Select Committee on Environment, Food and Rural Affairs Minutes of Evidence


Annex III

Supplementary evidence on the diversion of public funding away from fossil fuels and towards sustainable energy developments

Memorandum from Friends of the Earth

CLIMATE CHANGE: LOOKING FORWARD

Opportunities for IFI Energy Policy Reform in 2005

  1.  Friends of the Earth believes the Government in 2005, has a unique opportunity to make substantial progress in reducing global emissions by demanding a shift in the financial investment driving the energy industry. As John Prescott, Deputy Prime Minister said:

    "Financial investment is essential in achieving all Sustainable Development targets, financial investment which is often not readily available[5]."

  2.  At the World Summit on Sustainable Development (WSSD)[6], the UK Government's pledged to phase out energy subsidies which inhibit sustainable development[7]. The Government also pledged to urgently and substantially increase the global share of renewable energy sources to develop more diverse, advanced, cleaner, affordable and more efficient energy technologies[8].

  3.  International Financial Institutions (IFIs), such as the World Bank and European Bank for Reconstruction and Development, play a key role in international investment and therefore sustainable development. The sustainable development commitments made at the WSSD specifically included that the UK Government ensure IFI's and other agencies support efforts to create a level playing field for renewable energy and distributed and decentralised energy[9]. A report on IFIs commissioned by the Department for Environment, Food and Rural Affairs (DEFRA) argues:

    "unless investment flows (of IFIs) are explicitly focused on and supportive of environmentally and socially sustainable economic growth, such growth will not be achieved."[10]

  4.  IFIs are responsible for accelerating climate change by the significant subsidies they provide to the fossil fuel industry. Friends of the Earth estimates that IFIs have provided at least $110 billion for fossil fuel projects in the last ten years[11]. The finance provided by these institutions for projects often provides essential political legitimacy as well as economic security that allow these projects to go ahead.

  5.  Friends of the Earth believes that, if the Government's long term climate change goals are to be achieved, IFI's continuing bias towards supporting fossil fuel projects must end, as has been recommended by the World Bank's own assessments such as the Extractive Industries Review (EIR)[12]. If the Government continues to support ongoing IFI finance in fossil fuel projects, it will continue to stifle the development of renewable alternatives.

  6.  Generally, IFIs have as the, or as a, central pillar of their mandate poverty alleviation through sustainable development. Friends of the Earth believes that all projects financed through IFIs should promote sustainability.

  7.  Approximately 80% of IFI energy projects over the last 10 years have been export-led and have therefore made very little contribution in meeting the energy needs of the global south. The Extractive Industries Review concluded, in respect of World Bank funding of such investments, that in the vast majority of cases they had not alleviated poverty or promoted sustainable development and were therefore not a suitable use of World Bank funds. In DFID's last assessment of its partnership with the World Bank, it was noted:

    "there remain doubts as to whether, at all levels, the bank group is fully focused on its over-arching objective of contributing to the elimination of poverty."[13]

  8.  This is not just the case for the World Bank. A recent report by Christian Aid[14] illustrates the negative impact on poverty of oil investments. Another report, by Friends of the Earth International[15], illustrates the fundamental incoherencies of all IFI financed oil, mining and gas projects with sustainability and the urgent need to phase out these investments.

  9.  The involvement of IFIs in the fossil fuels industries has long been recognised as controversial. The consequences of these projects are not only of concern due to their hugely significant contribution to global climate change, they have also caused significant and irreparable harm to local environments, the poor and indigenous communities.

  10.  The controversies over investment by the World Bank in oil, mining and gas projects led the Bank to commission the Extractive Industries Review (EIR) in 2000[16]. The EIR recommends the World Bank phase out lending for fossil fuels over five years, while phasing in significant lending for renewable energy. Dr Emil Salim, the eminent person appointed by World Bank President Wolfensohn to lead the review, said:

    "The Bank would do better to invest and concentrate on activities where the private sector is not interested, and that is renewable energy. When the World Bank wants to have an impact on global development, it should find new venues and new fields where the private sector is not interested.[17]"

  11.  These recommendations have not been taken up by the bank. Friends of the Earth believes IFIs are imposing the energy demands of their northern shareholders on the south, who are left with depleted resources, exacerbated poverty, and no sustainable energy sources.

  12.  Friends of the Earth believes the Government must demand the World Bank, and all IFIs, including the European Bank for Reconstruction and Development, the European Investment Bank, the Asian Development Bank, the African Development Bank, the Export Credit Guarantee Department and the InterAmerican Development Bank should invest in projects that address the energy needs of the poor and minimise environmental impacts such as climate change. IFIs should dramatically increase investments in sustainable energy resource development. This includes setting targets for increasing proportions of investment in renewable energy within the energy portfolio, increasing annually at 20% (up from 6% of total energy investment) while phasing out lending for fossil fuel projects over the next five years.

