WASHINGTON — The World Bank and other multilateral development banks are trying to come up with a shared definition of what it means to “align” with the Paris climate agreement.
In the past year, the World Bank has committed to significant new climate targets, including doubling its climate finance for the next five years to roughly $200 billion and significantly increasing its support for climate change adaptation. Those commitments, while welcomed by climate activists, do not automatically mean the bank’s overall portfolio is aligned with the goals of the Paris Agreement.
“We can’t say yet today — are we really Paris aligned? The methodologies ... are still evolving.”— Peer Stein, senior adviser and global head of climate finance, IFC
The World Bank and other multilateral development banks have sought to position themselves at the forefront of financing climate action, supporting a wide range of activities in low- and middle-income countries. They are now under pressure to show that the big picture of their investments is helping put countries on low-carbon pathways that can make the Paris Agreement targets a reality.
The first challenge is to arrive at a shared understanding of what “Paris alignment” means for the multilateral development banks.
At the United Nations Climate Summit in September, the banks issued a joint statement, which included a commitment to “develop a new transparency framework to report on both the impact of each MDB’s activities and how these are helping clients meet and exceed commitments they have made.” They plan to present that framework at the upcoming U.N. climate conference in Santiago, Chile.
The banks have convened a working group — which will hold one of its meetings on Thursday — that is trying to grapple with some of these questions.
The World Bank chief has outlined a growing country focus and called on countries to make structural reforms and to create the building blocks for successful private sectors.
“Defining what ‘Paris alignment’ means is actually very complicated,” said Genevieve Connors, practice manager for strategy and operations at the World Bank, at a Civil Society Policy Forum session on Wednesday.
It is difficult for MDBs to come up with institutional positions about what exactly the Paris Agreement requires because this can vary significantly from one country to the next, according to bank officials. The agreement is based on a system of “nationally determined contributions,” so what helps one country progress towards a zero-carbon economy might represent a step in the wrong direction for another.
“It’s very hard to come to a definitive list of what counts as in or out that applies to all countries, because all countries are on different transition pathways to get them to net-zero carbon by 2050,” Connors said.
For the bank, that means financing a project that includes significant carbon emissions in one country might be consistent with the goals of the Paris Agreement — depending on how the global carbon budget is allocated — while the same project somewhere else might amount to propping up a harmful carbon-emitting industry.
“We can’t say yet today — are we really Paris aligned? The methodologies around really determining that are still evolving,” said Peer Stein, senior adviser and global head of climate finance at the International Finance Corporation.
The World Bank is required to quantify greenhouse gas emissions for any project deemed to have produced more than 25,000 metric tons of carbon dioxide equivalent annually — the institution’s benchmark for “significant emissions.”
“That does not yet tell you whether these are aligned or not aligned with the Paris Agreement,” Stein said.
“That depends on the industry trajectories that you assume [and] how ... you break down our global carbon budget to respective countries — and so it becomes a little more complex and complicated to really then say, are you really Paris-aligned,” he said.
Some climate activists would like to see the World Bank and its peer institutions take a simpler and bolder stance on financing carbon-emitting projects — and they question the “added value” of the World Bank using its public resources for projects that prolong fossil fuel dependence.
“The World Bank and other MDBs would be better served in investing in research and policy frameworks that provide the technical support for more rapid transitions to low-carbon economies in [International Bank for Reconstruction and Development] and [International Development Association] countries,” Jon Sward, environment project manager at the Bretton Woods Project, told Devex by email.
“The notion that gas is a bridge fuel lacks rigour: Analysis shows we need a managed drawdown on all fossil fuels in order to meet the goals of the Paris Agreement, and investments in fossil fuels in low-income, poor countries could come at the expense of renewable energy sources which are increasingly cheaper, in addition to being less polluting,” Sward wrote, adding that the World Bank, “should join the propositional debate about the global Green New Deal, rather the clinging to the business as usual paradigm.”
Regardless of how the multilateral development banks define Paris alignment, it is clear the stakes are high for the World Bank to prove it can play a leading role in supporting LMICs toward their climate targets.
“The world community came together to decide on these objectives, and now the World Bank is the institution to help implement what needs to be done in developing countries,” said Jürgen Zattler, Germany’s executive director for the World Bank.
He added that from Germany’s perspective, if the bank fails to deliver in that role it would “lose a lot of its legitimacy.”
“We would have to direct these efforts to other institutions. It’s not clear exactly which one, but for us, it’s a key issue,” Zattler said.