China, India and others hit back at new U.S. coal rules
A memo from the U.S. Treasury Department laying out conditions for supporting new coal projects at MDBs has angered several other shareholders in the World Bank. Nine executive directors objected that they were being cut off from financing for cheap coal while the U.S. still produces 26% of coal generated electricity worldwide.
By Lisa Friedman | E&E News in Bank Information Center | 25 January 2010
An Obama administration attempt to discourage the World Bank from loaning money for new coal-fired power plants has set off a firestorm among developing nations.
In a Jan. 13 letter to World Bank President Robert Zoellick obtained by ClimateWire, nine executive directors representing a total of 90 nations called the U.S. plan "inequitable and unacceptable." They also accused the United States, which is the largest shareholder in the World Bank, of bulldozing other countries by taking the proposal directly to Zoellick without first discussing it with others.
"We are very concerned about these developments as they indicate an unhealthy subservience of the decision making process in the Bank to the dictates of one member country brought about in an opaque and non-inclusive manner," the executive directors wrote.
At issue are guidelines the U.S. Treasury Department published in December on lending for coal-fired power generation. It calls for the World Bank to "remove barriers and build demand for no or low carbon resources" in borrowing nations.
Doing so, the agency wrote, would involve helping countries build the technical and institutional capacity to evaluate the types of clean energy that might meet local power needs. It also might mean providing loans to "level the playing field" for clean energy if officials determine that fossil fuel subsidies in a country bias investment toward dirty fuel projects.
The Treasury recommendations do not rule out lending for new coal plants. But the guidelines do insist that the World Bank try to identify cleaner alternatives when a fossil fuel plant is proposed; that the bank find ways to help cover the cost difference between the dirty and clean project; and that it ultimately should fund the dirty project only if after "substantial effort" the incremental funding can not be obtained.
While written to help steer the decisions of U.S. shareholders at the bank, a Treasury spokeswoman said the agency hopes to see the guidelines incorporated bankwide.
Developing countries cling to coal
But China, India and others already are pushing back hard. They argued in their letter that the World Bank's first priority is alleviating poverty. To that end, they said, increasing access to energy -- specifically plentiful and inexpensive coal-fired energy -- is vital.
"The Bank should be concerned about climate change only to the extent it impinges upon the efforts of the developing countries toward achieving poverty alleviation and economic growth," the directors wrote.
Insisting bank financing be available only for more expensive clean energy projects, they argued, amounts to a backdoor attempt to pressure developing countries to reduce their greenhouse gas emissions.
Meanwhile, they pointed out, the United States produces 26 percent of the world's total coal-fueled electricity generation.
"If the U.S. had indicated its intention to retire its coal based power plants for replacement by renewable energy to free up space in the global commons to enable poorer countries to set up coal-fueled power plants to access cheaper electricity, the developing world would have welcomed such an initiative," the directors wrote.
But the directors didn't just object to the substance of the coal recommendations. They also bristled at the way U.S. officials went about introducing the recommendations.
Three senior World Bank officials who spoke on the condition that neither their names nor countries be identified, said Treasury sent the guidance to the institution's other 23 executive director offices only after delivering it to Zoellick.
"On a political level it's been a disaster because of the way it has been introduced here," one European official said. "It created the impression that they (U.S. officials) don't need to discuss it with anybody else."
After angering counterparts, U.S. will now 'welcome feedback'
Sources said directors met last week and countries lambasted U.S.
officials in person. Said one Latin American official, "I think now the U.S. is open to discussing these guidelines and not imposing them."
In an e-mailed statement Treasury Department spokeswoman Natalie Wyeth said U.S. executive directors at each of the multilateral development banks (MDBs) are "in the process of reaching out to both MDB managements and shareholders to explain the substance of the guidance document, why we developed it, and what effects we hope it will have on the MDB's operation.
"We welcome feedback from all stakeholders on our guidance and look forward to discussions on how it can help to effectively and responsibly encourage sustainable development," she wrote.
Lending for fossil fuel projects is one of the most sensitive issues within the World Bank. It likely will continue to be a hot-button topic as the institution positions itself as the main channel for climate change funding.
Green groups have long pressed the World Bank to eliminate lending for dirty fuel projects. But, echoing many of the arguments of its developing country shareholders, bank leaders have resisted. A climate change blueprint at the bank calls for ramping up clean energy lending and screening all new energy projects - particularly coal - for cleaner alternatives. Ultimately, though, the framework does allow large fossil fuel plants to continue to receive World Bank support.
Activists caution that the Treasury Department's new rules have some major loopholes. But for the most part they applauded the agency's attempt to set coal lending standards and said they hope to help strengthen the guidelines. The World Bank currently is revising its energy sector strategy, and coal lending already is emerging as a major battle.
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