The World Bank Group Energy Sector Strategy
Released: 2013-04-16T00:00:00

Summary: One in five people worldwide lack access to electricity. This is among the many challenges that financial institutions face when providing assistance to lower-income countries in order to promote economic and social development. Access to modern energy sources has the potential to substantially increase worldwide economic growth, creating markets in the developing world for products from the developed world, and vice versa. Filling this need may also result in environmental problems that could threaten development, including an increase in pollution that damages fisheries, reduces farm fertility, poses health risks, and contributes to climate change. In response to these risks, the World Bank Group (WBG) has reported its intentions to revise its strategy for energy and infrastructure lending to better address energy poverty alleviation and environmentally sustainable development. After releasing an Approach Paper in October 2009, and consulting with government and civil society stakeholders from January 2010 to July 2010, a strategy document, Energizing Sustainable Development: Energy Sector Strategy of the World Bank Group (ESS), was presented to the WBG Committee on Development Effectiveness (CODE) on April 11, 2011, for consent and subsequent delivery to the WBG Board of Executive Directors for a vote during the summer of 2011. The ESS, however, stalled during debate in CODE. With the appointment of Jim Yong Kim as the 12th President of the World Bank Group on July 1, 2012, the ESS process was discontinued. Efforts to revise energy and infrastructure lending have since been incorporated into the broader initiatives of the new administration.

The impetus for the World Bank Group's revision of its energy strategy rests on many factors. Over the past several decades, sustainable energy and environmental issues have gained an increasing level of attention in international humanitarian and development assistance, as countries have tried to integrate poverty reduction and economic growth initiatives with a shared concern for the global environment. Further, lack of access to modern energy resources, recurrent supply disruptions, and increased exposure to the risks of global climate change have hindered social and economic development in many lower-income countries. The ESS comprises an initiative to support energy poverty alleviation and environmentally sustainable development with provisions that include deemphasizing coal-fired power generation, developing large-scale hydropower where appropriate, establishing greenhouse gas emissions programs, increasing lending for clean energy projects, promoting energy efficiency initiatives, expanding access to modern energy services, improving household fuel and distributed energy programs, encouraging local community engagement and empowerment, and supporting innovative energy policy.

While some observers of the WBG have applauded provisions in the revised strategy, many claim that the history of the WBG's energy and infrastructure lending undermines its credibility as an institution committed to combating the impacts of environmental degradation and climate change. The United States—through its role as financial contributor to the WBG and as member on the WBG governing boards—has influence on WBG policy. This influence manifests itself through Board votes, general advocacy, reporting requirements, and financial leverage. While the U.S. Administration oversees the day-to-day participation in WBG operations, the U.S. Congress—through its role in WBG appointments, appropriations, and legislative guidance—retains significant input. U.S. guidance to the WBG has focused on the institution's lending practices as a means to induce greater environmental sustainability in multilateral development assistance. The ESS thus becomes another potential vehicle for the U.S. Congress and the U.S. Administration to further address concerns regarding energy and infrastructure lending in lower-income countries.


subsections: section_title: Introduction
paragraphs: Over the past several decades, sustainable energy and environmental issues have gained an increasing level of attention in international humanitarian and development assistance, as countries have tried to integrate poverty reduction and economic growth initiatives with a shared concern for the global environment. This integration is reflected in several international conventions including the 1972 United Nations Conference on the Human Environment (the Stockholm Convention), the 1992 United Nations Conference on Environment and Development (the Rio Convention), the 1992 United Nations Framework Convention on Climate Change (UNFCCC), and the 2002 World Summit on Sustainable Development (the Johannesburg Summit), among others. Donor countries, including the United States, that provide financial assistance to lower-income countries to aid in their economic development, have increasingly targeted projects that address the full range of economic growth indicators. These indicators include financial viability, social inclusivity, and environmental sustainability at both the local and the global level. The World Bank Group (WBG), as the world's largest multilateral lending institution for development assistance, sits at the nexus of these efforts.

As an international organization, the WBG is generally exempt from U.S. law. However, the United States—through its role as a financial contributor to the WBG and as a member on the various WBG governing boards—has influence on WBG policy. This influence manifests itself through voting power on the Board, general advocacy, reporting requirements, and financial leverage. Through these efforts, various U.S. Administrations have focused on the institution's lending practices as a means to induce greater environmental sustainability in multilateral development assistance. Similarly, the U.S. Congress—through its role in WBG appointments, appropriations, and legislative guidance—has significant input on these issues.

