47893 DEVELOPMENT AND v2 CLIMATE CHANGE A Strategic Framework for the World Bank Group TECHNICAL REPORT DEVELOPMENT AND CLIMATE CHANGE A Strategic Framework for the World Bank Group TECHNICAL REPORT © 2008 The International Bank for Reconstruction and Development / The World Bank 1818 H Street, NW Washington, DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: feedback@worldbank.org All rights reserved. This volume is a product of the staff of the International Bank for Reconstruction and Development / The World Bank. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T iii FOREWORd The global economy in general, and developing countries in particular, have been hit by the triple shocks of a food price crisis, energy price volatility, and a financial meltdown. Attention has rightly focused on preserving the fundamentals for growth and protecting the poor from immediate deprivation. Another imminent crisis of immense proportions, however, must not be neglected. Global climate change threatens to derail or even roll back development progress for many countries. Reconciling the double challenge of mitigating and adapting to climate change while supporting the growth priorities of developing nations is a major test for the international community. In this context, the Strategic Framework on development and Climate Change for the World Bank Group marks a milestone. Endorsed at our Annual Meetings in October 2008, it is the first institution-wide strategic document to guide our work on advancing development outcomes in the new reality of a changing climate. The Strategic Framework confirms the World Bank Group's mission of helping nations to overcome poverty and facilitate sustainable growth in the face of new development challenges posed by global climate change. The Strategic Framework recognizes the imperative of modernizing the international financial architecture for development--a message further reinforced, albeit from a different perspective, by the financial crisis. It addresses a critical role of the private sector in a global transformation toward a lower carbon, climate resilient growth. Major policy decisions are needed to mobilize public and private resources on a large scale (over and above the current levels of official development assistance) to help developing countries manage unavoidable climate risks and to prevent a global catastrophe. While the current financial crisis can make some of these decisions more difficult, it does not make them less important or less urgent. The Framework was formulated through an extensive global consultation process involving a full range of internal and external stakeholders. The consultations have helped to understand and balance very diverse views, and they have facilitated ownership and consensus building among multiple partners and stakeholders. Moving ahead, we consider it critical to maintain and broaden this consensus in order to deliver on our collective responsibilities to both present and future generations. Katherine Sierra Rachel Kyte James Bond Vice President Vice President Acting Executive Vice President Sustainable development Business Advisory Services Multilateral Investment The World Bank International Finance Corporation Guarantee Agency A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T v ACkNOwLEDGEMENTs Norton, Jonathan Padgham, Nirmaljit Singh Paul, Thi Trang Linh Phu, Poonam Pillai, Neeraj Prasad, Venkata Putti, Federica Ranghieri, Harshadeep Nagaraja Rao, Per Ryden, Gerardo Sanchez Martinez, Klas Sander, Apurva This Technical Report which provided the basis for the Sanghi, Ashok Sarkar, Kristyn Schrader, Jitendra Shah, Strategic Framework on Development and Climate Change Susan Shen, Claudia Sobrevila, Frank Sperling, Vladimir for the World Bank Group was prepared through a broad- Stenek, Karin Strydom, Gary Stuggins, Vivek Suri, based consultative process both within and outside the Bank William R. Sutton, Govinda Timilsina, Alan Townsend, Group, with participation of staff from different World Bank Hanneke van Tilburg, Harvey Van Veldhuizen, Jari units, sectors and regions; the International Finance Vayrynen, Walter Vergara, Jan von der Goltz, Konrad von Corporation (IFC), and the Multilateral Investment Ritter, Xiaodong Wang, Michael Ian Westphal, Vikram Guarantee Agency (MIGA). The effort was led by Kseniya Widge, Eliza Winters, Winston Yu and Ivan Zelenko. Lvovsky (World Bank), under the overall guidance of Astrid Hillers coordinated various inputs. Katherine Sierra, Warren Evans and Jamal Saghir (World Bank), Rachel Kyte (IFC), and Edith Quintrell (MIGA). The document greatly benefited from the global consulta- The core writing team included Philippe Ambrosi, Patricia tion process on the draft versions of the report that was led Braxton, Milen Dyoulgerov, Astrid Hillers, Gretel by Michele de Nevers and made possible by the dedicated Gambarelli, Fareeha Iqbal, Kseniya Lvovsky, Gary Stuggins, efforts of a consultation team headed by Anita Gordon and and Suphachol Suphachalasai (World Bank), Shilpa Patel and Jeff Brez, with dedicated support from Barbara Bech, Alan Miller (IFC), and Elena Palei (MIGA). Yvonne Fiadjoe, and Alexandra Sears. Further support and guidance were provided by Robert Bisset, Patricia Bliss- Significant contributions were provided--through prepar- Guest, Soniya Mitra, Roger Morier, Karolina Ordon, and ing background sectoral notes, thematic inputs, and regional Edith Wilson (World Bank) and Lucie Giraud (IFC). strategies, and participating in several thematic work groups--by the following staff: Kazi Fateha Ahmed, Contributions to the consultation process were provided by: Kulsum Ahmed, Vahid Alavian, Jocelyne Albert, Clive Herbert Acquay, Adegbemisola Ademisoye, Herminia Armstrong, Patrick Avato, Yewande Awe, Anthony Bigio, Adviento, Zeina Afif, Kulsum Ahmed, Faisal Abdulrahaem Veronique Bishop, Patricia Bliss-Guest, Aziz Bouzaher, Al-Hothali, Jamal