Banking on Coal in the Global South?

Supporting development means providing energy. At current prices, the cheapest option for many countries is coal, even though burning it contributes heavily to climate change and local pollution. And that has left multilateral development banks with a dilemma: support the cheapest option to fund development, or push more expensive, yet more sustainable renewable alternatives?

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28 April 2010

This dilemma reared its head recently, when the World Bank approved a US$3.75 billion for the Medupi coal power plant in South Africa.

This question brings us, in part, back to questions of growth, development, and rising emissions. As has been noted on Due South , many debates since the recession have focused on the best ways of restoring economic growth to high levels. However, it was argued that this approach was narrow and short-sighted for developed countries whose standards of living are already high, and which are contributing to dangerous climate change.

It is important to differentiate between countries at different levels of development though. Economic growth and the accompanying growth in greenhouse gas emissions remain a moral necessity in developing countries where billions of people are mired in poverty. And the more they grow (and emit), the better able they are to adapt to climate change. According to researcher David Satterthwaite of IIED, people´s capacity to adapt to climate change depends heavily on their countries´ economic development. The real question, however, is what sort of economic development should multilateral banks be supporting?

Dirty energy

Following the recession, the World Bank tripled its lending commitments. At the same time, is not showing continuing to finance fossil fuel projects in a big way. According to the Bretton Woods Project (, 48 percent of the World Banks Group´s energy lending went to fossil fuels between 2007 and 2009, and this figure is likely to be higher when investments made through financial intermediaries are included. While funding for energy varies heavily year on year, analysis by the Bank Information Centre shows that between 2006 and 2008, funding for fossil fuels was five times higher than for renewable energy.

Projects sponsored by the World Bank and International Finance Corporation (IFC) in 2008 will be responsible for well over 2 billion metric tonnes of carbon dioxide emissions, which is equivalent to 7 per cent of global carbon dioxide emissions from the energy sector.

From a conventional development perspective, there is nothing wrong with this. Ultimately, the Bank’s mission is to promote development, and development means rising emissions. Moreover, according to the World Resources Institute, developing countries have contributed only 20 per cent of the historical build-up of carbon dioxide emissions in the atmosphere to date.

In a country like South Africa, which suffers from very high poverty levels and acute energy shortages, and which has access to abundant coal resources, the decision seems like a no-brainer. And in the UK Guardian, Andrew Chambers accused opponents of the loan of ‘the worst type of “eco-imperialism”: where the poor are held back for the benefit of the rich’.

Many may find it reassuring to believe that any opposition to projects like Medupi is simply a bad case of ‘eco-imperialism’. But is it really so simple?

While developed countries do have the overwhelming historic responsibility for climate change, by 2030 emissions from developing countries, mainly middle income ones such as China, India and South Africa, are projected to exceed those from developed countries by 77 per cent.

Decisions that look economically attractive today can lock countries’ future development paths into high carbon development for 40-50 years, building up a whole range of interest groups and sectors which may impede a transition to a more sustainable economy later on.

That has ramifications for poor people living in areas vulnerable to the impacts of climate change, such as flooding or drought. The realisation of this vulnerability has led to a division between middle-income countries who defend their right to high-carbon development, and lesser developed countries who will be the worst affected by climate change.

What trickle?

Development projects like Medupi could only be categorised as ’pro-poor’ if it could be demonstrated that the net benefits to the poor (greater energy access, ‘trickle down’ development, jobs and so on) are greater than the negative impacts (climate change, local pollution, local water consumption) when compared to alternative renewable energy projects.
According to David Wheeler of the Global Centre for Development, renewable energy, which does not contribute to climate change or local pollution, is usually financially preferential to fossil fuels when all factors (such as the costs of damage done by climate change, and the human and economic costs of local pollution) are considered.

Beyond that, this debate requires a rethinking of the real goals of energy projects is long overdue. The World Bank´s lending often supports projects to meet industrial energy demand, and is far more geared towards these demands than to the poor who lack access to energy. In the Medupi case, the principle beneficiaries will be industrial mining and aluminium corporations who receive cheap energy, and primarily export to developed countries.

Therefore, such projects can only be claimed to help the poor indirectly (for example in terms of the jobs created) and by assuming that wealth will ‘trickle down’ once the rich have generated enough. The problem with this approach is that it does not address the needs of the poor directly, and it relies on an ever-increasing use of natural resources fuelling of unsustainable consumption in developed countries.

If the World Bank is serious about addressing the needs of the 1.5 billion people lacking access to modern energy while leading a transition to a sustainable economy, it needs to revisit some of its assumptions. This means lobbying developed countries to fund the additional costs of expanding widespread renewable energy in developing countries, and assuring that projects address the energy needs of the poor directly. Fortunately, a blueprint  for such a transition has just been laid out by the Bank Information Centre, demonstrating that viable alternatives do exist and are achievable.

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