Financing dirty energy: Development's next big political challenge

Thick smoke from smokestacks. Photo by: freeimage4life

CANBERRA — Even as the impacts of climate change are increasingly felt worldwide, coal plants, gas pipelines, and other non-renewable energy projects continue to receive vast sums of funding from the world’s biggest development banks. For many, the financing of non-renewables is an issue that needs to be addressed by development and humanitarian sectors  — both within developing and donor countries.

Alex Doukas, stop funding fossils program director of Oil Change International, is part of a group of organizations putting pressure on institutions and governments still funding “last century's dirty energy technologies” — or non-renewable energy projects.

Among the partner organizations on the Big Shift Global campaign are 350.org, Christian Aid, the Overseas Development Institute, and Tearfund.

Their work involves investigating how organizations such as the World Bank Group, China Development Bank, Development Bank of Japan, European Bank for Reconstruction and Development, European Investment Bank, Export Development Canada, International Finance Corporation, and more, are funding non-renewable energy projects directly or indirectly.

The "Dirty Dozen” briefing released late last year named and shamed development and finance banks contributing to projects, such as the Trans-Adriatic and Trans-Anatolian gas pipelines, Atimonan One Energy coal project in the Philippines, Petrobras oil and gas development in Brazil, and the Thabametsi coal plant in South Africa.

“It's important for governments and project proponents to keep hearing the message that dirty energy is putting people at risk today, and that investments made now threaten to lock in carbon-intensive technologies for decades,” Doukas told Devex.

“People need to keep raising their voices, and demanding that governments and international institutions take action, which is something they can do through my organization Oil Change International, or through campaigns like the Big Shift Global campaign.”

Glen Tyler, South African team leader with 350.org, told Devex there is too much at stake to take the foot off the pedal.

“We recently exceeded 410 parts per million of carbon dioxide in our atmosphere, where 350 parts per million is acknowledged to be a safe level,” he said.

“This means more severe climate impacts will destroy lives around the world. Building new fossil fuel projects will only exacerbate a crisis situation, and we need to make sure pressure continues to mount on those that get involved in these projects.”

There is evidence that campaigns such as this are making an impact. Within Australia, a Stop Adani campaign against the Adani Group’s controversial proposed Carmichael coal mine succeeded in pressuring both the Queensland state government and public banking institutes to rule out financial support for the project. And in South Africa, Tyler said, shutting down the development of new fossil fuel infrastructure through a “life after coal” campaign was his biggest achievement.

“Building new fossil fuel projects will only exacerbate a crisis situation, and we need to make sure pressure continues to mount on those that get involved in these projects.”

— Glen Tyler, South African team leader at 350.org

How development banks are responding

Pointing the finger at development finance institutions is making an impact.

At the One Planet Summit in December, the World Bank Group committed to ending its finance for oil and gas extraction after 2019 — a first of its kind move that is expected to see other institutions follow suit.

As a member of the World Bank Group, IFC will commit to this announcement, according to IFC spokesman Frederick Jones.

Two other major multilateral development banks, EBRD and EIB, are already reviewing their energy lending and strategies.

Svitlana Pyrkalo, a spokesperson for the EBRD green economy transition, explained that the review will take into account their existing policies on renewable energy. Their consultation process as part of the review — which is currently taking place — will involve discussion with the public and other key stakeholders about new strategies for the road forward.

IFC is also committed to reducing the indirect funding of dirty energy, according to Jones.

“IFC has now begun tracking our clients’ exposure to coal, and evaluating options to work with these exposures, so as to ‘green their portfolios’ and move toward renewable energy,” he said.

Cheap vs. renewable

Despite commitments, there are exceptions to the financial rules.

Jones explained that despite the new policy of the World Bank, IFC would consider exceptional circumstances to financing upstream gas in the poorest countries “where there is a clear benefit in terms of energy access for the poor and the project fits within the countries’ Paris Agreement commitments.”

“The World Bank Group has not financed coal-fired power plants since 2010,” he said. “Under our energy sector directions paper, we would only finance coal plants under rare circumstances, such as when there are no feasible alternatives to meet basic energy needs.”

The World Bank Group, he said, would continue to provide technical assistance to support client countries to strengthen transparency, governance, institutional capacity, and regulatory environment of their energy sectors, “including in oil and gas,” he said.

