The impact of UK overseas aid on environmental protection and climate change adaptation and mitigation

Written evidence submitted by Greenpeace UK

Summary.

· A rapid shift to a low-carbon development model in developing countries is essential, if we are to avoid the impacts of dangerous climate change.

· However, increased energy access for millions of people in developing countries is also critical to meeting wider development goals.

· UK lending flowing through the World Bank Group continues to support ‘business as usual’, high carbon development in many countries, whilst failing to deliver significant changes in patterns of energy access.

· The Government should use the Multi-lateral Aid Review, and its input the World Bank Group Energy Strategy Review, to address these failings, signalling that the UK will oppose lending to the most polluting projects; and insisting on a more rapid transition to lending for energy efficiency and renewable energy projects.

· The Government should make good on the commit ment in the Coalition Agreement to reform the Export Credits Guarantee Department, shifting lending away from fossil fuel projects, and towards clean technology.

· The UK has a good record in support for tropical forest protection. However, much of the funding for forestry projects and programmes currently flowing through the World Bank, risks driving further deforestation and does not adequately safeguard biodiversity and the needs and rights of local people.

· The UK should use the Multi-lateral Aid review to request an overhaul of World Bank Group forest policies.

· The UK should support a continuation of the moratorium on palm oil lending by the World Bank Group, and consider seriously the need to extend this to other agro-forestry sectors, including pulp and paper.

· Funding for Reducing Emissions from Deforestation and Degradation (REDD) has an important contribution to make to addressing climate change, by protecting natural forests.

· However, current REDD plan s demonstrate the risk that REDD funding will be channelled into supporting new plantations, as part of a high-carbon, high deforestation model of development.

· To avoid this, the UK should ensure that all of its support for REDD, whether bilateral or channelled through existing or new institutions, applies the safeguards for natural forests outlined in the Cancun Agreements.

Greenpeace UK

1. Greenpeace is a global campaigning organisation that acts to change attitudes and behaviour , to protect and conserve the environment and to promote peace by:

· Catalysing an energ y revolution Catalysing an energ y revolution to address the number one threat facing our planet: climate change.

· Defending our oceans by challenging wasteful and destructive fishing, and creating a global network of marine reserves.

· Protecting the world's remaining ancient forests and the animal, plants and people that depend on them.

· Supporting sustainable agriculture by encouraging socially and ecologically responsible farming practices.

2. Greenpeace does not solicit or accept funding from governments, corporations or political parties. Greenpeace neither seeks nor accepts donations that could compromise its independence, aims, objectives or integrity.

3. Greenpeace is committed to the principles of non-violence, political independence and internationalism. In exposing threats to the environment and in working to find solutions, Greenpeace has no permanent allies or enemies.

Climate change and fossil fuel support in developing countries.

4. To have even a moderate chance of keeping globa l average temperature rises as far below 2 degrees above pre-industrial levels as possible, developed countries will need to reduce their emiss ions by 25-40% range below 1990 levels [1] . This will require a transformation of their energy and transport sectors.

5. However, emissions from developing countries will also need to fall significantly , against a business as usual scenario (in the order of 15-30%). This will require their development pattern to alter, from a reliance on high to low-carbon fuel sources.

6. At the same time, access to affordable energy remains an acute develop ment challenge , which will have to be addressed, if millions of p eople are to escape poverty, and if the world is to make genuine and sustained progress in meeting Millennium Developme nt Goals.

7. This creates a twin challenge for those managing the UK’s aid programmes and budgets; to help deli ver energy access for the poor and support continuing economic development, whilst also catalyzing a shift to low carbon, climate friendly energy generation and use.

Energy Lending and the World Bank Group.

8. Much of the UK ’s energy lending to developing countries is currently channeled through the World Bank Group. The bulk of this still goes to support fossil fuel projects, despite recent attempts by the WBG to re- position itself as the ‘bank of choice’ for international funds directed at climate change mitigation and adaptation. 

9. Financial year 2010 has been the World Bank's largest year for fossil fuel spending to date, with spending on fossil fuels up 138% on the previous year totaling around $6.3 billion for FY2010.   [ii] [ii] I n FY2010 the World Bank Group loaned over $I.8 billion for oil and gas exploration and production of which 729 million was directed at offshore development.  Over the same year, coal based power was supported by funds of $4.4 billion, taking lending on coal-based energy development from financial year 2006 to the present to $6.6 billion.   [ i ] [ i ] .