  13.  A shift in IFIs energy portfolio to renewables, must be carried out alongside a new approach to lending that places communities and their environment at the centre of these investments. All proposed IFI energy investments must be screened for their poverty alleviation potential, be scrutinised for their strategic environmental impact in a region, and must receive the free prior and informed consent of affected communities. Furthermore, internationally recognised environmental and social standards must apply to these projects, IFIs should impose sanctions on project promoters for non compliance with these standards, all relevant information relating to these projects must be made freely available to stakeholders, independent monitoring of projects must be regularly carried out, and an independent ombudsman must be made available to affected communities.

  14.  DFID have stated:

    "Climate change is the quintessential global environmental problem. It is immaterial from where a ton of CO2 is released into the atmosphere. Its effect on global warming will be the same.[18]"

  It is clear the poor will be most affected by global warming[19]. Friends of the Earth believes that adaptation to the effects of climate change is not enough. The Government must take urgent action to prevent further climate change.

  15.  At the World Summit on Sustainable Development (WSSD)[20], the UK Government's pledged commitments included the phase out of energy subsidies which inhibit sustainable development[21]. The Government also pledged to urgently and substantially increase the global share of renewable energy sources to develop more diverse, advanced, cleaner, affordable and more efficient energy technologies[22].

  16.  The sustainable development commitments made at the WSSD specifically included that the UK Government ensure IFI's and other agencies to support efforts to create a level playing field for renewable energy and distributed and decentralised energy[23].

  17.  Furthermore, the Department for International Development (DFID) has already recommended that the government:

    "end environmentally damaging subsidies, introduce and raise user charges, increase low resource use taxes, increase charges for environmentally damaging activities and use incentives for environmentally beneficial activities.[24]"

  18.  Friends of the Earth believes these obligations have not been fulfilled by IFIs. Furthermore, if the Government is serious about tackling climate change it must immediately call for a phase out of IFI funding of fossil fuel projects and to redirect this finance to sustainable renewable energy investments.

11 October 2004





5   John Prescott, in DETR (1999) "A better quality of Life-a strategy for Sustainable Development in the UK", DETR, London. Back

6   The WSSD in Johannesburg, 2002. Back

7   Sustainable Development Task Force: Progress since the World Summit on Sustainable Development (WSSD) www. sustainable-development.gov.uk/sd_strategy/taskforce/wssd.htm Back

8   Sustainable Development Task Force: Progress since the World Summit on Sustainable Development (WSSD) www. sustainable-development.gov.uk/sd_strategy/taskforce/wssd.htm Back

9   Sustainable Development Task Force: Progress since the World Summit on Sustainable Development (WSSD) www. sustainable-development.gov.uk/sd_strategy/taskforce/wssd.htm Back

10   Report of a Royal Institute for International Affairs / Forum for the Future workshop held on behalf of DEFRA Brian Pearce and Paul Ekins "International Financial Institutions: Enhancing their role in promoting sustainable development" October 2001 http://www.sustainable-development.gov.uk/wssd/ifi/02.htm Back

11   Based on data available from the Sustainable Energy & Environment Network Database (SEEN www.seen.org). However, due to the lack of transparency of many ECAs, much data is unavailable. Back

12   The Extractive Industries Review, commissioned by the World Bank in 2000. Back

13   DFID (2000) Working in Partnership with the World Bank Group p B7. Back

14   Christian Aid, Fueling Poverty: Oil, War & Corruption http://www.christianaid.org.uk/indepth/0305cawreport/cawreport03. pdf Back

15   See Hands off! Why International Financial Institutions must stop drilling, piping and mining http://www.foei.org/publications/pdfs/handsoff.pdf Back

16   For more information see www.eireview.org Back

17   Emil Salim at Press Conference in March 2004, London. Back

18   DFID (2000) Achieving sustainability poverty elimination and the environment-strategies for achieving the international development targets point 2.14 Back

19   See for example, UNEP and WMO (2001) Climate Change 2001: Impacts, Adaptation and Vulnerability, Back

20   the WSSD in Johannesburg, 2002. Back

21   Sustainable Development Task Force: Progress since the World Summit on Sustainable Development (WSSD) www. sustainable-development.gov.uk/sd_strategy/taskforce/wssd.htm Back

22   Sustainable Development Task Force: Progress since the World Summit on Sustainable Development (WSSD) www. sustainable-development.gov.uk/sd_strategy/taskforce/wssd.htm Back

23   Sustainable Development Task Force: Progress since the World Summit on Sustainable Development (WSSD) www. sustainable-development.gov.uk/sd_strategy/taskforce/wssd.htm Back

24   DFID (2000) Achieving sustainability poverty elimination and the environment-strategies for achieving the international development targets point 2.14. Back


 
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