Al-Kibbi, Maral Amansahatove, Joachim Marjory-Anne Bromhead, Ana Bucher, Julia Bucknall, Anil von Amsberg, Maja Andjelkovic, Rafael Archondo, Clive Cabraal, Raffaello Cervigni, Joëlle Chassard, Jonathan Armstrong, Ana Maria Arteaga, Nurjamal Asanova, Oscar Coony, Lisa Cushion, Richard Damania, Adrien de Avalle, Iskandarsyah Bakri, Katie Bannon, Garo Batmanian, Bassompierre, Christophe de Gouvello, Michele de Nevers, Noreen Beg, Ferid Belhaj, Mariella Beugue, Adriana Gerhard Dieterle, Charles Di Leva, Ariel Dinar, Jane Bianchi, Juan Blazquez Ancin, Tony Borges, Christophe Ebinger, Erick Fernandes, Armin Fidler, Daryl Fields, Bosch, Aziz Bouzaher, Haleh Bridi, Marjory-Anne Lucie Girard, Habiba Gitay, Steve Gorman, Chandra Bromhead, Timothy Brown, James T. Cantrell, Marcos Govindarajalu, Douglas Graham, Thomas Groh, Marea Castro, Zhuo Cheng, Sipiwe Janet Chihane, Grace Ingrid Hatziolos, Johannes Heister, Rafik Hirji, Ronald Hoffer, Chilambo, Luis Constantino, Julia Conter Ribeiro, Lester Dan Hoornweg, Richard Hosier, Mustafa Zakir Hussain, Dally, Richard Damania, Darshani De Silva, Christian Karin Kemper, Rohit Khanna, Hoonae Kim, Andreas Delvoie, Jyldyz Djakypova, Francis Dobbs, Diletta Doretti, Kopp, Alexandre Kossoy, Isabel Lavadenz Paccieri, Robert Edward Felix Dwumfour, Michele D. Egan, Enos Esikuri, Lesnick, Michael Levistsky, Stephen Lintner, Fernando Charles Feinstein, Shakil Ferdausi, Alexander Feshenko, Loayza, Magda Lovei, Kathy Mackinnon, Olivier Mahul, Gary Fine, Reza Firuzabadi, Achim Fock, Michael Foley, Muthukumara Mani, Alexandre Marc, Oleg Martens, Melissa Fossberg, Han Fraeters, Nicole Frost, Camille Heidi Mattila, Farida Mazhar, Robin Mearns, Lucio Funnell, Anastasia Ganeeva, John Garrison, Barbara Monari, Judith Moore, Jessica Morey, Ian Noble, Andrew Genevaz, Jenny Gold, Steve Gorman, Caroline Grunewald, vi D E V E LO PM E N T A N D C L I M AT E C H A N G E Seynabou Mbengue Gueye, Ryan Douglas Hahn, Sonia versions of the paper; Nancy Vandycke for support Hammam, Jemima Harlley, Angie Harney, Christina Lin throughout the process; and Barbara Lee and Hartwig Hasley, Fatma Hervieu-Wane, Rasmus Heltberg, Astrid Schafer for help with finalizing the document. Sharon Hillers, Tomoko Hirai, Ronald Hoffer, Sarwat Hussain, Esumei, Catherine Guie, Koshie Michel, Ewa Natalya Iosipenko, Mika Iwasaki, Raja Iye, Miyuki Sobczynska and Leonida Vista assisted the team at vari- Izumiyama, Steffen Janus, Rachel Winter Jones, Steen ous stages. Editorial assistance was provided by Bruce Jorgensen, Steve Jouy, Augusto Juca, Elena Karaban, Karina Ross-Larson of Communications Development Inc. and Kashiwamoto, Sherry Kennedy, Rohit Khanna, Hoa Phuong Rosemarie Philips. Production assistance was provided by Kieu, Brigitte Kirby-Dia, Florian Kitt, Melissa Knutson, James T. Cantrell. Jakob Kopperud, Jarl Krausing, Jayne Kwengwere, Guggi Laryea, Giang Thanh Huong Le, Josef Leitman, Stephen Extensive comments received from various vice-presidential Lintner, Ruth Llanos, Dahlia Lotayef, Roberta Lovatelli, units during the review process; the support and guidance of Magda Lovei, Mark Lundell, Kseniya Lvovsky, Marina Graeme Wheeler, Managing Director, World Bank and Lars Lysiakova, Marilyn Markman, Katherine Marshall, Pamela Thunell, Executive Vice-President, IFC; and comments and Masango, Luisa Moises Matsinhe, Jeff McCoy, Maria guidance from the World Bank Group's Executive Directors Margarida Baessa Mendes, Tania Meyer, Oxana Miller, and their staff are gratefully acknowledged. Khawaja Minnatullah, Irina Mishurny-Santini, Lucio Monari, Adriana Moreira, Matluba Mukhamedova, Helena Special gratitude extends to a large number of representa- Naber, Richard Newfarmer, Shayhar Niakan, Ian Noble, tives from governments, UN agencies, multilateral develop- Nothando Nyathi, Erika Odendaal, Kenichi Ohashi, Koichi ment banks, bilateral donor agencies, civil society, Omori, Dapo Oyewole, Sara Amaro Pais, Kiran Pandey, parliaments, the private sector, academia, indigenous peo- Ximing Peng, Jeeva Perumalpillai-Essex, Djordjija Petkoski, ples, youth, and other stakeholders who hosted and/or par- Sumith Pilapitiya Laurent Porte, Ina Pranoto, Idah Z. ticipated in consultations, held face-to-face and through Pswarayi-Riddihough, Venkata Ramana Putti, Juan Eduardo videoconferences in more than 70 countries. We are very Quiroga, Ricardo Quiroga, Navin Rai, Rondro Rajaobelison, grateful to all those who provided comments via the dedi- Patrick Reichenmiller, Dirk Reinermann, Swati Abhijit cated Web site, which received over 13,000 hits during the Revankar, Nigel Roberts, Nenuca Robles, Kurnya Roesad, 5-month consultation period. Cristina Romero, Giovanni Ruta, Lynn Ryan, Randy Salim, Sonia Chand Sandhu, Valentin J. Sapcariu, Jennifer Sara, We would like to acknowledge staff of the African Kristyn Schrader, Manievel Sene, Banu Setlur, Brad Development Bank who participated in joint consultations: Simmons, Frank Sperling, Michael Stanley, Mittpheap Lucy Fye, Alice Hamer, Mohamed H'Midouche, John Steele, Jakob Stefanik, Drew Stewart, Marlise Ann Sande Kanyarubona, Daniele Ponzi, Hany Shalaby, and Streitmatter, Gary Stuggins, Kubat Sydykov, Patricia Taitt, Sebastian Veit. We thank several external partners who pro- Madani Tall, Kazushige Taniguchi, Alejandro Marcos Tapia, vided substantial support and cooperation during the con- Isabelle Taylor, Rachel Taylor, Helen Tesfaye, Moctar sultations: Australian Council for International Thiam, Monica Torrelios, John Tuma, Cristina Tumale- Development (ACFID), Bank Information Center (BIC), Habib, Roman Vad, Michel Van Beneden, Esther Van The Center for Global Development, DanChurchAid Damme, Ana Maria Vicuña, Konrad von Ritter, Nina (Denmark), Forum for Environment and Development Vucenik, Imogen Wade, Brady Walkinshaw, Ann Walsh, (Norway), Forum Syd (Sweden), Global Distance Learning Jonathan Walters, Monika Weber-Farr, Devrin Davis Weiss, Centers (GDLN), Global Legislators Organization for a Dawn Williams, Jinhui Wu, Dana Younger, Chunxiang Balanced Environment (GLOBE), Institute for Sustainable Zhang and Jianping Zhao. Energy Policies (Japan), International Union for the Conservation of Nature (IUCN), RCEE Energy and The team is grateful to Kristalina Georgieva for initiating Environment (Vietnam), and the World Business Council and guiding the effort; Axel Peuker for advice on several for Sustainable Development (WBCSD). A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T vii ABBREvIATIONS ANd ACRONyMS ADB Asian Development Bank GFDRR Global Facility for Disaster Reduction AfDB African Development Bank and Recovery AFR Africa Region GHG Greenhouse Gas AAU Assigned Amount Units GIS Green Investment schemes ASTAE Asia sustainable and Alternative Energy Program GNI Gross National Income BNPP Bank Netherlands Partnership Program GoM Government of Mexico CO2 Carbon Dioxide GPG Global Public Goods CAIT Climate Analysis Indicators Tool GWMATE Groundwater Management Advisory Team CAS Country Assistance strategy HFA Hyogo Framework for Action CCDP Climate Change for Development Professionals HLCP High-level Committee on Programs CCMG Climate Change Management Group IADB Inter-American Development Bank CCRIF Caribbean Catastrophe Risk IBRD International Bank for Reconstruction Insurance Facility and Development CCS Carbon Captive storage IDA International Development Association CDG Carbon Delivery Guarantee IEA International Energy Agency CDM Clean Development Mechanism IEG Independent Evaluation Group CEA Country Environmental Analysis IFC International Finance Corporation CEIF Clean Energy for Development IFCA Indonesian Forest Climate Alliance Investment Framework IFI International Financial Institution CER Certified Emissions Reductions IFRC International Federation of Red Cross CF Carbon Finance and Red Crescent societies CFL Compact Fluorescent Lamps IGCC Integrated Gasification Combined Cycle CFU Carbon Finance Unit IPCC Intergovernmental Panel on Climate Change CGIAR Consultative Group on International Agricultural Research IPP Independent Power Producer CIF Climate Investment Funds ISDR International strategy for Disaster Reduction COP Conference of the Parties JBIC Japan Bank for International Cooperation CPF Carbon Partnership Facility JI Joint Implementation CPS Country Partnership strategies LAC Latin America and the Caribbean Region CSO Civil society Organization LDCF Least Developed Countries Fund CTF Clean Technology Fund LULUCF Land Use, Land Use Change and Forestry DAC Development Assistance Committee MDB Multilateral Development Bank DEC Development Economics Vice Presidency MDGs Millennium Development Goals (of the world Bank) MNA Middle East and North Africa Region DFID Uk Department for International Development MER Market Exchange Rate DPL Development Policy Loan MICs Middle-Income Countries EAP East Asia and Pacific Region MIGA Multilateral Investment Guarantee Agency EC European Commission NAPA National Adaptation Programs of Action ECA Europe and Central Asia Region NCCS National Climate Change strategy EE Energy Efficiency NEPAD The New Partnership for Africa's Development EIA Energy Information Administration, NGO Non-governmental Organization Us Department of Energy ODA Overseas Development Assistance EIT Economy in Transition OECD Organisation for Economic Co-operation ESMAP Energy sector Management Assistance Program and Development EU ETS European Union Emissions Trading scheme PCF Prototype Carbon Fund FAO Food and Agriculture Organization PHRD Policy and Human Resources Development of the United Nations PPM Parts Per Million FCPF Forest Carbon Partnership Facility PPCR Pilot Program for Climate Resilience GDP Gross Domestic Product PPP Purchasing Power Parity GEF Global Environment Facility viii D E V E LO PM E N T A N D C L I M AT E C H A N G E PREM Poverty Reduction and Economic TF Trust Fund Management Network TFESSD Trust Fund for Environmentally and socially sustainable PRSP Poverty Reduction strategy Paper Development R&D Research and Development UN United Nations RDB Regional Development Bank UNDESA United Nations Department of Economic and social Affairs RE Renewable Energy UNDP United Nations Development Programme RE/EE Renewable Energy and Energy Efficiency UNICEF United Nations Children's Fund REDD Reduced Emissions from Deforestation UNEP United Nations Environment Programme and Degradation UNESCO United Nations Educational, scientific, and Cultural R-PIN Readiness Plan Idea Note Organization SAR south Asia Region UNFCCC United Nations Framework Convention on Climate Change SCCF special Climate Change Fund UNIDO United Nations Industrial Development Organization SCF strategic Climate Fund UNISDR United Nations International strategy for Disaster SDLP sustainable Development Reduction Leadership Program US DOE United states Department of Energy SEA strategic Environmental Assessment VPUs Vice-Presidential Units SPA GEF strategic Priority to Pilot an Operational Approach to WB world Bank Adaptation WBG world Bank Group SSA sub-saharan Africa Region WDI world Development Indicators SWAT sanitation, Hygiene, and wastewater WDR world Development Report Advisory service WMO world Meteorological Organization TA Technical Assistance WRI world Resources Institute A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T ix CONTENTS Executive summary xi TECHNICAL REPORT 1 1. The Challenge: Development in the Context of Climate Change 1 2. working with the Global Community to Address the Global Challenge 8 3. scaling-up the world Bank Group Response: Guiding Principles 14 4. support Climate Actions in Country-led Development Processes (Action Area 1) 20 5. Mobilize Additional Concessional and Innovative Finance (Action Area 2) 31 6. Facilitate the Development of Market-based Financing Mechanisms (Action Area 3) 35 7. Leverage Private sector Resources (Action Area 4) 