Examination of Witnesses (Questions 56-59)
MR SIMON
COUNSELL, MS
LIES CRAEYNEST
AND MR
ANDREW PENDLETON
13 DECEMBER 2007
Chairman: Good afternoon and welcome
to this session. Just before we start there are two Members of
the Committee who would like to record an interest. First, Robert
Smith and then, Hugh Bayley.
Sir Robert Smith: I should like to remind
the Committee of my entry in the Register of Member's Interests
as a shareholder in RTZ and Shell.
Hugh Bayley: I would like to declare
that I am a member of the Executive Board of the Parliamentary
Network of the World Bank.
Q56 Chairman: Thank you for those formal
declarations. Thank you for coming in and helping us with this
inquiry. As you know, we are looking into the partnership between
DFID and the World Bank, given that the UK is becoming a major
contributor. It already is, but is becoming proportionately an
even bigger contributor. We are particularly interested in how
this can interact with DFID's declared policies on climate change
and the environment, which is obviously what we are going to discuss.
Before I ask you any questions, perhaps just for the record you
could introduce yourselves so that we have it on record.
Mr Pendleton: My name is Andrew
Pendleton. I work on climate change policy at Christian Aid.
Ms Craeynest: My name is Lies
Craeynest. I am International Development Policy Adviser at WWF-UK.
Mr Counsell: My name is Simon
Counsell. I am the Executive Director of the Rainforest Foundation
UK.
Q57 Chairman: Thank you. The real
question to all of you, just to start the discussion, is to what
extent you think that DFID's policies on climate change and those
of the World Bank connect? Some of our evidence from NGOs[1]
is suggesting that UK support for the World Bank is undermining
its own efforts to reduce greenhouse gas emissions. Is that a
view you share? How well do you think these things connect and
if you do not think they connect, what are the main disconnects?
Ms Craeynest: DFID recognises
climate change as being a key challenge in its poverty reduction
mandate and it has started a number of actions and activities
on climate change, included in the White Paper in 2006. It has
just organised a new team inside DFID on climate change. It has
launched the Environmental Transformation Fund for a number of
activities which we all welcome very much to start tackling this
enormous challenge. At the same time, it continues funding climate
change and related activities through the World Bank which are
highly damaging because the World Bank continues to fund fossil
fuels despite the recommendations of the Extractive Industries
Review, which recommended that all oil funding should be phased
out by 2008. Despite that, the World Bank has doubled its funding
from $325 million in 2003, to $628 million in 2007, and that includes
a peak in 2006 of over $1 billion going straight to fossil fuel
sectors. As part of the overall energy portfolio, we do not see
a change in the picture and generally oil, gas and coal has remained
at around 17-22% of overall investments since the beginning of
2000; general power sectors investments amount to around 55%—that
has not changed much. Generally, this is transmission generation
and distribution based on existing fossil fuels. So that leaves
only around 12-17% that goes directly to new renewables and energy
efficiency, and that picture has not changed. We do not feel that
the World Bank has taken any account at all with regards to the
recognition globally now that we need to do something on climate
change, because there has been no major shift at all. Later, I
will go into more detail in terms of how new classifications have
been used.
Mr Pendleton: We face a triple
crisis. There are still, as I know the Committee will be aware,
large numbers of extremely poor people in the world. That is the
first part of the triple crisis. The second part is that they
are the first recipients of the impact of climate change, so it
is in their interests to see strong policies to deal with the
mitigation of climate change as well as to help support their
adaptation. But the third part of the crisis is the threat to
their development in the solutions to climate change and I guess
that is what is at the heart of what is being thrashed out in
Bali at the moment. It is really important that we stay focused
on the first one, first and foremost, particularly from Christian
Aid's point of view, and clearly the impact of climate change
is something we are going to have to deal with. The mitigation
side is where I suppose more positively we, as an organisation
working with some of the poorest communities in the world, see
a win-win because if there were greater amounts of funding, both
from DFID as a donor and from DFID as a donor through the World
Bank, and from the World Bank, on renewable energies which could
be delivered more or less now to many of the poorest communities
in the world to help alleviate energy poverty—some 1.6 billion
of the world's poorest people do not have any access to electricity
for instance—then you could see that those people could
receive a major fillip to their development, at the same time
as managing the growth of greenhouse gases in the atmosphere.
