11:55 AM
The New York Times yesterday (and Paul Krugman earlier in the week) called on rich countries to "step up to the plate" in confronting the food crisis in developing countries -- in the short run by increasing their donations of food aid. and in the medium run by getting rid of economically inefficient, inequitable, and environmentally unsound subsidies for biofuels, especially corn-based ethanol.
While the sources of current crisis are many -- adverse weather in key producing areas, rising farm costs due to higher oil and fertilizer prices, speculation in financial markets, rising demand, especially for meat, in China, the diversion of crops from food to fuel, and low stocks -- not all of them are amenable to policy changes, at least in the near term.
Rising demand for food in China, India, and other rapidly growing developing countries is the result of reducing poverty and that, of course, is a good thing! Over the longer run, a big part of the answer is for donors and developing country governments to invest more in improving agricultural productivity, as recommended by World Bank President Zoellick in his speech at the Center last week. In terms of what can be done now, this post focuses on the food aid problem and the need to reform US policy. A future post will examine policies to promote biofuels in the United States and Europe.
Food prices are notoriously volatile but the chart shows the magnitude of the present problem, with prices for key grains surging over the past two years to levels not seen in a decade or more and with more recent increases that are off the charts. The human costs of rising prices can be seen in food riots and rising hunger and poverty around the world.
Farmers are responding by increasing their plantings of grains and a US recession should dampen price increases a bit over the next year or so, but immediate and generous action by donors is desperately needed. The World Food Program's call in February for $500 million in increased food aid funds has already been eclipsed by the accelerating price increases. The World Bank study released just this morning also summarizes other safety net and food delivery programs that governments are adopting and that it is supporting in various ways. Strikingly, however, neither the US Department for Agriculture nor the US Agency for International Development had anything on their homepages this morning about the food crisis or plans to increase US assistance.
Beyond the need for an immediate response, the crisis also underscores the need to reform the way the United States delivers food aid. US policy did not create the food crisis but it is making it harder to address. Food aid budgets everywhere are being stretched thin by the escalation in food prices. But US policy compounds the problem by requiring that food aid must be purchased and packaged in the United States and shipped mainly on US-flagged ships. Thus, a good chunk of the US food aid budget gets diverted to higher distribution and transportation costs, which are also going up as a result of oil price hikes and rising freight costs.
Moreover, if the US Congress does not change the farm bill currently being debated, it could make things far worse. Although the House and Senate versions are slightly different, both require that a certain portion of the food aid budget be reserved for longer-term development projects, meaning that less would be available to respond to emergencies. This provision was always problematic but in the current environment, it could be disastrous.
April 09, 2008
World Bank Clean Technology Fund Would Be Cash Cow for Coal
Posted by Lawrence MacDonald at 08:55 PM
Boy, those folks at the World Bank sure can do process! Hot off the printer, the bank proposal for a so-called "Clean Technology Fund (CTF)" prepared for a meeting next week includes pages and pages of verbiage on process. On page 14 they finally get around to saying how the money would be spent. Read it and weep:
For existing coal-fired plants, the CTF will follow a three-pronged approach: (1) upgrading/rehabilitating plants with a reasonable remaining life; (2) decreasing the duty cycle of existing plants; and (3) early retirement of older units, where such plants account for a large percentage of capacity, with a view to achieving significant increases in energy efficiency.
For new coal-fired assets: Recognizing that coal is forecast to remain an important component of global energy use over the next 30-50 years, the coal-fired projects would be supported where they are least cost, focusing on decreasing CO2 emissions at scale through substantial improvements in plant efficiencies (moving from sub-critical to super and ultra-supercritical technologies as well as IGCC, oxyfuels and cogeneration) and supporting readiness for implementation of carbon capture and storage.
Translation: The new fund would pay for the same old things that the bank has been doing all along, with a little greenwash sprinkled on top. As for the "forecast" that coal will continue to be important for 30-50 years, this is neither supported in the paper nor is it relevant to the purpose of a clean technology fund, which is presumably to support clean technology, not more-efficient dirty technology. (Remember, the atmosphere does not care about intensity of emissions; it responds only to total load.)
Since carbon capture and sequestration (CCS) is an unproven and potentially dangerous technological gamble, the only reliable "forecast" about coal is that continued rapid increases in use will push the planet over multiple climate tipping points (See, for example, Bill McKibben’s Remember This: 350 Parts Per Million), leading to run-away heating, droughts, floods, accelerated sea-level rise, and collapsing agricultural productivity (i.e. not good for development and other human activities!)
It's enough to make American tax payers and others, including the Europeans and the Japanese, who are being asked to ante up billions of dollars for the proposed new fund wonder whether some other organization besides the World Bank might be better suited to manage it.
World Bank president Robert Zoellick talks like he is serious about climate. During his speech at the climate conference in Bali last December he said:
Climate change policies cannot be the frosting on the cake of development; they must be baked into the recipe of growth and social development… We need to help shift countries to a development paradigm based on low-carbon growth and adaptation to new risks.
Yet yesterday the board of the IFC, the bank's private investment affiliate, approved a $450 million investment in the Tata Ultra Mega power project, which would produce nearly 25 million tons of CO2 per year for at least 25 years, making it one of the top 50 sources of CO2 in the world. Just in case somebody might wonder if the IFC is serious about fighting climate change, just days before they also announced a $20 million investment in Evolution One, a private equity fund investing in climate change mitigation in Africa.
