As officials gather for this year’s World Bank Spring Meetings in Washington, D.C., we are reminded that development banks are major players in the global economy, with total assets of more than $1.5 trillion.
Last year, an International Panel on Climate Change report warned the world that we only have a few years left to meet the climate target of 1.5 degrees Celsius set under the Paris Agreement. Development banks already committed to align with climate goals. So how can development banks use their financial power to get the world on track to 1.5 degrees?
More from the World Bank Spring Meetings
While it is reassuring to see the new World Bank President Malpass indicate that climate change remains a priority, the actions that come next will be the test. Regardless of leadership changes, development banks must develop a strong framework for aligning with the Paris accord that aims for 1.5 degrees.
Reaching net-zero emissions means human emissions need to be in balance with the amount absorbed by forests. This is needed to stabilize the climate system. Even if we overshoot the 1.5 degree temperature target, we are going to have to reach net-zero emissions at some point. If not, the world will carry on warming, causing devastation to our coral reefs and small island nations.
Getting on track to 1.5 degrees
One approach to align with the climate goals comes from Dutch development agency FMO, which has committed to align its portfolio with 1.5 degrees. Its approach involves accounting for emissions in energy and land use projects. This may also be suited to private sector banks, and could help ensure banks do no harm through their lending.
Going beyond an approach to “do no harm,” development banks can also play a role in proactively targeting investments which are needed for a 1.5 degree pathway.
Ensuring a project has low-emissions does not necessarily mean that the bank is actively investing in the right places to take us toward 1.5 degrees. A proactive approach would involve identifying strategic investments that are needed to support the transition.
Interestingly, not all investments that take us to 1.5 degree world will be “zero carbon” initially. We might need to build infrastructure such as railways or metros, energy storage, or grid interconnectors, which could cause emissions during construction but will ultimately lower emissions.
What world do we need in 2050?
Some countries and cities have already laid out plans to reach this ambitious climate target. In 2017, the City of New York became the first city to devise a 1.5 degrees climate action plan. Part of the plan will require the city’s least energy-efficient buildings to replace fossil fuel equipment and install efficiency upgrades.
None of the “big six” development banks has yet laid out a strategic roadmap toward 1.5 degrees, like New York City has done.
We have 31 years to 2050, and much of the infrastructure built today has a lifespan of 30 years or more. That means development banks need to stop financing fossil fuel infrastructure unless it can be transitioned later to a zero-carbon alternative.
To get to a net-zero economy, we will need to decarbonize transport and heating — switching to electric buses, cars, and trains. A 100 percent renewable energy grid will require grid-balancing, and efficient, smart technologies. The development banks will also need to support more efficient buildings — to cope with projected heatwaves — as well as heat pumps or district heating systems in cooler areas.
What’s more, there are implications of climate change for food. Meat demand is still rising in some places and livestock is a major contributor to emissions. Animal feed crops destroy forests and take up space which could otherwise be used for trees which absorb carbon. Subsidy reform and plant-based diets will help both people’s health and the planet.
Development banks also provide technical advice to governments. The recent statement by development banks on alignment with the Paris goals recognized these banks can play an important role providing advice on long-term strategies.
Aiming for the best but preparing for the worst
While we must aim for 1.5 degrees, the safest level for many small islands — we may not get there. The world will have to be resilient to higher levels of warming as a precaution.
Even at 1.5 degrees, we can expect major disruption to coral reefs and vulnerable areas. Under any scenario, development banks ought to play a role in identifying threats and supporting countries with plans to adapt.
Some communities such as in the coal sector will feel disenfranchised by the energy transition if there are no alternatives to their original jobs. Development banks and international agencies can try to help support a fair transition.
Announcing an intention to align with 1.5 degrees would be a great first step. Studies could be done to identify strategic investment needs — and bank staff could consider the implications of net-zero world for their work.
The science tells us this to be done as soon as possible if we are going to avoid the worst impacts of the climate crisis.