Just to give you a couple of quick examples. Fortuitously, this
morning I had a meeting with the Ashden Awards for Sustainable
Energy, which I think in the past decade or so have built a considerable
name in this area. My main question to them was, can you do smaller-scale
renewable energy projects of the kind that would benefit poor
people in the short term at scale? And their answer is, yes. They
quoted me two examples: one from Nepal, where a bio-gas project
which they helped to start some 10 years ago is now meeting the
cooking gas needs principally of about a million people—about
150,000 or so households. And also funded through the Grameen
Bank system in Bangladesh, a solar energy system for a lighting
project, which has met the needs of about 120,000 households—again,
probably about a million or so beneficiaries. So the answer to
the other half, if you like, of the question that Lies poses,
which we would fully support at Christian Aid, is that the time
has come to remove international development assistance money
from fossil fuel funding. The other half of that is, what would
you do with it? Well, it seems to us at Christian Aid that there
are plenty of opportunities where there are co-benefits, where
you can see that you could benefit poor people directly, improving
their lives but also livelihood opportunities, starting in the
places where they are, rather than a long way above them, and
also at the same time, manage the growth of greenhouse gas emissions.
Mr Counsell: Concerning the destruction
of tropical forests which, if we refer back to Nicholas Stern's
report, represents something like 20%—it could be as much
as 25%—of all global greenhouse gas emissions.[2]
This is an area where, within its fairly limited resources, DFID
has been able to adopt fairly progressive projects and programmes
and policies, which recognise that there are win-win situations
to be made through strengthening the livelihoods of poor people
living in tropical forest areas, and also bringing about environmental
protection to reduce deforestation. We should remember that as
well as that rather large contribution to global climate change,
tropical forests also play an important part in the livelihoods
of an estimated 80% of the world's poorest one billion people.
We see that there is quite a large disparity between what DFID
is trying to achieve and what the World Bank seems to be achieving
in practice. You will have seen throughout our memorandum of written
evidence that there have been recent examples, particularly in
the Democratic Republic of Congo, but also others, where either
inadvertently or through mismanagement, through poor design, the
World Bank has actually risked promoting tropical deforestation
on a significant scale and through that potentially promoting
increased contributions of greenhouse gases to the atmosphere.
Q58 Chairman: I think we might want to
probe those things a little bit further when I call on my other
colleagues. Just before I do, given what you have said the shortcomings
are, the question should be put the other way round. The Prime
Minister says he wants the World Bank to become the environment
bank. Do you think that is an achievable outcome and given what
you said as criticism of the Bank and without repeating the argument
about the mix of fuels, what else do you think the Bank could
do genuinely to address these environmental issues and become
an environment bank?
Ms Craeynest: One issue that I
would like to raise from WWF's point of view is that we welcome
very much that the World Bank finally recognises that the environment
underlies poverty reduction and that you cannot approach both
issues separately. Environment is interlinked with poverty reduction
and vice versa. You cannot tackle only the environment without
looking at the fact that many poor people depend on the environment
and a great extent of their livelihoods too. So we welcome that.
On the other hand, it has been part of the new President of the
World Bank's vision to set out a new vision for the Bank to be
the provider of global public goods. There is much redefining
going on in the Bank and that includes issues around trade, international
finance institutions, and communicable diseases. These are the
kinds of global goods that the World Bank wants to focus on, and
that includes global environmental goods. While we welcome that
on the one hand the importance has increased, we are concerned
that agreed international institutions, such as conventional biodiversity
and UN mechanisms to deal with environmental challenges could
perhaps be sidelined if the Bank is stronger on the environment,
and where new functions are being appropriated by the Bank itself.
While we welcome this, at the same time we would urge DFID to
make sure that by doing this we do not undermine the international
infrastructure being set up through UN systems, in UN treaties
and conventions, which looks at the environment.
Mr Pendleton: I think from Christian
Aid's point of view, we would say that it is encouraging to see
that through the Clean Energy Investment Framework, for instance,
the World Bank is acknowledging the importance of both protecting
the poorest communities and protecting the environments on which
they are very much more dependent than you and I, at least in
immediate terms. So I think that is an encouraging development.
As to whether there is a wider and more enhanced role for the
Bank in being a broker of environmental goods, there are a couple
of things that Christian Aid would like to say about that. The
first is that there are other policies that the World Bank is
a supporter of that we have looked at and analysed; it is the
economic conditionalities that the World Bank continues to settle
on its policies. Particularly in the field of energy policy, the
pursuit of the private sector delivery model, which we have seen
and Christian Aid produced a report about recently, as a way to
try and broaden out the delivery of energy services. Often, as
we have also seen and two recent case studies in our recent reports
from Nicaragua and Nigeria suggest, that does not very often happen
because in the areas where people are poorest and most energy
poor, there is not very much money to be made, at least in the
short-term, and therefore it is not somewhere that particularly
the international private sector finds that it wants to go. So,
I think there is an overall policy framework that would also need
to be addressed within the Bank which we would have concerns about.
Q59 Chairman: Is it not important
to distinguish between the different components of the Bank, because
the Bank is a bank and there are aspects of it which are commercially
driven and therefore you would expect them to behave like a bank.