“Today about 1 billion people — 13 percent of the global population — live without access to electricity, and many more have irregular power service. It will be impossible to make a lasting development impact if families, businesses, and factories lack reliable power. As such, we are helping our member countries find the right energy mix to ensure consistent, adequate power supplies — in the cleanest way possible.”

Pyrkalo explained that for EBRD, providing sustainable, affordable, and secure energy supply to the economies where they invest is a core objective under their Energy Sector Strategy.

“To that end, we appraise all of our projects on the basis of their economic justification and their affordability,” she said.

But price is not a reason for rejecting a renewable solution.

“While in the past renewables required significant subsidies, or surcharges imposed on electricity consumers, in order to be economically viable, the recent drop in the cost of renewable energy technologies such as solar and wind are making renewable energy sources more affordable,” Pyrkalo said.

“And for certain developing countries they are an important low-cost solution to providing energy security and reducing dependence on imported fuels.”

For campaigners, non-renewable solutions should not be an option.

“It's also important to remember that this is not just any finance we're talking about; this is public money, and it's a scarce resource,” Doukas said.

“We must spend every dollar with extreme care if we want to realize a future that fulfills the Sustainable Development Goals, while limiting global warming in line with the aims of the Paris Agreement. In a world that's on track to meet the Paris goals, analysis indicates there's no room for expansion of the fossil fuel industry.”

Development banks as educators

According to Pyrkalo, development banks including EBRD are an important frontline in educating developing governments on the importance of renewable energy and investing in it. Through policy dialogues, they seek to share that knowledge.

“This is an important activity in the EBRD’s operational approach to renewable energy,” she explained.

“First, we engage in policy dialogue with governments and policymakers to promote energy strategies that support decarbonization and promote sources of renewable energy. We also facilitate technical assistance to support the design and implementation of renewable energy frameworks.

“For example, we are currently working with a number of governments and regulators in our region to design competitive procurement of renewable — mainly solar and wind — capacity. And of course we provide financing for renewable energy projects,” Pyrkalo said.

IFC also sees themselves as an educator, according to Jones.

“The World Bank Group works with governments to strengthen energy institutions, develop legal frameworks, and improve policies and regulations, which has helped set the stage for a major expansion of clean energy in countries like Egypt, India, Morocco, and Turkey,” he said.

NGOs need to support the fight for real change

The fight is still far from won, according to Doukas, and an important element in long term and sustainable success are NGOs. Doukas believes that NGOs need to be shown how public finance for fossil fuels is a nonstarter in a carbon-constrained world.

“In a world that's on track to meet the Paris goals, analysis indicates there's no room for expansion of the fossil fuel industry.”

— Alex Doukas, stop funding fossils program director at Oil Change International

“That includes making clear to donors that if they want their resources to be used effectively, that money can't support projects that undermine climate action and prop up big polluters,” he said.

He also wants to see NGOs taking a stand in supporting communities and local organizations that are fighting these projects on the front lines.

“Often, communities most affected by these government-backed dirty energy projects are marginalized, and international NGOs can help make sure the rights of these communities are respected,” Doukas said.

Tyler also called for more NGO action, saying climate change is already affecting much of their work.

“NGOs are talking about climate change as a counterforce to their development work, and are increasingly coming together to push for action from governments and financial institutions,” he said.

Pyrkalo explained that NGOs and other community groups can be influential – particularly in the decisions of EBRD.

“We take the views of civil society into account in our strategic decision-making and in the implementation of strategies and investments,” she said.

“There is a constant dialogue with local communities and CSOs about our projects. The bank’s environmental and social policy makes stakeholder engagement and consultation key elements of the project-appraisal process and ongoing requirements throughout the life cycle of a project. In addition, the bank provides capacity building for its clients to further improve their engagement with local communities and civil society.”

For NGOs, taking on this political fight may be one of the most important investments in achieving their development goals.

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  • %25257b6eb61a8f df39 4ae1 bb29 9056d33aa739%25257d

    Lisa Cornish

    Lisa Cornish is a Devex Reporter based in Canberra, where she focuses on the Australian aid community. Lisa formerly worked with News Corp Australia as a data journalist for the national network and was published throughout Australia in major metropolitan and regional newspapers, including the Daily Telegraph in Melbourne, Herald Sun in Melbourne, Courier-Mail in Brisbane, and online through news.com.au. Lisa additionally consults with Australian government providing data analytics, reporting and visualization services. Lisa was awarded the 2014 Journalist of the Year by the New South Wales Institute of Surveyors.