Examination of Witnesses (Questions 60-79)
MR SIMON
COUNSELL, MS
LIES CRAEYNEST
AND MR
ANDREW PENDLETON
13 DECEMBER 2007
Q60 John Battle: Could I start by
welcoming your starting point. For too long—certainly 20
years ago—environment and poverty, or poor people, were
set against each other so that the welding together of those is
absolutely central now to the debate so that we do not end up
where we were in the early 1980s with, in crude terms, the setting
of people against trees. I can remember in Amazonia, where I was,
suggestions of reservations for the poor people, the native tribes,
on the grounds that others would manage the forest better for
them, and that also applied in both Indonesia and Papua New Guinea—so
that is the starting point. If I could ask the question, if we
are trying to fuse together tackling poverty and sustainability,
the Bank's senior management have really turned their face to
some extent against the Extractive Industries Review and said,
no, we are going to press ahead. I suspect, and I wonder whether
you would give any credence to their view that in securing energy
on a large scale for communities such as Khayelitisha in South
Africa, where over a million people now have energy, they need
to make sure that an investment strategy includes energy security
and because of the proportionality being so small in renewables,
we cannot get there quickly enough and that is why they are maybe
arguing that they are sticking with the traditional fossil and
carbon fuels. Would you give that argument any credence at all
or just say we should get out?
Mr Pendleton: Christian Aid's
view would be that now, given the two parts of that argument,
it probably is time for the World Bank to phase out its investment
in fossil fuels. The two sides of the argument really are: are
the benefits to the poorest strong enough? And I think that the
evidence is that they are largely not. One of the problems with
providing large amounts of energy—or trying to—via
a large-scale model of peri-urban communities is that that can
provide a further draw, whereas there has been a good deal of
success in providing energy to smaller, rural communities and
where that happens I am not sure that I accept the point that
it cannot happen now or at scale. I think it can, it has just
not received the backing, and that is largely policy as much as
financial backing, as it should have done and could have done.
So that is one side of the debate. The second side of the debate,
which is very well worn but nevertheless worth repeating, is the
problem of extraction and there are very few, if any, cases of
extraction of fossil fuels and particularly of gas, in developing
countries where it has provided widescale benefits to the poorest
and very many where it has fuelled pre-existing problems, which
is effectively what the Extractive Industries Review said, with
governance, with corruption and with pre-existing conflict. Combining
those two things together and given that a lot of those projects
would almost certainly continue anyway and continue in the private
sector, which is largely where they are because the majority of
financing in those projects is private sector financing, then
the argument for spending scarce aid money when there are so many
opportunities for providing energy for the poorest and therefore
livelihood opportunities in the immediate term via other means,
is getting very hard to defend.
Q61 John Battle: Would you include
then under that critique the World Bank as well as extractive
industries, obviously provides money for traditional power stations
and the critique, well-worn, to use your phrase, was that the
power station then sent the electricity over the wires to drive
the hairdryers in the posh hotels and in doing so passed over
shanty towns where nobody had energy at all? Would you apply it
to the production of energy as well and say we should go small-scale
now, if that is what you are saying?
Mr Pendleton: There is a big challenge
there for financing organisations such as DFID and the World Bank
and here is where the coherence question is really important because
we set ourselves domestically a renewable energy target of 20%—possibly
20%—by 2020.
Q62 John Battle: So if I followed
that through, have you done any research, then, on the potential
impact of micropower in developing countries?
Mr Pendleton: What I can point
you towards is the Ashden Sustainable Energy Awards experience
where they have 52 award winners over the years they have been
operating, all of which point to two things. One is that those
kinds of projects can provide very important benefits for poor
people but also in many cases they are "scale-uppable"
and I think that is the critical question because the question
one always gets asked in this area is, ok it can provide a small
amount of benefit for a small number of people, can you scale
it up? The answer is, yes. That ties in very much with a policy
question at the World Bank which is, how are you intending to
bring about development? The question for us—and it is a
question for DFID as well as for the World Bank—is if your
intention is to benefit the lives and livelihoods of poor people,
then that is really where you need to start. It sounds like a
very obvious point to make but so many of the policies of the
donors, and particularly the multilaterals, is to start at the
top and work their way down. I think that is a tired view that
is running out of steam rapidly.
Q63 Hugh Bayley: You were saying
that you thought the time had now come for the World Bank to pull
out of fossil fuels. China is desperate for oil and in the past
year it has been a bigger investor through the China Eximbank[8]
in Africa than the World Bank has been. If the World Bank pulls
out, China will pull in. Do you think China will be better at
doing impact assessments and will it have a better pro-poverty
focus?
