World Bank increases fossil-fuel funding despite pledge
Once the new Tata Ultra Mega power plant in western India is fired up in 2012 and fully operational, it will become one of the world's 50 largest greenhouse-gas emitters. And the World Bank is helping make it possible.
A year after World Bank President Robert Zoellick pledged to "significantly step up our assistance" in fighting climate change, the development institution is increasing its financing of fossil-fuel projects around the globe.
The $4.14 billion, coal-powered Ultra Mega plant will emit more carbon dioxide annually than the nation of Tunisia, according to the U.S. Department of Energy. The World Bank in April agreed to provide $450 million in loans and guarantees for the project and also may buy a $50 million stake in it.
"The World Bank's lending record does not match up to Zoellick's rhetoric," says Heike Mainhardt-Gibbs, a consultant to the Bank Information Center, a Washington watchdog group. "The institution is simply not slowing down its significant funding to fossil-fuel projects that will emit greenhouse gases for 20 to 40 years."
The reason: For all the concern that global warming will wreak environmental havoc, such plants offer the speediest economic payoffs, helping fulfill the bank's mandate to battle deprivation and refill its coffers so it can lend more.
"The mission of the World Bank Group is to alleviate poverty, and one way it does that is to increase access to energy," says Somit Varma, director of the oil, gas, mining and chemicals department. "Doing this just with renewable sources is not feasible."
The World Bank's energy-project financing is at cross-purposes with the pressure the United States -- its most influential benefactor -- is putting on developing countries to do more to battle climate change.
The United States has the largest voting share on the bank's board, is the only country with veto power over changes to its articles of agreement and traditionally selects its president. Zoellick, who a spokesman said wasn't available for comment, formerly served as a deputy secretary of state and U.S. trade representative under President George W. Bush.
At the Group of Eight industrialized nations summit in July in Japan, Bush, 62, insisted that any agreement on emissions targets must include commitments from China and India.
"They are emitting increasingly large quantities of greenhouse gases, which has consequences for the entire global climate," Bush said in April.
The bank's increased funding for fossil-fuel projects occurs as the energy industry benefits from seven years of rising oil prices. The world's six largest oil companies produced a record $51.5 billion in second-quarter profits this year, 41 percent more than in the same period in 2007 and the equivalent of $400,000 a minute.
"The oil industry certainly does not need soft loans from a multilateral poverty-reduction agency," says William Easterly, a New York University professor and former World Bank economist. "The private sector can do this perfectly well on its own."
The recipient of the World Bank Group's coal-power loan, Tata Power Ltd., is the biggest electricity generator in India that's not under state control. The company has a stock-market value of $5.5 billion, and its shares have increased more than six-fold over the past five years. In the year ended March 31, the company reported net earnings of $206 million, up 25 percent from the year before.
World Bank critics say funding for Tata Ultra and other energy projects -- including $300 million for the privatization of a coal-fired Calaca Power plant in the Philippines and $50 million to Salamander Energy Plc for oil and gas exploration in Southeast Asia -- sacrifice air and water quality for revenue.
The Center for Global Development, a Washington research group, figures that the Tata plant will be No. 42 in its ranking of the world's top greenhouse-gas emitters.
Last year, the World Bank made a total of about $33 billion in loans, grants and equity investments worldwide. Of that, about 10 percent went to power-generation and resource-extraction projects -- $2.3 billion for fossil-fuel-related undertakings, and $1 billion for renewable energy, including hydroelectric, geothermal, wind and solar power.
In October, Zoellick promised to work to "meet the challenge of climate change without slowing the growth that will help overcome poverty."
To meet that goal, the World Bank has invested heavily in energy conservation and is stepping up efforts to promote renewable energy, says spokesman Hannfried von Hindenburg. Combined lending to energy efficiency and renewable energy increased by 25 percent to $1.43 billion in the year ended June 30, 2007, from the previous year, he says. The bank hasn't calculated figures for fiscal 2008 yet.
World Bank officials say a shortage of electricity is a key constraint to growth in many developing countries, but its energy investments have gone well beyond electricity in developing countries since Zoellick, 55, became president in July 2007.
A $250 million loan will help Cairn India Ltd. find and process crude oil. IFC funds will be used to construct a 373-mile pipeline to transport that oil to Gujarat's western coast. The IFC also loaned $550 million this year for an oil and gas project in Argentina and $300 million for a liquefied natural gas project in Peru.