World Bank

Fossil fuel exclusion policies

This page is part of the E3G Public Bank Climate Tracker Matrix, our tool to help you assess the Paris alignment of public banks, MDBs and DFIs.

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Paris alignmentReasoning
Some progressThere is a near complete exclusion of coal and upstream oil and gas. Downstream oil and gas investments are still permitted.
 Alignment and reasoning
Coal policiesCoal financing only permitted in ‘rare circumstances’. IFC has begun tracking and in some cases reducing financial intermediary exposure to coal. Last coal project in 2018.
Upstream oil and gas policiesExclusion of upstream oil and gas (with exceptions for the poorest countries).
Downstream oil and gas policies No evidence can be found for any downstream oil and gas exclusion policies.
Supply-side energy efficiency Will support fossil fuel efficiency projects. However, also support power grid demand management technologies.

Explanation

Coal  

The World Bank only permits coal financing in rare circumstances. The World Bank Group’s Energy Sector Directions Paper (2013) states the WBG will provide financial support for greenfield coal projects “only in rare circumstances” and that “meeting basic energy needs in countries with no feasible alternatives to coal and a lack of financing for coal power would define such rare cases”.  

The World Bank Group also has six Criteria for Screening Coal Projects, which date from 2010 and are: 

  1. Demonstrated developmental impact of the project; 
  2. Assistance is being provided to identify and prepare low-carbon projects; 
  3. Energy sources are optimised looking at the possibility of meeting the country’s needs through energy efficiency (both supply and demand) and conservation; 
  4. Full consideration of viable alternatives; 
  5. Coal projects will be designed to use the best appropriate available technology; 
  6. Environmental externalities will be incorporated in project analysis

These six criteria could be strengthened further to be brought into line with the World Bank Group’s latest coal approach set out in the Directions Paper, which arguably supersedes these criteria. The note clarifies “upstream activities such as coal mining and processing” would be subject to the same guidance. The criteria also apply to “associated transmission infrastructure”. It should be noted that in 2018 the World Bank withdrew from its last coal project in Kosovo. 

As regards financial intermediary lending, the World Bank Group has been criticised in the past for investing in financial intermediaries that in turn invest in coal. We note that a new draft IFC policy on financial intermediaries within the IFC Green Equity Approach. IFC has also begun tracking financial intermediary clients’ exposure to coal and cutting out high coal risk intermediary lending. The proposal includes plans to help intermediaries decarbonise.  

IFC has in the past supplied USD 563 million to two commercial banks in the Philippines which in turn invested USD 13.4 billion in coal projects over the past  five years. It is welcome that IFC is taking steps to reduce the number of general purpose loans and moving towards using more targeted loans to address these kinds of issues. 

Oil and gas 

On oil and gas, the WBG announced in 2017 it will no longer finance upstream oil and gas after 2019. This includes exploration, drilling and operating wells. There remain however some exceptions to this policy as the World Bank will continue to consider upstream natural gas “in the poorest countries” and this exclusion does not apply to technical assistance. It is important to note, however, that in the document this exception is justified in terms of energy access, and it is unclear how an upstream natural gas exploration or development project contributes to energy access in a developing country. Furthermore, “prior actions” that are conditions imposed on the World Bank’s Development Policy Lending do not appear to be subject to the World Bank’s fossil fuel and oil and gas exclusion policies. 

Also, the World Bank seems to support for fossil gas as a ‘transition fuel’ – as mentioned in World Bank Outlook 2050 strategy published in summer 2020 –  without any actual metrics of when/how this is Paris-aligned. 

It should be noted that the World Bank Group’s “COVID-19 Crisis Response Approach Paper” includes a statement that may have very interesting implications for investments in fossil fuels: 

“To support job creation and preserve growth-oriented enterprises, it will be important to promote reallocation of resources to more efficient companies, restructure and recapitalize firms, and avoid measures that risk propping up unviable firms or declining industries. For example, as countries and markets shift toward low carbon and renewable energy, as part of efforts to support climate adaptation and mitigation, it will be important not to slow this shift by subsidizing energy-inefficient industries and others at risk due to this changing policy and market environment.” 

Recommendation: World Bank Group should implement fossil fuel exclusions in downstream oil and gas and work towards a complete fossil fuel exclusion across all segments of the value chain. 

Supply-side energy efficiency 

The Energy Directions paper states that the World Bank will increase the efficiency of the existing energy infrastructure through rehabilitation and modernization. This includes rehabilitating existing power stations of all types. For increasing the efficiency of existing thermal generation plants, this appears to be assessed on a project by project basis. Reducing losses in transmission and distribution is included.  

For power generation at the IFC, funded facilities should be in the top quartile of energy efficiency for the region. Rehabilitation must achieve significant improvements in efficiency. The performance standard document is reportedly updated periodically. This does not seem to consider the extension of the lifetime of fossil fuel assets and their associated emissions through efficiency improvements.  

 

Last Update: November 2020

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