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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