10. Bank lending on fossil fuels is still greater than new renewable energy and energy efficiency combined, $7.3 billion compared with $5.3 billion respectively for fiscal years (FY) 2007 to 2009. Over the same time period, fossil fuels maintained a 49% share of overall Bank lending by energy source, with new renewable energy at 15%, energy efficiency at 20%, and large hydropower at 16%   [iii] [iii] .

11. A recent WWF report found that "since 1997, the World Bank has financed more than 26 gigatonnes of lifetime CO 2 emissions, which is around 45 times the current annual CO 2 emissions of the UK ."   [iv] [iv]

12. Controversial WBG lending projects include a $3.75 billion loan to ESKOM, the state owned South African power company, the vast majority of which will help to build one of the world’s biggest new fired power plants - despite fierce opposition from local community groups and climate campaigners [2] [vii] .  The Labour Government abstained from voting on the ESKOM loan, under pressure from civil society.  So far, the Coalition Government has not clarified its position on similar applications should they arise in future.

13. The I nternational Finance Corporation (IFC) has also recently provided $215 million support for offshore oil exploration and production in Ghana . Among the outstanding environmental concerns noted by objectors were the lack of an environmental and social impact assessment (ESIA), plans to dump drilling waste into the sea, and inadequate assessment of the potential impacts of an oil spill [3] [viii] .

14. DIFD rightly believe that they can have significant influence on World Bank Group policies, saying on their website: "The UK has considerable influence in the World Bank thanks to our seat on the board, the substantial financing we provide, and our joint working in-country and at headquarters level." [4] [ix]

15. The UK is the joint fourth biggest shareholder in the bank and on several years the biggest donor, its contribution representing up to 15% of total bank lending. I n 2008, the UK pledged £2.1 billion ($4.1 billion) to the fifteenth replenishment of IDA to be paid in installments over the next three years. The UK contributed £493 million ($953 million) in financial years 2006/07 and 2007/08 to IDA [5] [x] .

16 . The UK is also a major contributor to trust funds administered by the World Bank Group (mainly IDA, IBRD and IFC). In 2007, the UK was the largest trust fund donor, contributing around £615 million ($1.190 billion) [6] [xi] . In 2008, the UK continued to be the largest donor to World Bank Trust funds, contributing around £556 million ($1.1 billion) [7] [xii] .

17 . Shortly after coming into office, Andrew Mitchell, Secretary of State for International Development, announced a ‘Multi-lateral Aid Review’ [8] [xiii] , to examine the cost effectiveness of all UK aid flowing through multi-lateral institutions, including the World Bank Group. 

18 . The review promises to consider climate change as a ‘cross cutting’ issue in assessing the UK ’s future engagement with multi-lateral institutions and funds.  It thus provides the perfect opportunity to consider how the UK can most effectively use its aid budgets, as well as its influence as a donor and share-holder, to transition the WBG out of fossil fuel lending, and towards the support of low-carbon development and prosperity.  

19 . At the same time, the World Bank Group is reviewing its Energy Strategy, a process which will guide their energy investments for the coming decade. This process has been delayed recently, and is now due to produce a draft strategy in February 2011, and a final version in June 2011.   In our view, the Coalition government should use its influence in the Bank, to push for a moratorium on support for the most polluting projects, and a rapid shift towards support for low carbon infrastructure. 

UK Export Credit Guarantees Department

20 . The Export Credits Guarantee Department (ECGD) is a non-ministerial department, accountable to Parliament through the Secretary of State for Business, Enterprise and Regulatory Reform. The ECGD’s role is to assist UK exporters by providing financial guarantees and insurance for export contracts in markets where commercial cover would not normally be available. 

21. The current ECGD remit is derived from the 1991 Export and Investment Guarantees Act, which sets a primary duty to assist exporters of UK goods and services to win business abroad and invest overseas. The Business Principles, including sustainable development objectives, are currently subsidiary to this primary duty.

22. Government figures suggest that the ECGD provided £595 million of credit guarantees for fossil fuel projects under the previous Labour administration (between 1997 and 2010) [9] [xv] . Because of the ‘leveraging’ value of credit guarantees from Governments, the full value of this support was at least twice this, though estimates of leverage rates vary.

23. Before the 2010 General Election, opposition spokespeople including Andrew Mitchell, since appointed Secretary of State for International Development, made it clear that they believed fossil fuel lending by the ECGD should stop.  He said in a speech the Overseas Development Institute that " we must end the use of the Export Credit Guarantee Department to promote 'dirty' fossil fuel power stations around the world, and instead make it a champion of green technology " [10] [xvi] .  

