A clean energy pathway

The developing world needs energy; and the whole world needs to tackle climate change. Robert Watson explains how the World Bank’s proposed investment framework aims to meet both objectives

At its spring meeting in Washington last month, the World Bank released its much anticipated Clean Energy and Development: Toward an Investment Framework report. The paper is the outcome of a process that began at the G8 meeting at Gleneagles last July, when the Bank was charged with proposing an investment framework for clean energy and development.

This framework is intended to accelerate investment so that developing countries can meet energy demands for development and poverty alleviation in an environmentally sustainable way. As a first step, a World Bank team prepared this document in consultation with other international financial insitutions, the private sector, experts and civil society.

Two stark realities shape its content – the pressing energy needs of hundreds of millions of people in the developing world, and the urgent imperative to tackle climate change. The document identifies three interrelated and complementary issues:
 the need for investing in modern energy in developing countries over the long term in a way that takes into account efficiency and local environmental considerations;
 the additional steps needed in the energy, transport and industrial sectors to address climate change mitigation through the reduction of greenhouse gases (GHGs); and
 the need for developing countries to adapt to changes in climate and weather variability.

Without access to modern and sustainable energy services, poor people are deprived of opportunities for economic development and improved living standards

Worldwide, nearly 2.4 billion people use traditional biomass fuels – wood, agricultural residues and dung – for cooking and heating, and nearly 1.6 billion do not have access to electricity. Without access to modern and sustainable energy services, poor people are deprived of opportunities for economic development and improved living standards.

Clean energy for development will mean: access for developing countries to affordable and reliable energy services; energy sector policy reform to stimulate the investment needed; the strengthening of energy security; and help in transferring the multitude of energy production and use technologies that exist from North to South and, in some cases – such as biofuel technologies from Brazil – from South to South.

Meanwhile, addressing climate change will require mitigating GHGs and adapting to the impact of climate change now. The incremental costs of mitigating GHG emissions globally is estimated to range from less than $10 billion per year to up to $200 billion per year depending on the GHG stabilisation target, the pathway to stabilisation, and the underlying development pathway of countries.

Numerous technologies are already commercially available and some will soon be available to reduce emissions including, for example, new thermal power plants (such as integrated gasification combined cycle plants) coupled with carbon capture and storage, and modern renewable energy technologies (eg, solar, wind and biofuels). All this will require innovative financing mechanisms that could complement existing ones.

Some that hold promise, and are proposed in the investment framework document, include:
 a clean energy financing vehicle, which could "buy down" the costs of new technologies and energy infrastructure and mitigate technology risks by blending grants, carbon finance and providing funds to collateralise clean energy technologies;
 a power rehabilitation financing facility, which could enable developing countries to rehabilitate inefficient plants without loss of power;
 project development funds with both public and private sector participation could be considered for project development; and
 venture capital funds for technology adoption could introduce dedicated venture capital funding to provide financing for promising new and clean energy technologies and to assist their penetration in the marketplace.

What is now the threat of climate change could become the opportunity of the developing world

Adaptation will require the transfer of existing technologies, the development of new technologies and the revision of planning standards and systems. For example, hydrological and biological resource management projects will have to undergo "climate screening", to ensure that they will be able to withstand the effects of global warming on oceans and weather systems. Agriculture around the world, but especially in developing countries, will have to be "climate proofed" through the development of a new generation of drought and water-resistant seeds and breeds. The incremental annual costs to adapt to potential climate change lie anywhere between $10 billion and $40 billion a year.

However, unless there is a long-term regulatory framework driving the transition to a low-carbon economy, any attempt at mitigation is unlikely to work. To deal with the scale of investment needed to tackle climate change, it is imperative that a long-term, stable and predictable regulatory system be established. Ideally, a regulatory system should be established that reaches out to 2050, and should also be credible, recognising the concept of differentiated responsibilities.

With such certainty, what is now the threat of climate change could become the opportunity of the developing world. With carbon finance alone, depending on the targets for emission reductions and the regulatory system put in place, carbon finance could be, over the long term, a source of tens of billions of dollars a year of supplemental investment for developing countries.

Meeting energy needs for the developing world and dealing with climate change go hand in hand. The paper concludes that the global community today is working towards a potential "double dividend", by meeting the energy needs that are essential for economic development and fighting poverty, while at the same time leaving a smaller environmental footprint.

Robert Watson headed the team that produced the framework document and is chief scientist at the World Bank in Washington, DC.

E-mail: rwatson@worldbank.org