House of Commons - International Development

Select Committee on International Development Written Evidence

Joint memorandum submitted by Bretton Woods Project, Greenpeace, Christian Aid, Practical Action, Platform and People & Planet

CO-ORDINATION FOR AID EFFECTIVENESS INQUIRY

INTRODUCTION

1. This inquiry provides a crucial opportunity for DFID to seriously assess whether or not UK aid for oil and gas projects in developing countries through multilateral organisations is effective aid. Given the UK's strong position on the World Bank's board, DFID has a responsibility to call for greater accountability from the World Bank and ensure that multilateral development assistance provided by the UK adheres to its commitments on poverty alleviation, human rights and the environment as well as aid effectiveness.

2. Rather than endorse the use of aid money to subsidise harmful fossil fuel projects, the UK should use its leverage to ensure that such aid supports low carbon, sustainable energy solutions that are effective and genuinely benefit the poor. By supporting the use of aid that is earmarked for sustainable development for oil extraction, the UK government is not only undermining its own efforts to reduce greenhouse gas emissions but also perpetuating problems of conflict and human rights violations associated with such extraction[53].

3. UK aid policy should align with the existing commitments that the UK government has already made on climate change and energy development. These include:

(a) The UK International Development Act of 2002 states that:

"development assistance" means assistance provided for the purpose of:

(a) furthering sustainable development in one or more countries outside the United Kingdom, or

(b) The UK has also committed to:

— keep the global average temperature increase below 2 degrees;

— reduce green house gas emissions by 30% from 1990 levels (agreed in the context of the EU multilateral agreements);

— global green house gas emissions must peak by 2015 and be reduced by at least 50% (and probably more like 80%) globally by 2050;

— achieve the agreed EU wide target of 20% of all energy from renewable sources by 2020;

— the realisation of this target will require renewable electricity to total around 40% to 45%.

Eliminating world poverty: making governance work for the poor

WORLD BANK FOSSIL FUEL FUNDING ON THE INCREASE

4. Despite launching an extensive body of work on climate change and energy, most recently under the rubric of its Investment framework for clean energy and development, the World Bank is facing serious questions about its continued role in scaling up its provision of development assistance for the oil industry. Since 1992 it has invested over $25 billion in fossil fuel projects, while devoting only a small fraction of its energy budget to clean and renewable energy sources. Despite laudable rhetoric on energy poverty and the impacts of climate change on the poor, it continues to invest substantially in large oil and gas projects and conventional energy sources. In 2006 it increased the size of its energy sector commitments from $2.8 billion to $4.4 billion. Oil, gas and power sector commitments account for 77% of the total energy sector programme while "new renewables"[56] account for only 5%[57].

5. In 2004 at the Bonn International conference on renewable energies, the Bank announced that it would increase its lending for "new renewables and energy efficiency" projects by 20% per year over five years. Though it claims that this target has been met and exceeded each year[58], a closer examination finds that its "new renewable energy & energy efficiency" portfolio consists largely of environmentally damaging large hydropower projects such as the Nam Theun 2 dam in Lao PDR and the Bujagali dam in Uganda, carbon finance and projects funded by the Global Environment Facility[59].

6. The Extractive Industries Review was commissioned by the World Bank in 2001 in response to criticism of World Bank involvement in extractive industries. The final report in 2004[60] called for the World Bank to phase out investments in oil projects by 2008 and to increase investments in renewable energies by about 20% annually. However the majority of the recommendations were undermined by the World Bank in its management response[61].

7. In the oil sector, over 80% of the World Bank's approved finance goes to projects that export to northern countries[62]. These projects are not about improving energy access for the poor or safeguarding the energy sovereignty of the country in question. Instead oil companies are benefiting from this "oil aid" at the same time that they register record profits. Such companies are hindering development in poor countries, by fuelling conflict and sinking oil-producing countries deeper into poverty and economic inequality[63]. Meanwhile 1.6 billion people, including 500 million in sub-Saharan Africa, still lack access to electricity. Continued oil dependence also has a disproportionate impact on the world's poorest countries at a time of high oil prices, thereby undermining the benefits of debt cancellation.

8. Although the amount of money that institutions such as the World Bank provide to oil and gas projects may be only a fraction of the total project cost, the additional financing that this support leverages—including from private banks, public financial institutions and oil companies—is immense. The World Bank plays a crucial role in reducing risk and providing political support for projects that may not otherwise be realised[64]. For instance, the total project costs of the Chad-Cameroon oil pipeline are estimated at $4.1 billion. Of this the World Bank provided a total of 7%- $85 million from IBRD and IDA and $200 million from IFC. It is widely accepted that the project would not have gone ahead without World Bank support.