Congressional debate over the WBG's environmental practices is long-running. As early as 1983, a campaign to call attention to environmental problems caused by WBG projects was undertaken by several U.S. environmental groups, including the Sierra Club, Environmental Defense Fund, National Wildlife Federation, Natural Resources Defense Council, and others. The U.S. Congress subsequently held hearings on the issues documented by these groups, and began a process that saw annual investigations by a wide range of committees, including those on banking, foreign affairs and foreign relations, appropriations, environment, and others. Witnesses included environmental groups from the United States and affected countries and the U.S. officials charged with directing U.S. participation in the WBG institutions. When asked by Congress to look into the problems identified by environmental groups, U.S. Treasury officials also became concerned about possible negative environmental impacts of WBG projects—a subject that had received little or no official attention at that time.

Beginning in the mid-1980s and continuing to the present, Congress has passed a succession of laws that aim to influence environmental practices at the WBG. Legislative guidance to help direct the U.S. officials in encouraging and promoting sustainability goals at WBG institutions has been included in many authorizing legislations and annual foreign operations appropriations bills. The primary legislative vehicle for U.S. interaction with the WBG has been the International Financial Institutions Act of 1977, as amended ( P.L. 95-118 ), as well as various annual appropriations acts, provisions of which are found in the U.S. Code, Title 22, Chapter 7. The U.S. Code has several sections related to energy and environmental issues at the WBG, including guidance for the sustainable use of natural resources and the protection of the environment, public health, and the status of indigenous peoples in developing countries; requirements for environmental impact assessments and the identification of proposals likely to have adverse impacts; mandates for the creation of information exchange systems among countries and civil society organizations related to the environment; promotions for loans supporting environmentally beneficial policies, projects, and project components; and directives to adopt and implement greenhouse gas accounting in analyzing the benefits and costs of individual projects and ensure the expansion of activities supporting climate change mitigation.

Through the years, the WBG has incorporated guidance provided by the U.S. Congress via the U.S. Executive Directors in various lending reforms and operational policies. In 2009, U.S. environmental guidance—as well as other internal and external pressures—led to the WBG reporting its intentions to revise its decade-old strategy for energy and infrastructure lending. After releasing an Energy Strategy Approach Paper in October 2009, and consulting with government and civil society stakeholders from January 2010 to July 2010, a strategy document, Energizing Sustainable Development: Energy Sector Strategy of the World Bank Group (ESS), dated March 16, 2011, was presented to the WBG Committee on Development Effectiveness (CODE) on April 11, 2011, for consent and subsequent delivery to the WBG Board of Executive Directors for a vote during the summer of 2011. The ESS, however, stalled during debate in CODE. With the appointment of Jim Yong Kim as the 12th President of the World Bank Group on July 1, 2012, the ESS process was discontinued. Efforts to revise energy and infrastructure lending have since been incorporated into the broader initiatives of the new administration.

This report summarizes the provisions of the proposed Energy Sector Strategy of the World Bank Group. It situates the strategy within current WBG lending practices and in response to various stakeholder critiques. A final section outlines issues for Congress.

section_title: Energy Sector Lending at the World Bank
paragraphs: The core mission of the World Bank Group, as stated in its literature and outreach, is poverty alleviation and environmentally sustainable development. Research shows an estimated 1.4 billion people worldwide (i.e., 20% of the world population) are without access to electricity or modern energy resources, and many more face recurrent supply disruptions. Demand for primary energy is estimated to increase by 80% in lower-income countries by 2035, and achieving universal access to electricity is estimated to require an additional annual average investment of $36 billion. Also, approximately 3 billion people continue to rely on traditional solid fuels for heating and cooking, with estimates that nearly 2 million die annually, and many more fall ill, from indoor air pollution caused by this practice. Further, it is speculated that lower-income countries may bear up to 80% of the cost of future damages caused by global climate change. Research suggests that energy-saving policies and low-emission technologies could be ways for meeting future energy needs in a globally sustainable manner as well as for mitigating local environmental problems associated with energy production and use. The WBG claims that achieving these goals could contribute significantly to eradicating poverty and hunger, supporting primary education, promoting gender equity, combating disease, and ensuring environmental stability, as well as increasing entrepreneurial business activities and economic development in lower-income countries.