39 8. support Accelerated Development and Deployment of New Technologies (Action Area 5) 43 9. step Up Policy Research, knowledge, and Capacity Building (Action Area 6) 46 10. Developing the Results Framework 53 ANNExEs Annex 1: Impacts and Emissions 57 Annex 2: Costs and Financing sources 64 Annex 3: The Consultation Process 70 Annex 4: Development ­ Climate Linkages at the Country Level 79 Annex 5: Regional Profiles 81 Annex 6: Analytical Tools and Instruments Used by the wBG 87 BOxEs Box 1: Major Initiatives xii Box 2: Climate Action as a Development Opportunity 4 Box 3: Highlights from the Bali Action Plan 6 Box 4: National Initiatives on Climate Action 8 Box 5: Leading by Example: Carbon-neutral wBG 9 Box 6: Global Consultations on wBG's Role in Climate Action 10 Box 7: Highlights from the "IDA and Climate Change" Paper 16 Box 8: Mexico Climate Change Development Policy Loan 17 Box 9: IFC's Approach to Addressing Climate Change 18 Box 10: supporting Client Countries to Reduce Vulnerability to Natural Hazards 21 x D E V E LO PM E N T A N D C L I M AT E C H A N G E Box 11: water scarcity and Climate Change in the Middle East and North Africa Region 23 Box 12: Trans-boundary water Resources and Climate Change 25 Box 13: supporting Forests, Livelihoods, and Climate Action through REDD 26 Box 14: Biofuels: A Country-by-Country Approach 27 Box 15: Putting the Carbon Market to work for sustainable Transport 28 Box 16: Greening Energy Access in Africa 30 Box 17: Climate Investment Funds 32 Box 18: IFC's Carbon Delivery Guarantee: Managing Risk and Maximizing Returns 36 Box 19: Facilitating Access to Climate Risk Insurance and Reinsurance 37 Box 20: Putting Capital Markets to Climate Action 38 Box 21: Investment Climate Assessment for Renewable Energy in India 39 Box 22: MIGA's support to Private sector Climate-friendly Engagement 40 Box 23: Clean Energy as a Business Development strategy at IFC 41 Box 24: Experience with Clean Technology Deployment in sub-saharan Africa 44 Box 25: The GEF/IFC Earth Fund 45 Box 26: Global City Indicators Facility 48 Box 27: Carbon Finance Assist (CF-Assist): A Multidonor Capacity Development Fund 51 FIGUREs Figure 1: Adaptation Challenges Depend on Mitigation Progress 2 Figure 2: The Toll of Climate-Related Natural Disasters (1960 ­ 2006) 3 Figure 3: Projected Growth in CO2 Emissions and GDP in OECD and non-OECD Countries 4 Figure 4: A Framework to support world Bank Group Operations 14 Figure 5: wBG Lending by sector, FY07 22 Figure 6: GHG Emissions by sector, IBRD-IDA Countries, 2000 22 Figure 7: GHG Emission scenarios: with and without Accelerated Technology Innovation 43 TABLEs Table 1: select Major studies 46 Table 2: Actions and Deliverables for Fiscal 2009­11 54 A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T xi ExECuTIvE SuMMARy This Strategic Framework 1 serves to guide and support the operational response of the World Bank Group (WBG) to new development challenges posed by global climate change. Unabated, climate change threatens to reverse hard-earned development gains. The poorest countries and communities will suffer the earliest and the most. Yet they depend on actions by other nations. While climate change is an added cost and risk to development, a well-designed and well-implemented global climate policy can also open new economic opportunities to developing countries. The WBG recognizes the very complex political process toward long-term cooperative action within the UN Framework Convention on Climate Change (UNFCCC). Climate change demands unprecedented global cooperation involving a concerted action by countries at different devel- opment stages supported by "measurable, reportable and verifiable" transfer of finance and technology from devel- oped to developing countries. Trust of developing countries in equity and fairness of a global climate policy and neutral- ity of the supporting institutions is critical for such coopera- tion to succeed. Difficulties with mobilizing resources for achieving the Millennium Development Goals and with agreeing on global trade exemplify the political challenges in reaching global deals. The Framework will help the WBG maintain the effec- tiveness of its core mission of supporting growth and over- coming poverty while recognizing added costs and risks of climate change and an evolving global climate policy. The WBG top priority will be to build collaborative relations with developing-country partners and provide them cus- tomized demand-driven support through its various instru- ments--from financing to technical assistance to policy dialogue. It will give considerable attention to strengthening 1 A concise policy paper based on this technical report was discussed and endorsed by the Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries (the Development Committee) at the 2008 Bank­Fund Annual Meetings. This paper is available as a separate publication and can also be downloaded at www. worldbank.org/climatechange. xii D E V E LO PM E N T A N D C L I M AT E C H A N G E BOx 1 MAJOR INITIATIVES Under the new strategic Framework, the world Bank Group, in partnership with others, will: Help some of the most vulnerable countries increase resilience to climate risks, with new adaptation financing; Enhance development effectiveness of its operations by screening for: (a) climate risk in hydropower and major water investments with long life spans, and (b) energy efficiency opportunities starting with energy projects; Operationalize, execute, and share lessons from the Climate Investment Funds, Carbon Partnership Facility, and Forest Carbon Partnership Facility, and work with partners to improve monitoring of climate-related finance and its "additionality"; support carbon market development through investments in longer-term assets and currently bypassed reduction poten- tials, financial and quality enhancements of carbon assets, methodology development, and sharing lessons