Coal-Power Financing Minimized in World Bank Energy Policy

The World Bank plans to restrict its financing of coal-fired power plants to “rare circumstances,” according to a draft strategy that reflects the lender’s increased focus on mitigating the effects of climate change.

The Washington-based lender will help countries find alternatives to coal, according to the draft obtained by Bloomberg News which lays out the bank’s policy on lending to its member countries. The paper, which is subject to revision, describes universal access to energy as a priority for the World Bank’s mission to help end poverty.

The bank “will cease providing financial support for greenfield coal power generation projects, except in rare circumstances where there are no feasible alternatives available to meet basic energy needs and other sources of financing are absent,” according to the report. Greenfield is a term for a new facility.

“Private-sector finance will be the preferred option, but where the World Bank Group does engage, the existing screening criteria for coal projects will apply,” according to the undated report, titled “Toward a Sustainable Energy Future for All: Directions for the World Bank Group’s Energy Sector.”

The World Bank, which lends to the developing and emerging economies among its 188 members countries, committed $8.2 billion to finance energy projects in the 12 months through June 2012, according to its website. Of that, $3.6 billion was for renewable energy.

July Discussion

World Bank spokesman Frederick Jones said the paper was submitted to board members ahead of discussion in July. The bank’s objectives include “universal access to electricity and safe household fuels,” doubling the share of renewable energy in the global energy mix and doubling the rate of energy-efficiency improvement, he said in an e-mail yesterday.

The guidelines, circulated to member countries two years after a failed attempt to limit coal financing to the poorest nations, reinforce President Jim Yong Kim’s pledge to ease the impact of climate change. The bank has not financed a major coal project since 2010, though it is studying whether to offer partial guarantees for a lignite-fired power plant in Kosovo.

“This plan could be a major boost in the transition needed from fossil fuels to renewable energy sources in the fight against the climate crisis, in a way that prioritizes the interests of poor people,” said Nicolas Mombrial, head of the development charity Oxfam’s Washington office. The bank now needs “improved environmental and social assessments” for its energy loans, he said.

Efforts to mitigate the risks associated with climate change were reinforced yesterday by President Barack Obama’s plan to curb carbon emissions, which he called a central global challenge of the 21st century, in the U.S.

‘Reliable’ Supply

The World Bank “recognizes that each country’s transition to a sustainable energy sector involves a unique mix of resource opportunities and challenges,” according to the draft. “Every effort will be made to minimize the financial and environmental costs of expanding reliable energy supply.”

World Bank energy projects approved this year include a $35 million electricity expansion inside and outside Liberia’s capital; a $302 million program in Turkey to improve the energy efficiency of businesses; and a $31 million plan aimed at reducing carbon emissions from buildings in China, according to the bank’s website.

The bank in the draft said it will scale up its engagement in natural gas while being “committed to the responsible development of hydropower.” It will not finance nuclear plants.

‘Very Controversial’

Kim’s view “is that coal is on its way out and that the bank can help bring about new, cleaner energy sources with the investments that it makes, that it’s big enough that it can move things toward cleaner energy sources,” Steve Radelet, a professor at Georgetown University in Washington and a former deputy assistant secretary at the U.S. Treasury Department, said in an interview. “That’s going to be very controversial.”

The U.S. is the bank’s largest shareholder. A representative of the U.S. mining industry said fewer coal plants around the world means fewer American jobs.

“To the extent that you’re preventing the world from using coal, you’re preventing the U.S. from creating jobs to mine it and export it,” said Luke Popovich, a spokesman at the National Mining Association in Washington. “The economic pain of it will fall disproportionately on working people.”

Popovich said the U.S. will lose coal mining jobs as a result of a smaller export market. The association’s members include Peabody Energy Corp. (BTU), the largest U.S. coal producer.

The U.S. exported a record 125.7 million tons of coal last year, the third straight year of more than 100 million tons of exports of the power-plant fuel and steelmaking component, according to the U.S. Energy Information Administration.

To contact the reporter on this story: Sandrine Rastello in Washington at srastello@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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