But World Bank environmental strategies are not without their critics. Throughout the years, many of the WBG's lending practices have supported projects with potentially negative environmental implications. Road construction, large dams, fossil-fuel power generation, mining and extractive industries, and agricultural and forestry projects sponsored by WBG lending have been criticized by many who believe they are not only environmentally destructive, but are often harmful to large segments of the population in the societies they are intended to help (e.g., farm fertility may be harmed by unsustainable agriculture practices, soil may be contaminated by adjacent energy or mining industries, fisheries may be affected by pollution from excess fertilizer use or industrial runoff).
subsections: section_title: Current Practices
paragraphs: World Bank Group lending for energy infrastructure projects totaled $13 billion in 2010. Projects included investment in upstream exploration, new and retrofitted facilities for power generation, transmission and distribution systems, demand side management and energy efficiency programs, and policy and technical advice. Energy lending currently accounts for 17% of the WBG's investment portfolio (see Figure 1 ), and has grown steadily over the past decade (e.g., energy sector lending averaged approximately $2.4 billion annually from 2000-2004, and accounted for roughly 4%-6% of the WBG's investment portfolio during those years). In 2003, at the request of the Board of Executive Directors, WBG management established an Infrastructure Action Plan to revitalize the WBG's engagement with the energy sector. Further, in response to the global financial and economic crisis, the WBG launched the Infrastructure Recovery and Assets Platform in April 2009 (to support counter-cyclical spending on infrastructure) and the Infrastructure Crisis Facility in December 2009 (to ensure the availability of long-term debt to support private infrastructure projects affected by capital shortages). Due in part to these initiatives, total commitments in the sector have grown significantly. Figure 2 presents recent lending figures by energy sector. See also Appendix B for numerical data related to lending by sector, by financing institution, and by geographic region.

The WBG reported that 2010 marked an all-time record in renewable energy and energy efficiency financing, as well as a new record in low carbon financing. Figures for new investment showed a 62% increase in low carbon commitments to $5.5 billion compared to 2009, and low carbon energy financing accounted for 42% of all 2010 commitments. Additionally, 30 out of 34 country assistance and partnership strategies prepared in 2010 addressed climate change and sustainable development. However, critics noted that the WBG's "low carbon financing" category funded fossil fuel projects that supported increased use of "cleaner" fuels to displace more carbon intensive ones. Similarly, focusing solely on the categories for "renewable energy" and "energy efficiency," rather than the broader category for "low carbon," showed a decrease in these sectors' shares of total energy investment, from 39% in 2009 to 26% in 2010. Likewise, while renewable energy and energy efficiency financing established all-time highs in 2010, at $1.6 billion and $1.8 billion respectively, so did new fossil fuel thermal power generation, up to $4.3 billion, a fourfold increase over 2009.

The WBG promoted additional initiatives during 2010 as having supported increased energy access and environmentally sustainable development. These included (1) the World Bank Carbon Finance Unit, which backed 250 projects through the purchase of carbon credits representing a monitored 141 million tons of greenhouse gas emissions; (2) the Climate Investment Funds, a trust-funded global partnership hosted by the World Bank, which assisted countries' transitions toward low carbon and climate-resilient development; (3) the World Bank Forest Carbon Partnership Facility, which mobilized $165 million for capacity building and performance-based payments to pilot projects in forest and land management; (4) the Global Facility for Disaster Risk Reduction and Recovery, another trust-funded global partnership hosted by the World Bank, which promoted the integration of climate risk management into the WBG's development efforts; and (5) the Global Environment Facility, another trust-funded global partnership hosted in part by the World Bank since 1991, which assisted countries with environmental projects related to six areas: biodiversity, climate change, international waters, the ozone layer, land degradation, and persistent organic pollutants.

section_title: Critiques
subsections: section_title: Developing Countries
paragraphs: Many lower-income countries continue to view the WBG primarily as a financial institution to assist in poverty alleviation and economic development, not as an organization to address environmental issues. They may be interested in low-cost, high-growth energy and infrastructure technologies that can rapidly and reliably deliver benefits to their target populations over short time periods. For this reason, they may be concerned that an emphasis on renewable energy, such as solar power, wind, and biofuels, may not sufficiently meet the growing demand for electricity in an affordable and reliable manner. They may view renewable alternatives with skepticism—especially if they are not widely used in industrialized economies—and they may likely prefer more traditional fossil fuel-based options, even if the consequences on long-term sustainability are more damaging. Additionally, they may see efforts by industrialized countries to require measurement, reporting, and verification of greenhouse gas emissions and other environmental pollutants as an unnecessary burden on short-term project development, economic growth, and national sovereignty.

section_title: Developed Countries
paragraphs: There are some segments in higher-income countries that support the economic growth arguments of developing countries, and see little need for investment in low-carbon or renewable energy technologies. Further, some observers are opposed to the practice of foreign aid in general. They argue that grant and loan-based financial assistance is a detriment to economic growth in developing countries because it removes incentives, institutes dependency, and fuels corruption.