of experience; Facilitate customized applications of climate risk insurance products; Promote packaging of its development finance instruments with instruments provided by Carbon Finance, the Global Environment Facility, and the Climate Investment Funds; Pilot new initiatives to support development and dissemination of new energy technologies; Facilitate global dialogue by launching the World Development Report on climate change; and Enhance the knowledge and capacity of clients and staff to analyze and manage development-climate linkages at the global, regional, country, sector, and project levels. The wBG will increase financing for energy efficiency and new renewable energy by an average 30 percent a year, from a baseline of Us$600 million in average annual commitments during fiscal years 2005­07, and expand lending to hydropower, with the share of low-carbon projects rising from 40 percent in fiscal years 2006­08 to 50 percent in fiscal year 2011. It will scale up support to sustainable forest management, including reduced deforestation and forest degradation, afforestation, and reforestation. It also foresees an increased demand for investing in sustainable agriculture and food production, trans- port, and urban development programs. resilience of economies and communities to increasing cli- 1. Support climate actions in country-led development mate risks and adaptation. processes; 2. Mobilize additional concessional and innovative finance; The Framework also explores what the WBG can do to 3. Facilitate the development of market-based financing facilitate global progress. While the WBG's operations are mechanisms; in developing countries, a solution must be global, with the 4. Leverage private sector resources; leadership role played by developed countries. Recognizing 5. Support accelerated development and deployment of the primacy of the UNFCCC and its principle of common new technologies; and but differentiated responsibilities, the WBG will work in 6. Step up policy research, knowledge, and capacity building. partnership with the many international, regional, national, and local actors to increase its leverage and impact. The operational focus will be on improving knowledge and capacity, including learning by doing. The Framework will Within the Framework, the IFC, MIGA, IDA, IBRD, guide the operational programs of WBG entities to support and other entities of the Group will support specific needs actions whose benefits to developing countries are robust and priorities of their diverse clients. Six action areas-- under significant uncertainties about future climate policies each providing tools for supporting both adaptation and and impacts--actions that have "no regrets." actions with mitigation co-benefits--will allow the WBG's entities to build on their relative strengths, The Framework outlines the key measures for tracking prog- increase their synergies, and partner with external players, ress over fiscal years 2009­11 (Box 1). Over this period, the basing the division of labor on the comparative advantages WBG will be flexible to incorporate new developments in and mandates: negotiations and knowledge. An interim progress report will be prepared in the second half of fiscal year 2010. A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 1 1. THE CHALLENGE: DEVELOPMENT IN THE CONTExT OF CLIMATE CHANGE Climate change epitomizes the complexity of the develop- ment challenge in a globalizing but still highly unequal world. It magnifies growing concerns about food security, water scarcity, and energy security. Its recognition is owed to modern science, yet solutions involve deeply ethical consid- erations. It is a daunting environmental threat that raises the most difficult issues of economic disparity, political power, and social justice. Climate change makes people of every nation citizens of one planet dependent on the actions of others. How nations and their people will come together to tackle this unprecedented challenge is likely to become a defining feature of our time, affecting the lives of the cur- rent and future generations. Climate change is a development reality. In its Fourth Assessment Report, the Intergovernmental Panel on Climate Change (IPCC) made clear that the evidence of the warming of the climate system is unequivocal.2 Over the last century, there are empirical records of widespread increases in observed air and sea temperatures, sea-level rise, melting sea-ice and glaciers, and reduction of snow cover. In addition, at continental, regional, and ocean basin scales, there are observed trends of extreme weather patterns including more intense and longer droughts, an increase in extreme precipitation events over many land areas, and more hot days and heat waves. The anticipated impacts of climate change, which could begin to occur within the next two to three decades, include: dangerous floods and storms; exacerbated water stress; decline in agricultural productivity and food security; and further spread of water-related diseases, particularly in tropical areas. This could lead to population displacement, migra- tion, and potential conflicts. In the longer term, sea level 2 IPCC. 2007. Climate Change 2007. Contributions of working Groups I, II, and III to the Fourth Assessment, Cambridge University Press, Cambridge, Uk. Available at http://www.ipcc.ch/pdf/assessment- report/ar4/syr/ar4_syr.pdf. 2 D E V E LO PM E N T A N D C L I M AT E C H A N G E FIGURE 1 ADAPTATION CHALLENGES DEPEND ON MITIGATION PROGRESS Likely change already "baked in" Likely change with successful Likely change without Global Temperature Change mitigation action significant action on mitigation (Relative To Pre-industrial) 0°C 1°C 2°C 3°C 4°C 5°C 6°C Falling crop yields in many areas, particularly developing regions Food Possible rising yields in some high latitude regions Falling yields in many developed regions Small mountain glaciers Significant