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Energy News: World Bank to Stop Funding Coal Projects

The World Bank Group has just agreed to stop funding coal projects. This is welcome news as the World Bank Group has funded almost $6 billion in coal projects over the past five years. As a part of a new energy strategy which will cover the Bank’s lending, the Bank agreed that it will only fund coal projects in “rare circumstances” under certain specific conditions. This commitment will help focus the World Bank Group on using scarce resources to combat climate change, spur clean energy deployment, and meet the energy needs of the poorest in the world. With the poorest communities feeling the brunt of the impacts of global warming this is a welcome shift from an institution that has clearly recognized the damages that will come from global warming.

The strategy specifically commits that the World Bank Group:

“will provide financial support for greenfield coal power generation projects only in rare circumstances. Considerations such as meeting basic energy needs in countries with no feasible alternatives to coal and a lack of financing for coal power would define such rare cases” [emphasis added].

While the definition of “rare circumstances” wasn’t completely detailed in the strategy, the U.S. and other countries have clearly signaled that investments in clean energy should be the primary focus of the World Bank Group. After all, President Obama recently committed that the U.S. won’t support using public financing – such as from the World Bank – for new coal projects overseas that don’t capture their carbon. So “rare circumstances” should be a high bar.

The strategy also commits the Bank to step up its efforts to help the poorest citizens gain access to energy and to spur clean energy like energy efficiency, wind, solar, and geothermal. It commits to Bank to view all of its energy sector support through the lens of how does it help countries secure the “affordable, reliable, and sustainable energy supply to end poverty and promote shared prosperity”. This will ensure that the Bank justify all projects on the basis of how they help the poor and supply sustainable energy. With renewable energy deployed around the world we have long past the point where people could say “renewable energy is only available in certain rich countries under certain conditions”. The cost of renewable has dropped significantly in recent years, in most cases it is cost competitive with coal generation even without factoring in the damaging pollution from coal power plants. Clean energy is real, being deployed widely around the world, and a viable economic investment so it is welcome that the Bank has signaled that they’ll shift their emphasis from 19th century to 21st century investments.  

World Bank President Dr. Kim should be praised for helping shepherd through a policy to reform the Bank energy lending that stalled under his predecessor. Over two years ago the Bank attempted to reform their energy strategy and implement a similar limit on coal financing. But that strategy got hung up as China, India, and Saudi Arabia blocked adoption. This time those countries recognized that the landscape had changed and that a priority should be placed on using the Bank’s scarce funding to spur clean energy. Nearly 60 development, environment, faith-based, human rights, and community groups urged the Bank in this direction when they called on the Bank to stop funding climate destruction.

Hopefully it will spur other large financial institutions like the other development banks – such as the European Bank for Reconstruction and Development and the Asian Development Bank – and major private banks (e.g. the financial institutions in the Equator Principles) to follow suit. Over the past 5 years the development banks have invested more than $11.6 billion in coal projects (see figure).

 Total IFI Coal Financing.pngThis shift in emphasis from the World Bank Group will allow them to focus scarce resources on helping poor countries tap into clean energy like energy efficiency, wind, solar, and geothermal. It is well past time for such a shift – better late than never.

Content Discussion

John Miller's picture
John Miller on July 19, 2013

I wonder what the impact of this World Bank decision will have on world carbon trading markets?  As you may be aware the Kyoto Protocol set up ‘flexible mechanisms’ to generate carbon credits created from Developed countries investing in Developing countries ‘clean coal’ projects.  I understand the World Bank was a significant source of funding for many of these carbon credit generating projects and restricting loans for future clean coal projects could have a large impact on availability of these carbon credits in the future.  This action could also significantly reduce the ability of some Developed countries to achieve their future carbon reduction targets.

Stephen Nielsen's picture
Stephen Nielsen on July 19, 2013

The World Bank stopped funding nuclear three years ago. Wonder what took them so long with coal? Meanwhile, World Bank funding of renewables is at an all time high – mirroring VC money worldwide

Alistair Newbould's picture
Alistair Newbould on July 21, 2013

I guess we need some definitions – what is a coal project? And we need to know the incentives for the change. If the incentive is to reduce CO2 emissions then financing an industrial scale CCS project would be useful – provided it didn’t breach the definition of a “Coal project”

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