Other segments, including recent U.S. Administrations, have generally supported the environmental efforts of the WBG and have followed its progress on such initiatives as (1) the updating and consolidating of its environmental and social safeguard policies into an integrated environmental and social policy framework, (2) the updating of its energy sector strategy, and (3) the development of the "World Bank Framework and IFC Strategy for Engagement in the Palm Oil Sector," which would guide future engagement in the sector following the September 2009 moratorium on new investments. The United States is also seeking to strengthen the IFC's environmental and social performance standards as well as its Policy and Performance Standards on Environmental and Social Sustainability and its Access to Information Policy. The United States continues to work with the World Bank to ensure that its lending practices reinforce efforts to promote lower carbon development pathways, and has recently provided a policy document which suggests baseline requirements for fossil-fuel projects, Guidance to Multilateral Development Banks for Engaging with Developing Countries on Coal-fired Power Generation . (See Appendix C for provisions in the U.S. guidance.) The greatest concern of developed countries often tends to be the dislocation between the WBG's stated policies and its subsequent actions—a dislocation often characterized as a split between its visionary or aspirational flagship studies for external audiences and its internally operational practices. In this regard, some countries suggest that any practical guidance for the WBG's engagement in the energy and environment sector should be grounded in regional and country programs, as well as in its Strategic Framework for Development and Climate Change.

section_title: Environmental Groups
paragraphs: Many environmental observers claim that the history of the WBG's energy and infrastructure lending wholly undermines its credibility as an institution committed to combating the impacts of environmental degradation and climate change. Environmental groups often highlight the inconsistencies between the WBG's rhetoric on climate change and sustainable development and its operational policies and practices. They emphasize that while the WBG may have increased financing for renewable energy and energy efficiency in recent years, its fossil fuel lending still accounts for a large portion of its portfolio (see Appendix B for a comparison of energy sector investments). They argue that the controversy is compounded by the WBG's inability to reach a consensus on the definition of "clean energy technology," retaining provisions for natural gas and ultra-supercritical coal-fired power generation in its sustainability strategies.

Further, some environmental groups contend that the WBG misrepresents its practices when reporting information on energy access, environmentally sustainable development, and clean energy projects. They claim that WBG investment is more heavily weighted in favor of fossil fuels than officially reported because the institutions do not provide accurate accounting for fossil fuel development in such lending categories as "transmission and distribution" and "policy and technical assistance." Likewise, critics claim that the WBG fails to account for fossil fuel investments that are taking place through financial intermediaries (i.e., arrangements for loans or equity financing to a foreign entity such as a local commercial bank, private equity fund, or special government managed fund). Critics suggest that financial intermediary arrangements may represent a substantial portion of WBG funding. For example, the Bank Information Center reports that financial intermediary funding comprises over 40% of investments by the International Finance Corporation, the WBG's private sector lending arm. Finally, critics argue that the WBG misrepresents its lending for energy efficiency and renewable energy technologies, contending that the greater part of these programs are financed through specific donor funds, such as the Global Environment Facility and the Climate Investment Funds, that are not structurally a part of the WBG.

Many observers agree that continued investment by the WBG in fossil fuel energy and infrastructure may have several unintended effects, including (1) counteracting any gains made with the WBG's renewable portfolio, (2) directing resources toward large-scale power generation for industrial use rather than energy access and poverty reduction in poor urban and rural communities, and (3) drawing the WBG's professional and technical staff away from a concentration on energy efficiency and renewable energy activities to remain involved with fossil fuel generation.

section_title: The World Bank Group's "Energy Sector Strategy"
subsections: section_title: Timeline for the Strategy
paragraphs: The core mission of the World Bank Group is poverty alleviation and environmentally sustainable development, as introduced through the Millennium Development Goals. As a reflection of this mission statement, the WBG has sought to devise a strategy for financing energy and infrastructure projects that could best address these two concerns. Over the past few years, through research and analysis both internal and external, the WBG has surmised that a departure from existing energy policy and lending approaches would be required in order to (1) provide adequate, equitable, and reliable energy for future economic development and poverty reduction; (2) extend energy access and support household energy programs; (3) ensure the long-term environmental sustainability of the energy sector; and (4) address global climate change. For these purposes, the WBG set forth to prepare an updated energy sector strategy, as the existing framework—provided in a 1999 document, Fuel for Thought (FFT), and an informal 2001 paper entitled The World Bank Group's Energy Program: Poverty Alleviation, Sustainability, and Selectivity— dated back over a decade. An Energy Strategy Approach Paper was released in the fall of 2009. The WBG held a series of meetings, videoconferences, and other events during a consultations phase from January 2010 to July 2010 in which a reported 2,100 participants from government, civil society, the private sector, and academia were surveyed through 50 face-to-face meetings and 170 written submissions.