24. The same intentions where laid out in the Coalition Agreement: " We will ensure that UK Trade and Investment and the Export Credits Guarantee Department become champions for British companies that develop and export innovative green technologies around the world, instead of supporting investment in dirty fossil-fuel energy production." [11] [xvii]

25. Since the election, several Government ministers have stressed the importance of clean technologies in the push for an export-led economic recovery. David Cameron, on his visit to India earlier this year, stressed technology collaboration as central to the relationship between the two countries:

‘Tomorrow I’m going to be talking to Prime Minister Singh about how we can work together to develop and deploy new and renewable energy sources, in particular to reach some of India’s poorest communities. If we get this right, it will be a triple win: clean energy, electricity brought to poorest people, new jobs and growth. And it’s precisely the sort of cooperation we need as we move forward in this relationship.’

26. The ECGD could play a central role in taking forward this agenda. However, so far there has been no clear indication from the Government as to how they intend to fulfill the commitment in the Coalition Agreement. Nor has there been any indication publicly, that the Government would do this as part of a wider ambition to reform ECAs globally (for example, through the G20 , where this issue was recently raised by the US ).

UK Aid, Forests and Climate.

27. Tropical forests are important carbon stores; protecting them from further damage and loss must be one important component of a global plan to tackle climate change, as acknowledged in the recent Cancun agreement on Reducing Emissions from Deforestation and Degradation (REDD).

28. Forests also support the majority of the world’s remaining terrestrial biodiversity; are home to tens of millions of people; are central to the culture, identify and livelihoods of many indigenous peoples; and provide a range of vital ecosystems services, including watershed regulation.

29. The UK has a history of support for tropic al forest protection; the current Government has confirmed that this remains a priority. However, the UK continues to contribute to many programmes, particularly those funded and managed by the World Bank Group, which at best do little to help address tropical deforestation; and at worst help to drive it through support for unsustainable agro-forestry practices.

The World Bank Group ’s Forests Policies.

30 . Much World Bank le nding to the forestry sector remains incompatible the UK Government’s objectives in relation to natural forest protection and climate mitigation . Most WBG lending for forestry is made by the IFC, which over the period of FY 2003-2006 committed $ 1 billion to forestry projects – for projects with a total cost of $ 4 billion – more than 50% of it for paper and pulp mills.

31 . The Bank commissioned a review of its Forest Strategy which was published in 2007: " The World Bank’s Forest Strategy – Review of Implementation." [12] The re view’s main conclusion was that "The Bank’s current incentive structure, which is targeted at fast, low-cost processing of projects, does not fit well for forestry projects." (p.50).

32 . The 2007 Review states " in many other [areas] poverty concerns and the impacts of forest interventions on forest-dependent peoples have not received adequate attention, either in the Bank’s analytical and economic and sector work or in its lending programs." ( p.ix ).

33 . The 2007 Review also found poor implementation of safeguard policies on environmental assessment, natural habitats, indigenous peoples and resettlement.  It concluded that team leaders were viewing safeguards as barriers and not as instruments for reducing risk and recommended urgent improvements in saf eguard policy implementation.

34 . In our view , the current Multilateral Aid Review, being conducted by the Coalition Government, provides an ideal opportunity for the UK to call for an overhaul of Bank forest policies, to focus WBG lending clearly and specifically on delivering emission reductions from avoided deforestation, protecting natural forests, alleviating poverty, safeguarding biodiversity and protecting the rights and livelihoods of local and indigenous people.

Agro-forestry lending by the World Bank Group.

35 . In 2009, the IFC and then the wider WBG suspended finance for the palm oil sector, in response to complaints from Indonesian civil society and indigenous peoples, which in turn triggered a damning report from the IFC’s Compliance Advisory Ombudsman.

36 . In 2010, a new draft strategy for the palm oil sector was produced, which in our view fails to address the lack of supply chain traceability and responsibility which in endemic across the sector, and risks a return to BAU for Bank lending in this area.

37. The Multilateral Aid Review should result in a review the UK ’s engagement with WBG lending in the area of industrial tree plantations. In our view, this lending is not value for money, and is not closely aligned to Government priorities for poverty alleviation and climate change mitigation and adaptation.