Mr Pendleton: Possibly not, but
I think the issue is how good has the World Bank really been at
ensuring that those safeguards are followed through. The answer
to that question from the Extractive Industries Review—I
was the author of a report in 2003 for Christian Aid called Fuelling
Poverty, which looked at a number of situations where the
Bank had offered assurances and tried to build in safeguards and
they had largely failed—the unfortunate side-effect, very
often, of large-scale fossil fuel extraction ... [9]
Q64 Hugh Bayley: It is going to happen
anyway; that was the point I am making. Who should be the handmaiden,
is the question—a flawed World Bank or a more flawed Chinese
Eximbank?
Mr Pendleton: My question back
would be, is that an appropriate use of, particularly, overseas
development assistance money, but also multilateral assistance
money? In Christian Aid's view, the answer to that question would
be, no. You can bring very much more benefit to very many poor
people by doing two things, in response to that. One is by funding
the kinds of projects we have been talking about and secondly,
is by funding the communities that are likely to be affected by
those extraction projects, directly to support them, to manage
the impact, but also possibly to resist, too. You have a lot more
success where communities are vocal and have a voice and are able
to provide a role ...
Q65 Hugh Bayley: But are you not
confusing two things here? It is not the IDA money, it is not
the aid money that is being used to finance pipelines or oil exploration,
it is commercial money, it is loan money. So it is wrong to say
that the money could be spent more profitably.
Mr Pendleton: It is concessional
commercial money and it is generated by taxpayers rather than
by commercial corporations. I do not see why that money, which
is offered as a huge concession to those countries, should be
used for projects which in many cases demonstrably harm the poorest
people rather than providing tangible benefits. If we are looking
for tangible benefits then start where poor people are and not
where you hope they might be.
Chairman: I will bring Ann McKechin in
on the same line of questioning. I do not want to cut the other
two out but I think it is all related.
Q66 Ann McKechin: I am interested,
Mr Pendleton, in that as a charity which regularly tells us that
the questions about liberalisation of markets should be based
on sequencing, that you take a very absolute approach when it
comes to investment in extractive industries. If I can put it
to you that when we spoke to the IFC when the Committee visited
them a couple of weeks ago and we put this question to them about
the issue of fossil fuel investment, we were told by the IFC fund,
and I appreciate that there are some IDA funds also involved but
its bulk is IFC, that 70% was currently spent on gas, as opposed
to oil or coal, and the vast bulk of that in turn was used for
domestic consumption. Perhaps I could put it to you that sometimes
the impression from your own literature is that this can be exclusively
used for multinational exploration of oil which then goes on to
the export market. It would not appear that is the analysis which
the World Bank have of the way they spend their money. I am just
wondering to what extent you think that there has been a change,
even in the fossil fuel investment in recent years by the World
Bank, towards more domestic consumption and perhaps if I might
put it, the more environmentally sensitive fossil fuel which is
gas as opposed to coal?
Mr Pendleton: There is a case,
for instance, in the case we looked at in Nigeria in the Power
of Poverty report we published before the annual meeting.
There is a case in a country like that where there is a profusion
of gas that is produced as a by-product of the oil industry and
most of which is flared, as an interim fuel for households. That
certainly has not been explored, but is currently being explored
through the energy sector reform plan.
Q67 Ann McKechin: Do you think that
would be a reasonable investment for the World Bank to consider?
Mr Pendleton: Certainly, if it
was demonstrably being used for households, I think so. But certainly
the history of Bank involvement in extraction projects is a sorry
one and the Extractive Industries Review is very clear on that.
It is right to make distinctions. I am not quite clear on the
point you are making. Perhaps you could clarify it for me—the
difference between sequencing and liberalisation.
Q68 Ann McKechin: You have talked
about various projects at a pretty small scale, and scaling up
from one million people to use by potentially up to one billion
is a huge feat of engineering and capacity building. The cost
of renewable energy is generally at the moment, at current market
conditions, more expensive than gas. So why are we saying to poorer
countries that you should then suddenly turn all your systems
towards renewable energies only, when you are actually sitting
on a supply of energy which at the current prices is considerably
cheaper and would therefore allow you to expand your economy faster,
potentially?
Mr Pendleton: In a country such
as Nigeria, you can perfectly see the logic of that. In a country
such as Nicaragua, where the Bank advised through the energy sector
reform to import a lot of oil, for instance, you cannot see the
logic of it. Therefore, it does have to be done to a certain extent
on a case-by-case basis. Poor people are such small users of the
atmospheric commons that you cannot begrudge them a certain amount
of carbon dioxide emission in excess of what they currently have.
However, what we feel is that there are really important co-benefits
to small-scale renewable energy. I do not accept the point that
it is not "scaleable up", I really think it is, and
there are really, really important co-benefits that are just not
being explored.