GROWING POLITICAL CONSENSUS IN THE UK

9. The Conservative's Quality of Life group's Blueprint for a green economy, submission to the shadow cabinet released in September 2007 urges DFID "to produce an energy and climate strategy, covering both bilateral and multilateral energy funding, which will work towards the phasing out of support for all fossil-fuel extraction projects and an increase in access to energy in the developing world through the promotion of decentralised and low carbon forms of energy and energy efficiency projects".[65]

10. Similarly the Liberal Democrat policy paper Zero carbon Britain—taking a global lead, states that "climate change is not given a high enough priority in development programmes and that all too often projects are supported which involve, to cite only two areas of concern, non-renewable energy or forest reduction"[66]. The paper states that "coordinated action" is needed through the World Bank, the EU and the OECD to ensure that climate change is mainstreamed into development programmes and initiatives and that "development objectives fully support climate mitigation".

11. An Environmental Audit Committee report of 2006 concluded that "DFID's climate change policy lacks coherence". On the one hand "it highlights the seriously detrimental impacts of climate change on the most poor" and has a mandate to increase access to low carbon energy, alleviate poverty and help mitigate the effects of climate change.[67]

12. In March an Early Day Motion (EDM) on DFID's strategy on climate change and energy was tabled by UK MP Michael Meacher[68]. The EDM notes that DFID's "financial and political support for oil companies in developing countries through multilateral organisations", is "inconsistent with its mandate to alleviate poverty and help mitigate the effects of climate change in those countries". It was signed by 58 MPs.

13. DFID should put pressure on the Bank to act on the demands outlined by former Secretary of State for International Development Hilary Benn, speaking at the School of Oriental and African Studies in London in April 2007. Benn urged the World Bank to set "bold" new targets for renewable energy investments such as wind and solar, energy efficiency and low-carbon growth to help tackle climate change[69].

EUROPEAN COORDINATION

14. In November the European Parliament adopted a resolution to end taxpayer support for fossil fuel projects signed by a majority of 540 members. The resolution calls for: "the discontinuation of public support, via export credit agencies and public investment banks, for fossil fuel projects", and for the redoubling of efforts to increase the transfer to renewable energy and energy efficient technologies[70].This follows the commitment in February 2007 by the European Union to cut greenhouse gas emissions by 20% by 2020 unilaterally and to push for an agreement with the US and other industrialised countries to cut them by 30% by the same date.

NGO SCRUTINY: "DITCH DIRTY DEVELOPMENT"

15. UK and international civil society have carefully scrutinised this issue and provided significant contributions to the urgency of the debate. A statement launched at the World Bank annual meetings in October 2007 signed by more than 200 organisations from 56 countries called on the Bank and other IFIs to end subsidies to the oil industry. The groups referred to "oil aid" as one of the most glaring barriers to fighting climate change and addressing energy access in developing countries[71].

16. In November 2007, NGO Oil Change International released a report, entitled Aiding oil, harming the climate which describes the role that the World Bank and other international financial institutions have played in reshaping oil sectors in developing countries: convincing them to develop regulatory frameworks to attract western oil companies and providing development assistance to finance their operations. Oil Change International has also launched a database which compiles information on assistance for oil and gas projects from multilateral development banks, bilateral agencies, and export credit agencies. At a conservative estimate it finds that $61.3 billion has been given in "oil aid" since 2000[72], a small fraction of the total amount leveraged by this financing.

17. A campaign by NGO People & Planet which began in 2006 is calling for an end to the contradiction between government climate change targets and the continued use of development aid to support fossil fuel extraction projects. It points out that development aid, earmarked for poverty alleviation, is being put towards some of the most polluting industries in the world in order to ensure energy security for the wealthy industrial world with limited or no benefits to the poor in developing countries[73].

18. In April 2007 a report by NGO Practical Action, Energy to reduce poverty: the urgency for G8 action on climate justice criticised the World Bank's "leadership" role to tackle climate change and solve energy poverty, given its promotion of a development path that will lock developing countries into fossil-fuel dependency. It called on the World Bank to: end the use of aid money to support new large-scale fossil fuel projects, significantly "scale-up" investment into renewable technologies, deliver large-scale rural electrification programmes based on decentralised systems, and deliver programmes which give the poor access to efficient stoves and sustainably-sourced biomass fuels.[74]

19. A Greenpeace report, Energy [R]evolution, presents an alternative to the International Energy Agency's world energy outlook upon which the World Bank's Investment framework for clean energy and development is based, and serves as a practical blueprint for how to cut energy related CO2 emissions by 2050[75]. A follow up report, Futu[r]e Investment demonstrates how renewable energy forms a tiny part of the World Bank's energy portfolio, pointing out that in 2002-2003 the Bank's energy financing for big fossil fuel projects beat renewable and energy efficiency projects by a 17 to 1 ratio[76]. Greenpeace urges all IFIs to rapidly phase out subsidies for conventional polluting energy projects.