38. We believe that the UK should argue for the current moratorium on palm oil lending to continue, until the Bank is in a position to focus lending solely on small scale, local production. Given that many of the same issues apply to the paper and pulp sectors and indeed to the cattle and soy sectors, we would also request that the UK consider carefully, the case for extending the moratorium to cover these areas of lending.

Reducing Emissions from Deforestation and Degradation (REDD)

39 . REDD (Reducing Emissions from Deforestation and Degradation) has the potential to help support rainforest nations in their transition towards sustainable, zero-deforestation economies. We are grateful f or the Government’s continuing support for REDD, and its promise to maintai n the existing commitment of £480 millio n in this area.

39. However, we a re extremely concerned that REDD plans currently going through the World Bank’s Forest Carbon Partnership Facility (FCPF) , and the CIFs Forest Investment Programme (FIP), could result in increased support for industrial logging and plantation establishment, at the expense of the protection of natural forests and support for local people.

40. A recent and particularly worry ing example of this is R-PP of the Democratic Republic of Congo , which was partly financed by the FCFP, and will now underpin DRC’s proposed national REDD plan . [13] Under the proposal, which has been widely criticised not just by civil soc iety groups, but also by the Bank’s own oversight bodies, a further 10 million hectares of natural forest would be converted to plantation, resulting in significant windfall profits for the logging sector, which would be subsidised to double logging intensity from the current levels.

41. Greenpeace analysis of Indonesian proposals to meet its national climate change targets, further illustrates the risks of REDD funding being used to underpin business and usual for the logging and plantation sectors at the expense of natural forest s [14] .

42. Government and industry data reveal planned expansion in pulp, palm, agriculture, biofuel and coal operations that could bring an additional 63 million ha of land into production by 2030. This would equate to all available land outside Protection and Conservation zones that is not already under identified economic use.

43. Ministry of Forestry data show that the area earmarked for expansion by these sectors includes 40% of Indonesia’s forest area, some 37 million ha – an area the size of Norway and Denmark combined; 80% of Indonesia’s peatland , some 16 million ha; and 50% of forested orang-utan habitat. Government figures suggest the forest and peatland carbon at risk amounts to 38GtC –four years’ worth of global greenhouse gas (GHG) emissions.

44. However, industry statements and government policy documents also indicate that – with improved productivity as a primary objective – no additional land is needed in Indonesia to achieve government targets for expansion in these sectors. Appropriately supported through government policy and regulation, an economically prosperous low-carbon development path for Indonesia is possible, and need not come at the expense of its natural forests and peatlands .

45. Central to ensuring that funding for REDD delivers a sustainable outcome for Indonesia , and other rainforest nations facing similar choices , will be the application of safeguards to REDD plans . Whilst some welcome language on safeguards was included in the agreement made on REDD at the recent UNFCCC meeting in Cancun , there is concern that the particular protection afforded to natural forests may not be mandatory on donor and recipient Governments. This is because these Governments are only required to ‘support and promote’ the followin g safeguard for natural forests:

‘ Actions are consistent with the conservation of natural forests and biological diversity, ensuring that actions referred to in paragraph 70 of this decision are not used for the conversion of natural forests, but are instead used to incentivize the protection and conservation of natural forests and their ecosystem services, and to enhance other social and environmental benefits’

[1] Taking into account the need for sustainable livelihoods of indigenous peoples and local communities and their interdependence on forests in most countries, reflected in the United Nations Declaration on the Rights of Indigenous Peoples, as well as the International Mother Earth Day.

46. As a potential leader in natural forest protection, the UK should now set a precedent by committing itself to applying this safeguard in full to all UK REDD funding, whether this flows through multi-lateral institutions or through interim bilateral agreements. The UK must also work through the UNFCCC process in 2011, to ensure that REDD p lans supported through the new Green Climate Fund meet this safeguard for the protection of natural forests; and that donors and recipients agree t o monitor and report against the application of this and other safeguards established in the Cancun agreements.

47. In conclusion , significant amounts of development aid , particular aid flowing through the WBG , are currently being used to support deforesting activities in developing countries , at the expense of natural forest protection and with little or no benefit for poverty alleviation or local people. We do not believe that this is publicly acceptable , in the context of current UK budgetary constraints. We look forward to the Multilateral Aid Review providing a comprehensive reappraisal of UK contributions in this area; and to UK REDD funding which is demonstrably aimed at the c onservation of natural forests, the provision of sustainable livelihoods and the protection of the rights of indigenous peoples.