Q69 Ann McKechin: Could you give
me an example anywhere in the world where currently you have seen
usage by a million people plus, because that would be the sort
of scale we would be talking about of renewable energy? What example
would you give?
Mr Pendleton: I gave two examples
earlier, one of the use of gas which was generated from the composting
of animal manure in Nepal, which meets a further need that is
sheer geography and topography which means large-scale power is
very difficult. That reaches 150,000 or so households, which is
about a million or so people. Also, the Grameen Bank solar lighting
fund has been achieved on a financially sustainable means through
the use of micro-finance. It is also important to ask a serious
question about the commonly-held belief that these are not affordable
technologies because in some cases they may well be. Christian
Aid is an organisation ...
Q70 Ann McKechin: I am not saying
they are not affordable, I am just saying are they less expensive.
Are they more expensive, in an urban setting rather than rural?
Mr Pendleton: It is very unusual
for an energy system, particularly where you are talking about
providing energy to people with very little ability to pay; where
you are not going to have some form of subsidy in that. That is
one of the flaws of the World Bank privatisation model. Our fear
is that you will end up, if you go for large-scale energy development,
potentially down the road with an awful lot of stranded assets
in carbon emissions that countries ultimately, because of how
the international agreement plays out, can no longer use. That
would be a real shame. To throw development assistance money in
that direction when there are alternatives that could be employed
already.
Q71 Chairman: Yes, you would both
like to come in.
Mr Counsell: We probably need
to remind ourselves that the energy source upon which the vast
majority of the world's poor depends is either already sustainable
or is potentially sustainable, and it is called wood. The kind
of examples of Bank interventions that we have seen in forest
sectors in the Congo, for example, and other parts of the world,
are a cause, if not for alarm, then certainly concern, where the
access of poor people to this renewable resource is either being
curtailed or potentially reduced through Bank interventions, whilst,
on the other hand, we are seeing these massive interventions in
absolutely non-renewable energy.
Q72 Ann McKechin: You have certainly
talked about the DRC[10]
and you have some very valid points to make there, but the DRC
is also sitting on absolutely huge supplies of natural gas. Say,
for example, they wanted to use that for domestic energy production
in the region, are you saying the World Bank should never have
invested there?
Mr Counsell: Possibly, and I am
sure there will be plenty of members of the private sector that
will be eyeing that very eagerly. The question would be, is this
the role for the World Bank or should the World Bank be looking
at the dependence of 50 million of the world's poorest people
on wood and ensuring that they have secure access to it and that
it can be managed sustainably rather than, as has been the case,
assuming that the way ahead is very much the top-down approach
that Andrew has been talking about?
Q73 Ann McKechin: But Mr Counsell,
as the Chairman pointed out, they are a bank. They rely on people
coming to them with applications, that is, the countries. It really
depends on the capacity of the countries and their priorities
as to what they want to exploit first. I am sure all of you have
said in the past that the World Bank should not dictate to countries
what they want to do about their economy and how they grow it.
I put it to you about the issue, first, the capacity of countries
to develop alternatives and secondly, how quickly you think realistically
a country like the DRC would suddenly be able to scale up and
put all applications for energy all through a renewable sector?
It would take quite a time would it not?
Ms Craeynest: I would like to
take us back and look at the bigger problem, which is the need
to address climate change extremely urgently. There is a meeting
going on—UNFCCC—at the moment in Bali. We need to
keep global temperature rises under 2o to avoid the worst impact
of climate change. The worst impacts of climate change will impact
on the poorest people. We know that; we have seen from the predictions
in terms of flooding and drought and sea-level rise, who will
be impacted. We are not denying that a there is a real issue there
in terms of what the Bank's role is in energy provision. At the
same time, WWF's own climate solutions report has done two years
of research into what a low-carbon future could look like where
energy needs for both developing and developed countries are being
served. The research has come out showing that it is possible,
even including a portion—up to 15%—of fossil fuels
which is equipped with CCS (carbon capture and storage). But a
large majority is accounted for by energy efficiency and new renewable
technologies such as wind, solar and thermal power. The real question
is around, as you said, the cost of the technology. The World
Bank's funding of cheap loans is in effect a subsidy. What we
really need to do is shift the subsidy systems in favour of new
renewables and away from fossil fuels. This is not a unique case
where the World Bank is giving subsidies to the oil sector. The
UK Government itself is doing it by extending guarantees through
the Export Credit Guarantee Department for British oil business
abroad. This is a pervasive issue that the oil industry is being
funded, while at the same time causing climate change to happen.
It is a double whammy for poor people. They are being lined up
for being the worst victims in 50 years' time, and at the same
time they are not getting the energy because the energy systems
continue to be centralised to such an extent that they are not
going to be the beneficiaries. It is a difficult question but
what we are arguing is that the World Bank should take a lead
in helping to shift the global energy provision system and making
it more financially viable to invest in new renewables. The World
Bank can play a key role, it has exemplified it. It is investing
to some extent, the problem is the balance of it, and it continues
to have a very uneven-handed approach to both technologies, that
is the problem. There are some really good examples.