decreases in water Water disappear--water supplies availability in many areas, including Sea level rise threatens threatened in several areas Mediterranean and Southern Africa major cities Extensive damage Ecosystems to coral reefs Rising number of species face extinction Extreme Weather Rising number of storms, forest fires, droughts, flooding and heat waves Events Risk of Abrupt & Major Increasing risk of dangerous feedbacks and abrupt, Irreversible Changes large-scale shifts in the climate system Source: Adapted from IPCC 2007. rise and glacier melting threaten the existence of nations national, and local levels. One of the main features of and the development foundation of subcontinents. climate change is a major asymmetry in the distribution of the causes and impacts across countries. Industrialized An effective response to climate change must combine both countries have contributed most to the existing stock of mitigation--to avoid the unmanageable--and adaptation, emissions in absolute terms and on a per capita basis, to manage the unavoidable. Most of the warming trend while many developing countries are likely to bear the observed since the mid-20th century is very likely due to an brunt of the impacts (see Annex 1). increase in anthropogenic greenhouse gas (GHG) concen- trations, particularly of carbon dioxide (CO2) caused by Developing countries and the poorest communities are activities such as fossil fuel use and land use changes. While likely to suffer earliest and the most. This is due to their these activities have already likely committed the Earth to a geographical location, low incomes, and limited institu- level of warming within 2 degrees Celsius, the challenge tional capacity, as well as their greater reliance on cli- remains to curtail global greenhouse gas emissions so that it mate-sensitive sectors such as agriculture. Developing will be feasible to "manage the unavoidable" without incur- countries are burdened more by climate-related natural ring costs and impacts of a catastrophic magnitude (see disasters than industrialized countries (see Figure 2). Figure 1). A delay in reducing GHG emissions significantly The IPCC (2007) Fourth Assessment Report and the constrains opportunities to achieve lower GHG atmospheric United Nations Development Programme (UNDP) 2007 concentration stabilization levels and is likely to increase the Human Development Report 3 document chronic water risk of severe (and possibly some irreversible) impacts and stress, food security at risk, a growing frequency of cli- the cost of adapting to them. mate-related disasters, and an increased burden of diar- rhea and malaria as among the most notable examples of While mitigation is about reducing global GHG emis- the threats to livelihoods and development aspirations sions, adaptation needs to happen at the regional, (see Annex 1). 3 UNDP. 2007. Human Development Report 2007/2008: Fighting Climate Change: Human Solidarity in a Divided World, accessible at http://hdr.undp.org/en/reports/global/hdr2007-2008. A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 3 Climate change has the potential to reverse the hard-earned FIGURE 2 THE TOLL OF CLIMATE-RELATED development gains of the past decades, and impede the NATURAL DISASTERS (1960­2006) progress toward achieving the Millennium Development Goals (MDGs), such as eradicating poverty, combating Additional people affected Deaths communicable diseases, and ensuring environmental sus- 50 40 tainability. Incremental climate changes within the near future will largely occur in arid, semi-arid, and dry subhu- Deaths (per million people) Additional people affected 40 (per thousand people) mid regions of the developing world that are home to half of 30 the world's currently malnourished populations. Women, 30 indigenous communities, and marginalized societal groups 20 are among the most vulnerable. Some of the effects are 20 already emerging at a regional scale although it is difficult to discern due to adaptation and nonclimatic drivers. 10 10 Climate change increases the costs of development. There are 0 0 at least three dimensions to these added development costs: High Middle Low income income income (a) the required economic adjustments to the impacts of Source: Centre for the Research on the Epidemiology of Disasters, Universite global climate policies, including actions that may lead to Catholique de Louvain. www.emdat.eb Disasters include floods, droughts, land- price increases for various commodities, such as energy and slides, extreme temperature events, wind storms, wave/storm surges, and wild- fires. Low-income economies are those with a gross national income (GNI) per food, or changes in trade balances; (b) the need for more capita of Us$905 or less in 2006; middle-income economies are those with a GNI per capita of more than Us$905 but less than Us$11,116. resilient infrastructure, disaster relief, and preparedness mea- sures, and new agricultural technologies and practices to counter increased risks of climate change impacts; and (c) the accelerated adoption of less GHG-intensive technologies, increases. Looking ahead, the impact of likely changes in including those with higher costs and risks, as may become energy prices from anticipated global mitigation efforts necessary in the context of the global climate change regime. along with the corresponding changes in other commodity prices on the price of food is an area that requires further Fundamentally, the challenge is to help poorer countries grow analysis. In addition, climate variability and early signs of their economies and improve living standards despite the changing weather patterns will likely contribute to further higher costs of development inflicted by climate change. uncertainty in crop yields and volatility in food prices. Subsequently, there is a need to improve global and country- Implications of a combination of all these and other