The revised strategy, Energizing Sustainable Development: Energy Sector Strategy of the World Bank Group (ESS), was presented to the WBG Board Committee on Development Effectiveness (CODE) on April 11, 2011, for consent and subsequent delivery to the WBG Executive Board for a vote. Prior WBG statements had mentioned a proposed second consultation phase between the presentation to CODE and delivery to the Executive Board. The ESS, however, stalled during debate in CODE. According to the WBG's website, as of April 11, 2011, "The World Bank Group's Board Committee on Development Effectiveness is now reviewing a draft energy sector strategy for the organization. The strategy document will be posted on the website when this review is completed." Posting of the draft strategy is still pending. Some WBG observers have reported that the ESS is to be modified as necessary to reach consensus in CODE, with little or no external consultation, before an informal Board date in July or later. Media reports indicate that the interruption was caused by a stalemate in CODE over provisions in the ESS for coal-fired power generation (i.e., the ESS no longer supports new coal-fired power generation in middle-income countries). Sources report that China and some other countries claimed that the ESS's coal provisions were "discriminatory."

With the appointment of Jim Yong Kim as the 12th President of the World Bank Group on July 1, 2012, the ESS process was discontinued. Efforts to revise energy and infrastructure lending have since been incorporated into the broader initiatives of the new administration.

section_title: Provisions in the Strategy
paragraphs: The WBG states that the ESS is a 10-year strategy document. Provisions are to cover lending and investment activities in all five WBG sub-institutions: the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA), and the International Centre for Settlement of Investment Disputes (ICSID). The ESS, however, would not cover activities at the regional development banks (i.e., Inter-American Development Bank, African Development Bank, Asian Development Bank, and European Bank for Reconstruction and Development), the International Monetary Fund, or other independent, international financial institutions.

The March 16 draft text of the ESS contains the following provisions, among others:

Focusing on Alternatives to Coal-Fired Power Generation. The ESS aims to focus on ways to help countries identify alternatives to coal. The strategy calls for eliminating loans for all new coal-based power generation projects (i.e., "greenfield" projects) in middle-income countries (i.e., IBRD and Blend countries). (See Appendix A for WBG "IBRD," "Blend," and "IDA" country classifications; the distinction reflects the level of income and the credit-worthiness of a country). The strategy supports consideration for new coal-based power generation projects in IDA countries under strict compliance with WBG guidelines. The strategy also maintains financing to increase the efficiency of existing coal plants (i.e., "brownfield" projects), to be undertaken only after considering the impact of greenhouse gas emissions over the lifetime of the power plant. Further, the strategy approves natural gas projects that can demonstrate a lower emissions potential compared to available alternatives and that can serve as a base-load complement to intermittent renewable energy generation. Developing Large-Scale Hydropower Where Appropriate. The ESS allows consideration of large-scale hydropower projects in developing countries that conform to environmentally and socially sustainable criteria. The WBG describes its support for hydropower as a means to provide low-emissions electricity, expand markets, facilitate interconnected power systems, and tap the potentially large and cost-efficient resources available to lower-income countries, particularly in Sub-Saharan Africa and South Asia. Establishing Greenhouse Gas Emissions Analysis Programs. The ESS proposes to begin a greenhouse gas emissions analysis program for all new power generation projects starting in 2012 and for all other energy investment projects once methodologies have been developed. The WBG describes its support for greenhouse gas monitoring as a means to address global climate change, generate and transfer knowledge, identify opportunities for energy diversification, and help access low carbon financing. Increasing Lending for Clean Energy Projects. The ESS aims to substantially and steadily increase lending for clean energy projects, raising its share of investment in projects classified as "energy efficiency," "renewable energy," "energy policy," and "electricity transmission and distribution" from an average of 67% in 2008-2010 to over 75% by 2015. Currently the number of governments that have set policy targets or introduced incentives for renewable energy has doubled since 2005 and now exceeds 100; half of these are in lower-income countries. The WBG describes its support for a shift toward low carbon energy technologies as a means to address sustainable development and global climate change. Prioritizing Energy Efficiency Initiatives. The ESS aims to assist countries in designing incentives and removing technical and non-technical barriers to increase energy efficiency in all economic sectors. Estimates show that considerable scope exists for energy efficiency improvements in all countries, with the International Energy Association supporting scenarios wherein efficiency improvements could provide 67% of energy-related greenhouse gas reductions in 2020, and 47% in 2035. The WBG describes its support for improving energy efficiency as a means to address global climate change, lower energy demand, enhance reliability, potentially make energy more affordable to the poor, and reduce the vulnerability of the energy sector to external shocks and supply constraints. Expanding Access to Modern Energy Services. The ESS aims to provide reliable access to modern energy services at the lowest price financially viable and sustainable for energy suppliers. Current WBG projects in the energy sector between 2012 and 2015 are targeted to extend access to 25 million to 30 million people. The ESS proposes to extend additional access to 65 million to 80 million people through commitments made between 2012 and 2020, including construction of 8-12 gigawatts of additional generation capacity in Sub-Saharan Africa. The WBG describes its support for expanding access as a means to provide basic services, enhanced opportunities for education and health care, and greater entrepreneurial opportunities for developing economies. Improving Household Fuel and Distributed Energy Programs. The ESS aims to expand programs in household energy to increase the quality of energy services and decrease the impacts of energy poverty. The ESS proposes to promote initiatives such as solar-based energy services, high-performance cook-stoves, sustainable production of biomass-based energy, and other distributed energy supply options. The WBG describes its support for improving household fuel sources as a means to free families and communities from the debilitating health burdens exacted by indoor air pollution and to alleviate the impacts of energy poverty on women, children, and socioeconomic groups that may pay higher costs (in terms of time, labor, and finances) for these services. Encouraging Local Community Engagement and Empowerment. The ESS aims to harness the benefits of local community participation in terms of improving design, mobilizing contributions, and increasing local ownership and operational sustainability. Gender equity is also promoted. Promoting Innovative Policy. High and volatile fuel prices, energy shortages, and a continuing inability to finance essential energy infrastructure continue to affect development finance in lower-income countries. The ESS aims to promote innovative policy tools, transparent market designs, new financial models and instruments (including carbon markets), strengthened governance across energy supply chains, and private sector participation to address investment barriers.

section_title: Reactions to the Strategy
paragraphs: While the World Bank Group may function independently as a lending institution and technical consultant, its funding remains tied to the financial contributions of donor country governments. This fact necessarily puts a limit on the WBG's resources. Due to these limitations, questions regarding the ways and means of financial disbursements become substance for debate among the lending institutions, contributing governments, recipient countries, and civil society stakeholders (e.g., questions include the following: How best to use scarce resources? Which countries and which projects receive funding? Why?). Policies such as the ESS position the WBG between outspoken environmental groups that advocate for substantial reform, higher-income countries like the United States that support raising the bar for environmental and social safeguards, and lower-income countries that insist on having the ability to address poverty alleviation and economic development as they see fit. Some of the critiques by various stakeholders regarding the WBG's energy lending practices in general and the ESS in particular are as follows:
subsections: section_title: Developing Countries
paragraphs: The media report that reactions by lower- and middle-income countries to the March 16 draft of the WBG ESS centered primarily around the language on coal. Sources report that China and some other countries claimed the ESS's coal provisions were "discriminatory." In a recent interview with Environment & Energy Publishing, Rogério Studart, the World Bank Executive Director for Brazil, is reported as stating that the agency's plan to prevent middle-income countries from accessing loans for new coal plants, while still allowing them for the poorest countries, is "a dangerous precedent." He claims that banning coal would only hurt the poorest countries that currently cannot afford cleaner or renewable alternatives. He argues that "some countries cannot provide energy access, particularly in Africa, without coal, and the Bank knows that." Some countries also raised concerns over the WBG's reliance on markets and the private sector as the principal means of developmental assistance delivery, and said the WBG should do more to promote technology transfer for renewable energy and energy efficiency.

section_title: Developed Countries
paragraphs: Most of the provisions outlined in the March 16 draft of the WBG ESS are consistent with policy guidance that has been provided by higher-income, donor country governments. With respect to the United States government, the IDA-only criteria for new coal-fired power generation, and the provisions for more efficient brownfield coal retrofits, are consistent with the December 2009 U.S. Treasury Guidance to Multilateral Development Banks for Engaging with Developing Countries on Coal-fired Power Generation . (See Appendix C for provisions in the U.S. guidance.) Further, the greenhouse gas accounting is consistent with legislative mandates given in the Supplemental Appropriations Act of 2009 ( P.L. 111-32 ). Language on increased energy access and promotion of renewable energy alternatives is also consistent with many previously legislated mandates. The United States has commonly supported large-scale hydropower projects if they are accompanied by substantial upstream and downstream environmental and social accounting.