Q74 Ann McKechin: You have talked
about mechanisms, should you be doing something differently in
middle-income countries, rather than in the poorest countries,
given the differences in capacity, in terms of what the mechanisms
might be?
Ms Craeynest: Obviously, there
are very different challenges in low-income countries and middle-income
countries. A middle-income country like China, as you pointed
out, is highly dependent on coal at the moment and is building
power stations regularly. There are different approaches needed.
Carbon capture and storage will be an essential technology in
China. Is that an appropriate use of aid money that is supposed
to benefit poor people? That is an entirely different question.
We feel strongly that because this is a climate change related
issue, it is a problem that has been caused by industrialised
nations and we helped set this problem on a path.
Q75 Ann McKechin: The IFC mechanism
would be suitable then?
Ms Craeynest: The IFC provides
loans against the guarantees provided through public subsidies—Andrew
is much more of an expert on this—the IFC provides subsidised
commercial loans. Maybe Andrew can come in on this.
Q76 Ann McKechin: From high carbon
emission countries to low carbon emission countries—would
that not be an example of what we should be putting money in?
Mr Pendleton: The question—and
it is a genuine one—is the contribution that the IFC can
make.
The Committee suspended from 3.10 pm to 3.20
pm for a division in the House.
Chairman: Given that we have lost a bit
of time, I am not trying to inhibit anybody but if we can be a
little bit crisper, we can get more done.
Q77 Ann McKechin: When you are talking
about renewables, in your submissions, you argue against, in certain
instances, the use of hydropower within that category. I wonder
why you argue that and do you make any distinction between medium-scale
hydropower or large-scale hydropower, and whether or not it has
the consent of local communities?
Ms Craeynest: On hydropower, there
has been a big investigation by the World Commission on Dams,
which was commissioned by the World Bank itself, under pressure,
of course, by lots of communities and NGOs worldwide. It found
that there are large hydro-dams which are above 10 megawatts where
there are some serious social environmental concerns because obviously
there are displacement issues of people, communities living in
the area, and issues to do with river flow and biodiversity in
the area. That is one concern. The World Commission on Dams recommended
guidelines for the World Bank to take up but the World Bank has
refused to take those up and said that its own social environmental
safeguards are enough to manage big hydropower dams. WWF had a
recent report, in 2006, with Oxfam and WaterAid, which calls for
the World Bank to adopt those guidelines because they do require
different social environmental guidelines. That is one issue.
Secondly, the actual carbon benefit of large hydro-dams is not
as low as the World Bank says it is—it categorises it as
a low-carbon technology—but because of the flooding and
the submerging of large areas of biomass of forests and grasslands
and the decomposition of vegetation of that grassland, there are
some serious carbon emissions resulting from that. Emissions need
to be looked at on a case-by-case basis so just to include the
whole technology as a low-carbon technology is potentially problematic.
Q78 Ann McKechin: It would depend
where it is located?
Ms Craeynest: Yes, absolutely.
And on what area has been flooded. So to just include it as part
of low-carbon technology is problematic in itself. Finally, this
being the strategy in the context of climate change, where river
flows are being predicted to be affected by climate change. To
build your strategy around hydro-dams is potentially problematic
considering the river flows themselves might be impacted because
of warmer temperatures. One of the key issues with including hydro-dams
in low-carbon technologies is that the World Bank has been able
to claim that it is doing much more than it is actually doing
on new renewable technologies. One of the World Bank press releases
in October claimed that low-carbon technologies had increased
by 67%, but over half of them—$750 million—go towards
hydro-powered dams, leaving just about $650 million for new renewables
and energy efficiency, which is only 2% larger than last year.
There are some serious issues going on with the reporting of figures
and we are quite concerned and do not quite understand why this
number game is being played while we are dealing with this very
serious climate change challenge. There are issues with numbers
and we would like more transparent reporting from the World Bank.
Q79 Ann McKechin: So you are not
absolutely against hydropower; it just depends whether or not
it meets certain standards?
Ms Craeynest: Exactly, when the
World Commission on Dams guidelines are being followed. But at
the same time, hydro-dams are existing technologies and require
lots of money, so we would want to make sure that it does not
crowd out alternative technologies. Again, according to the WWF's
vision for energy provision, the largest amount of energy will
be able to be provided by solar and thermal, winds, etc.
8 The Export-Import Bank of China Back
9
Christian Aid, Fuelling poverty: Oil, war and corruption,
2003 Back
10
Democratic Republic of Congo Back
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