factors based knowledge of all these cost components and ways to for the poorer population groups need to be better under- minimize the total burden. This also means that successful stood and addressed on a country-by-country basis. global mitigation policies should be balanced with consider- ation of national burdens of adaptation and with equity and The importance of growth and energy access. Accelerating social concerns across and within the countries. or sustaining high economic growth remains critical for developing countries--and is more urgent because of cli- The increasing complexity of the development challenge, mate change. Poor countries have a myriad of pressing pri- including multiple linkages to climate change, food security, orities, low capacities, and a very high opportunity cost of and energy security, has been highlighted by the ongoing investment. Vulnerability of the poor to changing climate food price crisis. Indirect and unintended consequences of is underpinned by socioeconomic limitations, notably a policies motivated by concerns about energy security and lack of investments in agriculture and rural infrastructure, climate change have contributed to a competition between extensive degradation of arable lands, settlement in risk- crops for food and crops for fuel. Rising fuel prices have prone areas, poor access to credit and markets, and inad- been another factor contributing to the current food price equate social safety nets. There is scope for adaptation 4 D E V E LO PM E N T A N D C L I M AT E C H A N G E actions that can both achieve lower carbon growth and be FIGURE 3 PROJECTED GROWTH IN CO2 EMISSIONS supportive of national development priorities and local AND GDP IN OECD AND NON-OECD COUNTRIES business opportunities--such as energy efficiency (EE), Projected Growth of GDP and CO2 Emissions renewable energy (RE), sustainable livelihoods, and envi- Relative to 1990 OECD=1 ronmental protection (see Box 2). 5 non-OECD As developing countries strive to expand their economies and GDP, PPP reduce poverty, they need energy to meet the MDGs and fuel 4 requirements. About 1.6 billion people worldwide still have no access to electricity networks, most of them living in Sub- OECD 3 GDP, PPP Saharan Africa and South Asia. Many more people through- out the developing world do not have dependable access to electricity. Without such access to modern, clean, reliable, and 2 non-OECD efficient energy services, the poor miss out on the most basic CO2 emissions opportunities for economic development and improved living OECD 1 standards. Gross domestic product (GDP) per capita and CO2 emissions energy per capita, two MDG indicators, will remain lower in most of the developing countries than in industrialized coun- 0 tries over the next decades, although these indicators will vary 1990 2000 2010 2020 2030 significantly across developing countries and between low- Projected CO2 Intensity of GDP, 2030 income and middle-income groups. Energy-related carbon dioxide (CO2) emissions per capita will also remain signifi- kCO2 per US$, PPP 0.4 cantly lower in most developing countries for the decades to come (see Figure 3). OECD non-OECD 0 0 50 100 BOx 2 CLIMATE ACTION AS A DEVELOPMENT GDP, PPP (trillion US$) OPPORTUNITy Examples of development benefits from climate Projected emissions per capita, 2030 actions include: 15 tCO2 per capita New business enterprises in response to new markets OECD and economic diversification Increased sustainability of rural livelihoods due to better management of climate change risks non-OECD Greater energy efficiency and diversification of energy base 0 Technological innovation that increases competitiveness, 0 1 7 improves lifestyles, and protects the environment Population (billion) Higher-quality infrastructure resilient to climate-related Source: Energy Information Administration, Us Department of Energy, 2007 disasters Note: Under future projections consistent across several sources, non-OECD Improved urban air quality and reduced congestion emissions are expected to grow more slowly than in OECD countries compared to the respective economic growth rates but faster in absolute terms. Bringing Better forest and land management practices that also ben- global emissions to the levels recommended by the Intergovernmental Panel on efit local communities Climate Change cannot be achieved by reducing emissions from developed coun- tries alone. Yet GDP and energy use per capita, two MDG indicators, as well as Improved spatial planning and accountable local govern- emissions per capita, will remain lower in most of the developing countries than ance with multiple benefits for local communities in the industrial countries over the next decades. while these indicators will vary significantly across developing countries and between low- and middle- income groups, most of these countries will have lower incomes and capacities Source: The wBG. than the now-industrialized nations by and after 2030. A long-term cooperative action is needed that would help slow the growth of emissions without hindering economic and human development progress in developing countries. A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 5 Tackling climate change takes a global community. At instrument under the UNFCCC that codified GHG the global level, energy production, transformation, and emission reduction targets for: 37 industrialized coun- use are the largest contributors to GHG emissions--and tries, economies in transition (EITs), and the European will remain so for years to come. Developed countries Community (EC). The targets amount to an average of will continue to have higher energy use and emissions per 5.2 percent against 1990 levels over the five-year period capita for the foreseeable future. Reflecting their sub- 2008­12. As of May 2008, 181 nations and the EC have stantially larger population and an increasingly larger ratified the