Before yesterday's vote eight environmental and development advocacy NGOs wrote to the U.S. representative on the World Bank/IFC board asking that the IFC postpone consideration of the Tata Ultra Mega until low-carbon alternatives, especially rapid-advances in solar thermal, could be properly evaluated. The letter drew on analysis of the changing costs by my colleague David Wheeler. Mr. Zoellick has defended the decision to proceed with the plant on the grounds that India needs the power.
Make no mistake: India urgently needs more electricity. Per capita power consumption is barely four percent of our profligate power usage in the United States; two out of three rural families lack even electric light. With shortages this severe, babies die and kids grow up unable to read. As the planet's leading development institution, the World Bank is right to help India to solve this problem. The question is not whether the bank should be investing in India's power sector, but how.
Other funders including private lenders are already investing massively in new power projects. Several plants that use the same high-efficiency coal combustion technology proposed for Tata Ultra Mega are ready for construction or in advanced planning stages. But efficient coal technology is still extremely dirty, emitting large amounts of health-damaging pollutants such as mercury, sulfur and nitrous oxides, in addition to greenhouse gases.
For poor people in India, this new electricity -- like the new plants being built in China and the coal-fired electricity that powers my computer as I type -- comes at an immense cost in the not-too-distant future. Because much of India already has high average temperatures, further heat increases will devastate agriculture. A recent CGD book by William Cline has shown that under a "business as usual" approach, northwestern India will face a 30 to 40 percent drop in agricultural productivity by 2080 -- within the lifetime of children born in India today. Projections of agricultural impact are similarly dire for much of the rest of the developing world.
Fortunately, there are alternatives that can meet the urgent need for electricity in India and other developing countries without putting future generations in peril. Wheeler has shown that rapidly falling prices of renewable energy technology and rising coal prices mean that the cost gap between zero-carbon alternatives and coal is shrinking fast. Because the price of sunlight never goes up, and the technology for turning it into electricity gets cheaper all the time, the difference between the price of the coal-fired electricity and zero-carbon solar thermal power in the same locale has recently dropped to less than two cents per kilowatt hour (10.5 cents for solar thermal vs. 8.5 cents for coal).
This gap can and should be closed, and the rich countries that are responsible for most of the greenhouse gases already in the atmosphere should pay the difference (in addition to cutting back sharply on our own obscene emissions) for our own sake as well as the sake of people in developing countries.
The U.S. and other rich countries have implicitly accepted this principle. In February U.S. Treasury Secretary Henry Paulson and his counterparts from the U.K. and Japan announced their intention to support a new "Clean Technology Fund," suggesting it could be administered by the World Bank. To get things going, Paulson pledged an initial U.S. contribution of $2 billion over three years. Congress would have to appropriate the money, of course.
It's that promised money that the World Bank is hoping to capture in putting forward this laughable so-called "Clean Technology Fund" proposal. Too bad, for the bank and the world, that the proposal fails so dismally in the central task of actually supporting clean technology. Are there any other organizations out there that would like to manage billions of dollars in clean technology money?
April 03, 2008
Bob Zoellick is Leading the World Bank in the Right Direction. Will Bank Staff and Shareholders Follow?
Posted by Nancy Birdsall at 05:53 PM
World Bank president Bob Zoellick announced several striking new initiatives in his speech yesterday at a CGD event that drew a standing room-only audience of nearly 200 development specialists. Among his proposals: a "New Deal for Global Food Policy" to reduce hunger and social unrest throughout the developing world, as poor people attempt to cope with recent dramatic increases in food prices.
Not surprisingly, economic reporting today focused instead on Fed Chairman Ben Bernanke's use yesterday of the word "recession" and on Congress's confused efforts to deal with the U.S. housing mess. Among the few exceptions: David Ignatius drew on Bob's speech in his Washington Post column today on The Perils of the Price of Rice, which does a nice job of highlighting unexamined links between economic troubles here in the U.S. and the food shortages and other problems in the wider world.
Most of the media, as usual, seems to suffer from a case of double myopia (nearsightedness in time and in space) in which the immediate problem in the U.S. financial market (as legitimate as it is, for the 2 million or so households facing foreclosure risks) eclipses the crisis out there in the "rest of the world," which is urgent and could be long-term, of rising food and energy prices for poor people in poor countries -- who number about 2 billion.
Good to see Mr. Zoellick using the World Bank platform as a bully pulpit to fight for attention to the world's poor. And clever of him to link current shifts in global prices and risks to poor people's needs. I had the pleasure of hosting him and serving as moderator during the follow up discussion. From where I sat, our audience of development experts seemed pleased indeed with his proposals.
Like many who were there, I welcome his focus not on more World Bank lending (hardly a word on that, except for his promise to increase agriculture lending to Africa) but on the World Bank's role in making markets for new products (he wants 1 percent of sovereign wealth fund assets -- that's about $30 billion -- for a World Bank-engineered investment fund for Africa), and on providing a venue for global collective action on climate change.
Let's hope he can bring along quickly his 10,000 colleagues at the Bank (on climate change, progress is painfully slow) who still mostly "do" lendi