section_title: Environmental Groups
paragraphs: Media and nongovernmental organizations report that reactions to the March 16 draft of the WBG ESS by environmental groups has been generally positive. The coal provisions are seen as a victory by many (although some have advocated for eliminating coal investments entirely). Other groups have stated they remain concerned about possible loopholes in the strategy. These include (1) a failure to define "brownfield," leaving open the possibility for wider coal lending; (2) a push to fund "emerging technologies," causing concern over whether that definition would allow the WBG to loan money for carbon capture and storage development (an implicit support for coal); and (3) continued emphasis on hydropower, prompting concerns over the environmental and social impacts of more large dams. Continued stakeholder engagement is also desired by the environmental community.

section_title: Issues for Congress
paragraphs: The proposed Energy Sector Strategy before the World Bank Group Committee on Development Effectiveness and the Board of Executive Directors is a potential vehicle for the U.S. Congress and the U.S. Administration to address concerns regarding energy and infrastructure lending in lower-income countries and its effect on poverty alleviation and environmentally sustainable development. Whether the provisions in the March 16 draft of the ESS are retained in the final version depends upon negotiations currently taking place in CODE and in the subsequent vote by the Board of Executive Directors. WBG debate on the ESS also coincides with several other institutional initiatives, including (1) the drafting of a coordinated set of environmental and social safeguards, (2) the introduction of a new results-based lending platform, and (3) the request for increases in its capital base to fund the continued expansion of its development lending programs. The final version of the ESS may influence negotiations on any of these initiatives, and vice versa. Further, authorizations and appropriations for U.S. participation in the capital increases at the WBG are currently included in the U.S. Administration's FY2012 budget request. Levels of U.S. funding for the capital increase may likewise influence negotiations on these initiatives.

The United States carries one—albeit a significant—voice and vote in the policies of the WBG. The U.S. Congress retains the role of deciding the overall terms of U.S. involvement in the WBG by setting the level of U.S. contributions and by influencing how the United States votes on policies and projects. The House Committee on Financial Services (Subcommittee on International Monetary Policy and Trade) and the Senate Committee on Foreign Relations (Subcommittee on International Development and Foreign Assistance, Economic Affairs, and International Environmental Protection) are responsible for managing WBG authorization legislation. The U.S. House and Senate Committees on Appropriations (Subcommittees on State, Foreign Operations, and Related Programs) manage the relevant appropriations legislation. Congress can enact legislative mandates that oversee and regulate U.S. participation in the WBG. These mandates fall into one of four main categories. First, legislative mandates direct how the U.S. representatives at the WBG can vote on various policies and projects. Second, legislative mandates direct the U.S. representatives at the WBG to advocate for specific policies. Third, Congress may require the Secretary of the Treasury to submit reports on WBG activities. Fourth, Congress may attempt to influence policies at the WBG through the "power of the purse," that is, by withholding funding from the WBG or attaching stipulations on the WBG's use of funds.

Appendix A. World Bank Group Classifications

WBG institutions base their lending on levels of economic development.

Appendix B. World Bank Group Energy Portfolio, FY2003-FY2010

Appendix C. U.S. Department of the Treasury Guidance to the Multilateral Development Banks on Coal

In December 2009, the U.S. Treasury Department transmitted to the senior management of the multilateral development banks (MDBs) guidance for engaging with developing countries on coal-fired power generation. The guidance is intended to be adapted by individual MDBs and incorporated into their respective operational policies, country and sector strategies, and other procedures that are related to the public or private project cycle for coal-powered generation operations. It covers a range of issues including alternatives analysis, power sector policy reform, and capacity building. It is intended to supplement rather than supersede other MDB operational policies (e.g., environmental impact assessment, other environmental and social safeguards, procurement) and to be used to help determine U.S. interactions with the MDBs as they update relevant sector strategies and operational policies. Provisions in the guidance include the following, among others:

having the MDBs incorporate procedures to ensure full consideration of no or low carbon options before appraising a proposed new or retrofit coal-fired power generation project; identifying "no or low carbon options" as including (1) more carbon efficient fossil fuel generation, (2) renewable resources, (3) supply side efficiency improvements in other plants, and (4) demand side management; supporting the use of best internationally available technology for reducing GHG emissions if proceeding with appraisal of a new or retrofit coal generation project; for projects in IBRD and Blend countries, incorporating offsetting actions (i.e., a package of significant and measurable actions elsewhere in the power sector that, in the aggregate, are intended to reduce emissions by an amount equivalent to the emissions to be added by the proposed project); and, for projects in IDA-only countries, proceeding with appraisal of a coal project that does not meet the above best available technology criteria, if the project (1) addresses critical national energy security needs, (2) responds to national short-term emergencies, or (3) overcomes binding constraints on national economic development when no viable alternatives exist.