THE HUMAN AND ENVIRONMENTAL COSTS OF DEVELOPMENT AID FOR OIL AND GAS

20. Camisea II: indigenous rights not respected: In February 2008 the IFC approved $300 million for Camisea II or the Peru liquefied natural gas project. The project will export gas to the US, Mexican and other markets via a 400 km pipeline from the Amazon to the Pacific. The project is an expansion of the controversial Camisea gas project which was repeatedly criticised for negative impacts on indigenous communities and the Amazon rainforest, and multiple violations of national and international standards. These criticisms have been upheld by the Peruvian human rights ombudsman. Peru's energy regulatory agency has also fined the Camisea consortia millions of dollars for oil spills. NGO Amazon Watch has also found serious shortcomings regarding the environmental impact assessment for the upstream gas fields connected with the project and raised concerns over the intimidation of civil society leaders, contravention of the rights of indigenous peoples including prior consent and the legality of demarcation and the sale of concession rights[77].

21. Chad-Cameroon pipeline: failed commitments. At the inauguration of the Bank-supported Chad-Cameroon oil pipeline project in 2003, the Bank claimed that its involvement would help ensure that Chad's oil revenues would be used for the well-being of all Chadians, and that the project would be implemented in an environmentally and socially sound manner. Research by Cameroon's Centre for Environment and Development, the Chadian Association for the Promotion and Defense of Human Rights, and US-based Environmental Defense finds that the Bank has failed on both counts. The project appears to have fuelled violence, impoverished people in the oil fields and along the pipeline route, exacerbated the pressures on indigenous peoples and created new environmental problems. Meanwhile ExxonMobil, the leader of the oil consortium and the world's largest oil company, is registering record profits[78].

22. Failing to end gas flaring in West Africa. The World Bank supported West African Gas Pipeline project which aims to deliver gas from Nigeria to Ghana, Benin and Togo via a 680 kilometre pipeline is currently the subject of a claim to the World Bank Inspection Panel by affected communities in Nigeria[79]. They cite the inadequacy of the project's environmental impact assessment and lack of public consultations. It is also unclear how the project will reduce gas flaring in Nigeria as previously asserted by the World Bank, or bring benefits to local communities. Property owners received on average between $40 and $80 each, as "full and final payment" for the large tracts of land that were acquired for the pipeline's right of way. Grievance redress procedures have been deliberately obscured from the local communities.

23. Gender impacts of the Baku-Tbilisi-Ceyhan oil pipeline. Large-scale extractive industries projects often bring limited and short-term employment opportunities, fail to provide promised support for local communities or to alleviate poverty. The economic "booms" that accompany such investments are often unsustainable, and their negative effects disproportionately harm more vulnerable social groups such as women and indigenous people. A 2006 study by NGOs CEE Bankwatch and Gender Action found that the IFC-financed Baku-Tbilisi-Ceyhan oil pipeline, a $3 billion project to transport crude oil across Azerbaijan, Georgia and Turkey has brought increased poverty, hindered access to subsistence resources, increased occurrence of still births, prostitution, HIV/AIDS and other diseases in local communities[80].

QUESTIONS

— Does the government believe that aid which accelerates climate change and energy poverty is effective aid?

— What steps will HMG take to ensure that UK aid does not undermine the United Nations Framework Convention on Climate Change (UNFCCC), the Kyoto protocol and domestic commitments that have been made in relation to this process?

— Will DFID develop a new energy and climate change strategy that would set a framework for monitoring and progressively reducing the climate impacts of development aid particularly as channelled through multilateral development institutions?

— Will DFID evaluate and monitor the climate impacts of its development lending, including via the World Bank and encourage the World Bank to do likewise?

— Will DFID urge the World Bank to revisit the recommendations of the 2004 Extractive Industries Review and fundamentally rethink its involvement in extractive industries?

53 Consultation on human rights and the extractive industry, ESCR-net Corporate Accountability Working Group, December 2005, http://www.globalpolicy.org/reform/business/2005/1110extractive.pdf Back

54 UK International Development Act, 2002, Part I http://www.dfid.gov.uk/aboutdfid/ida.asp Back

55 See DFID's White Paper on International Development, Eliminating world poverty: making governance work for the poor, July 2006, para 7.8, page 93. Back

56 "New renewables" is a term used to cover renewable energy such as wind, solar, and mini-hydro. It does not include large hydropower (>10 MW) or traditional biomass. Back

57 Energy to reduce poverty: the urgency for G8 action on climate justice, page 7, Practical Action, 2007

http://practicalaction.org/docs/advocacy/energy-to-reduce-poverty_g8.pdf Back

58 Improving Lives: World Bank Group Progress on Renewable Energy and Energy Efficiency Fiscal Year 2006, World Bank Group, December 2006. Back

59 Climate contradictions: World Bank sets up shop in Bali, Bretton Woods Project, November 2007

http://www.brettonwoodsproject.org/art-558738 Back

60 EIR final report Striking a better balance, Emil Salim, 2004

http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTOGMC/0,,contentMDK%3A20306686~menuPK%3A336936~pagePK%3A148956~piPK%3A216618~theSitePK%3A336930,00.html Back

61 World Bank management response to the EIR, 2004