Carbon offset sales have not worked - World Bank

A new World Bank study conducted by the Independent Evaluation Group find offset sales are not working and suggests five solutions

BUSINESS DAY Published: 2010/11/04 04:15:42 PM
A new study from the Independent Evaluation Group (IEG) has reviewed the World Bank’s efforts in mitigating climate change and found some measures are working - while others have failed.

It stresses five measures that offer attractive local benefits while fighting climate change: energy efficiency; forest protection; appropriate project finance; technology transfer; and accelerated learning.

The study, released this afternoon in New York, notes that carbon finance has yet to realize its promise of catalyzing large scale new investments in renewable energy.

“Floods in Pakistan and West Africa, and heat waves in Russia, bring home the severe threats that climate change poses to development,” said Vinod Thomas, Director-General of IEG.

“To meet the urgent challenges of financing development, adapting to climate change, and promoting greener growth in a recession-battered world, it is crucial that efforts focus sharply on areas of greatest effectiveness.”

During fiscal years 2003-08 the World Bank Group scaled up annual investments in renewable energy and energy efficiency from $200 million to $2 billion, with sizeable further increases since then. In 2008 it adopted a policy framework on development and climate change, subsequently mobilizing an additional $5 billion in concessional funds for greenhouse gas reduction. Reviewing these expanded efforts, the report highlights five areas that can help deliver stronger results.

The report has found energy efficiency can offer countries direct economic returns that dwarf those of most other development projects, while also reducing greenhouse gas emissions.

In Ethiopia, for instance, a US $5 million investment in efficient light bulbs prevented the need to spend more than US $100 million to lease and fuel polluting diesel generators. The report calls for a re-targeting of industrial energy efficiency finance for greater effectiveness.

Slowing deforestation is one way to reduce greenhouse gas emissions.

Globally, about one quarter of the world’s tropical forests are under some form of protection, and the World Bank has contributed significantly to this effort. Rigorous and globally comprehensive analysis by IEG finds that, on average, protected areas significantly reduce tropical deforestation, preserving carbon sinks and biodiversity.

The study found that deforestation rates were lower in areas that allowed sustainable use by local populations, and even lower in the case of areas under control of indigenous people.

But the study has found that at prevailing carbon prices, carbon offset sales had little impact on most renewable energy projects’ rate of returns, and did not address investors’ need for up-front capital.

Many forms of renewable energy require higher financial incentives for viability.

Technology transfer – broadly understood to include diffusion of technical and financial innovations related to low-carbon development – has worked well when the logic of piloting and demonstration is well thought out, and when grants are used to mitigate the risk of pioneering efforts. For instance, an agro-forestry project in Colombia proved to ranchers that putting trees in pastures could increase profits – while incidentally boosting carbon storage and biodiversity.

It’s also found that technology transfer projects have often failed or floundered in the case of more advanced technologies, or where there was no clear mechanism for diffusing know-how from recipients to the economy at large.

“For higher impact, the World Bank Group and the world at large need to learn faster what works and what doesn’t and focus on results, not just dollars committed. Most projects reviewed lack periodic, reliable reporting on impacts, leading to lost opportunities for learning,” said Kenneth Chomitz, study author and Senior Advisor at IEG.

For instance, twenty years of forest management efforts have largely lacked rigorous measures of economic, social, environmental, and financial impacts which could have guided current international efforts in REDD (reducing emissions from deforestation and degradation). In contrast, a distinctive benefit of Clean Development Mechanism (CDM) projects is their requirement for regular, publicly-reported monitoring on output. For instance, CDM monitoring led to the rapid discovery that landfill gas projects, as a class, were significantly underperforming against expectations, prompting attention to improvements in appraisal and operations.

The IEG report recommends that the World Bank Group rebalance its efforts toward higher-impact sectors and instruments, with relatively greater emphasis on energy efficiency, such as lighting and improvements in electricity transmission and distribution.