Question-summary annotations: questions: question: How does worldwide electricity lack affect financial institutions?
answer: One in five people worldwide lack access to electricity. This is among the many challenges that financial institutions face when providing assistance to lower-income countries in order to promote economic and social development.
child_questions: question: How might access to modern energy sources to such countries assist economic growth?
answer: Access to modern energy sources has the potential to substantially increase worldwide economic growth, creating markets in the developing world for products from the developed world, and vice versa.

question: How might access to modern energy sources to such countries create new issues?
answer: Filling this need may also result in environmental problems that could threaten development, including an increase in pollution that damages fisheries, reduces farm fertility, poses health risks, and contributes to climate change.
child_questions: question: How has the WBG responded to these risks?
answer: In response to these risks, the World Bank Group (WBG) has reported its intentions to revise its strategy for energy and infrastructure lending to better address energy poverty alleviation and environmentally sustainable development.

question: What documents has the WBG released to acknowledge these risks?
answer: After releasing an Approach Paper in October 2009, and consulting with government and civil society stakeholders from January 2010 to July 2010, a strategy document, Energizing Sustainable Development: Energy Sector Strategy of the World Bank Group (ESS), was presented to the WBG Committee on Development Effectiveness (CODE) on April 11, 2011, for consent and subsequent delivery to the WBG Board of Executive Directors for a vote during the summer of 2011.

question: How did the appointment of Jim Yong Kim as President of the WBG affect the ESS process?
answer: With the appointment of Jim Yong Kim as the 12th President of the World Bank Group on July 1, 2012, the ESS process was discontinued.
child_questions: question: How have energy and infrastructure issues been addressed since then?
answer: Efforts to revise energy and infrastructure lending have since been incorporated into the broader initiatives of the new administration.

questions: question: Why must the World Bank Group revise its energy strategy?
answer: The impetus for the World Bank Group's revision of its energy strategy rests on many factors.
child_questions: question: What factors does this include?
answer: Over the past several decades, sustainable energy and environmental issues have gained an increasing level of attention in international humanitarian and development assistance, as countries have tried to integrate poverty reduction and economic growth initiatives with a shared concern for the global environment. Further, lack of access to modern energy resources, recurrent supply disruptions, and increased exposure to the risks of global climate change have hindered social and economic development in many lower-income countries.

question: What does the ESS comprise?
answer: The ESS comprises an initiative to support energy poverty alleviation and environmentally sustainable development with provisions that include deemphasizing coal-fired power generation, developing large-scale hydropower where appropriate, establishing greenhouse gas emissions programs, increasing lending for clean energy projects, promoting energy efficiency initiatives, expanding access to modern energy services, improving household fuel and distributed energy programs, encouraging local community engagement and empowerment, and supporting innovative energy policy.

questions: question: What is the WBG criticized for?
answer: While some observers of the WBG have applauded provisions in the revised strategy, many claim that the history of the WBG's energy and infrastructure lending undermines its credibility as an institution committed to combating the impacts of environmental degradation and climate change.

question: What is the relationship between the United States and the WBG?
answer: The United States—through its role as financial contributor to the WBG and as member on the WBG governing boards—has influence on WBG policy.
child_questions: question: How does this influence manifest itself?
answer: This influence manifests itself through Board votes, general advocacy, reporting requirements, and financial leverage.

question: How is this influence shared between Congress and the Administration?
answer: While the U.S. Administration oversees the day-to-day participation in WBG operations, the U.S. Congress—through its role in WBG appointments, appropriations, and legislative guidance—retains significant input.

question: What has US guidance to the WBG focused on?
answer: U.S. guidance to the WBG has focused on the institution's lending practices as a means to induce greater environmental sustainability in multilateral development assistance.
child_questions: question: What does this entail for the ESS?
answer: The ESS thus becomes another potential vehicle for the U.S. Congress and the U.S. Administration to further address concerns regarding energy and infrastructure lending in lower-income countries.