Then there is IDA,[3]
which is very much about targeting the poor. It is important in
your analysis that you distinguish between which bits of the Bank
you are talking about and perhaps to some extent whether you think
the IDA money could be more effectively spent.
Mr Pendleton: You very often find
that IDA money is spent alongside money that is loaned through
the IFC,[4]
for instance, so it is not necessarily possible. Plus, the overall
policy analysis of the Bank is increasingly important, for instance,
in Nigeria where the IMF[5]
is largely no longer important and not a loan maker. The Bank's
policy advice is really quite critical in decision-making and
so I think there is a broader focus on the Bank and its policies
which have a spill-over into all areas of its funding. The third
point I wanted to make very quickly, which again goes back to
what is happening in Bali at the moment and beyond, and beyond
2012, is looking at how finance related to carbon dioxide emissions
is likely to come. Whatever the chosen mechanisms they are likely
to be related to the UN process and they are likely to be related
to volumes of carbon dioxide emissions, they might be tradeable
credits, they might be taxation based, they might be a combination
of the two. Either way, these are not financial flows that will
be the Bank's in the same way that money put through the Bank
by DFID from UK taxpayers is the Bank's money. There is a real
question-mark over the role of the Bank in brokering carbon, particularly
related environmental goods, because developing countries are
going to want a much bigger say in the spending of money which
is essentially theirs because it is going to be coming out of
the sale of their atmospheric space. There is a major challenge
in that for the Bank, in that it perhaps will not have quite the
amount of say—or its main shareholders will not perhaps
have quite the amount of say—in the spending of what are,
potentially, incredibly large amounts of carbon finance, as has
been the case with Overseas Development Assistance money. A good
example of that is the decision that has been taken this week
in Bali over the Adaptation Fund for which the Bank will be a
trustee, and the Global Environment Facility will be the provider
of the administrative services, but it will be answerable to a
board of 16, directly answerable to the COP/MOP[6]
under the UNFCCC[7].
So already you see the trend for carbon finance to use the Bank
as a financial mechanism, but no more.
Mr Counsell: I could probably
add to that and again, specifically in the area of forests, which
is perhaps an area which the Bank might have some comparative
advantage, given that it is principally in the tropics and the
tropical countries are where this problem is occurring and where
the Bank has a fairly long track record and perhaps some area
of expertise. You will probably be aware that yesterday the World
Bank launched what it is calling the Forest Carbon Partnership
Facility to which Hilary Benn announced that the UK Government
is contributing, I think, £15 million to a fund that I believe
the Bank is envisaging will eventually announce some $300 million
and which will be used effectively to kick-start the trade in
avoided deforestation carbon credits. This is a potentially key
role but is again perhaps one where we might see that there is
something of a disparity between what the Bank appears to be planning
to do and where our own Government's views lie. For example, the
Bank has not ruled out that some of this funding will be used
to promote industrial logging activities in tropical rainforests,
whereas only two years ago Baroness Amos rightly pointed out in
a Lords debate that tropical logging has failed to deliver the
environmental, social or economic benefits that were expected,
so this is an area of apparent disparity. But there is a more
profound problem with what the Bank is planning to do with these
forest-based carbon credits. I am sure the Committee will be aware
that the global carbon markets are extremely finely balanced at
the moment and the relationship between the supply and demand
of these credits has a very important role in the price of credits
and that in turn determines the extent to which funds are available
for pollution abatement or, indeed, for avoided deforestation
activities. There have been concerns about the possible impact
of these carbon markets being very quickly flooded if there is
an influx of forest or avoided deforestation credits. We have
made inquiries about this and as the World Bank has now launched
this plan to kick-start these forest carbon markets, we asked
whether there has been any analysis by the Bank of what the likely
impact of these forest-based credits is going to be on carbon
markets. The answer is that there has been no analysis. There
is a real risk that what the World Bank is doing in kick-starting
these forest-based carbon credit markets is to undermine, potentially,
the global carbon markets. This would not be the first time, of
course, that the Bank has inadvertently served to seriously disrupt
commodity markets, and what has happened in the coffee markets
over the last 10 years might be an example of this, only in this
case it would, of course, have global implications for our ability
to tackle climate change. So, I think this is an area where the
Bank is going to play a role, but we should have extreme concern
about the way this might develop in coming years.
Chairman: That is useful evidence.
1 Non-governmental organisation Back
2
Cabinet Office, Stern Review on the Economics of Climate Change,
October 2006 Back
3
International Development Association Back
4
International Finance Corporation Back
5
International Monetary Fund Back
6
Conference of Parties/Meeting of Parties to the Back
7
United Nations Framework Convention in Climate Change Back
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