treaty. contribution to the global economy, absolute CO2 emis- sions flows from non-OECD countries have recently sur- A series of major studies, including the IPCC Fourth passed emissions from OECD countries. Under future Assessment Report (2007), the Stern Review of the "baseline" projections by several sources, non-OECD Economics of Climate Change (2006), the UNFCCC emissions are expected to grow faster than emissions Report on Investment Flows (2007), the International from OECD countries--but slower than in OECD Energy Agency's (IEA) World Energy Outlook (2007) and countries compared to the respective economic growth Energy Technology Perspectives (2008), and the rates (Figure 3). Bringing global emissions to the levels Organisation for Economic Co-operation and recommended by the IPCC translates into significant Development Environmental Outlook (2008), have emission reductions by developed countries and slowing improved our understanding of the feasibility and costs of the growth of emissions in developing countries, with curbing GHG emissions.4 Limiting global GHG emis- eventual stabilization in the long term. Even in a hypo- sions so as to keep the impacts of climate change man- thetical case of emissions from developed countries ageable will require deployment of currently available and becoming zero, a change in the emission trajectory of future low-carbon technologies across a range of sectors developing countries would be needed to stabilize global on a global scale, along with other changes in economic GHG concentrations at the levels considered manageable activities and, where applicable, lifestyles. It should be by the IPCC. noted that while energy is the main source of GHG emissions globally and in developed countries, land use In the international arena, global climate policy is guided change, forestry, and agriculture currently account for by the United Nations Framework Convention on almost 50 percent of GHG emissions in developing Climate Change (UNFCCC). Adopted in 1992 to set countries, pointing to additional opportunities in these goals for preventing "dangerous human interference with sectors in the immediate future (see chapter 4). the climate system," the UNFCCC has now been ratified Economic cost estimates from several recent studies vary by 192 Member States. Guided by the principle of common from about 3 percent of global GDP (IPCC 2007) per but differentiated responsibilities and respective capabilities, year to annual costs of 0.5 percent of global GDP by the Convention seeks to commit industrialized countries 2030 (OECD 2008), suggesting the task is formidable to reduce their emissions and to help developing coun- but feasible (see Annex 2). tries adapt to increased climate risks and to slow their emission-growth trajectories in a way that will support As evidence of changing climate is stronger than ever, it rather than hinder their economic development. The is in stark contrast to accelerated growth in global CO2 1997 Kyoto Protocol was the first binding international emissions. Since 2000, the world experienced the highest 4 see IPCC 2007; stern, Nicholas, 2007: The Economics of Climate Change: The Stern Review. Cabinet Office -- HM Treasury, available at http:// www.hm-treasury.gov.uk/independent_reviews/stern_review_economics_climate_change/stern_review_Report.cfm; UNFCCC (United Nations Framework Convention on Climate Change) 2007: "Dialogue on long-term cooperative action to address climate change by enhancing imple- mentation of the Convention," Dialogue working Paper 8, available at http://unfccc.int/files/cooperation_and_support/financial_mechanism/ financial_mechanism_gef/application/pdf/dialogue_working_paper_8.pdf; IEA (International Energy Agency) 2007: World Energy Outlook 2007, available at http://www.iea.org/w/bookshop/add.aspx?id=319; IEA, 2008: Energy Technology Perspectives 2008: Scenarios and Strategies to 2050, available at http://www.iea.org/w/bookshop/add.aspx?id=330; OECD (Organisation for Economic Co-operation and Development) 2008: OECD Environmental Outlook to 2030, available at http://www.oecd.org/environment/outlookto2030; world Bank, 2006: Clean Energy and Development: Towards an Investment Framework, available at http://siteresources.worldbank.org/DEVCOMMINT/Documentation/20890696/ DC2006-0002(E)-Clean Energy.pdf. 6 D E V E LO PM E N T A N D C L I M AT E C H A N G E BOx 3 HIGHLIGHTS FROM THE BALI ACTION PLAN The Bali Action Plan was formulated by member countries of the UNFCCC at COP 13 in December 2007 in order to enhance the implementation of the Convention and negotiate long-term cooperative action. Reaffirming that socioeconomic devel- opment and poverty alleviation are global priorities, the Bali Action Plan calls for: Enhanced action on mitigation of climate change: nationally appropriate, measurable, reportable and verifiable mitigation commitments or actions, including quantified emissions limitation and reduction objectives by all developed countries, taking into account differences in their national circumstances; nationally appropriate mitigation actions by developing countries in the context of sustainable development, supported by technology and enabled by finance and capacity building in a measurable, reportable and verifiable manner; policy approaches and incentives relating to emissions reductions from deforestation and forest degradation in develop- ing countries; cooperative sectoral approaches and sector-specific actions, as well as market-based approaches. Enhanced action on adaptation to climate change: international action to support implementation of adaptation actions; risk management and risk reduction strategies, including risk sharing and transfer mechanisms such as insurance; disaster reduction strategies; economic diversification to build resilience. Enhanced action on the development and transfer of technology to support mitigation and adaptation: effective mechanisms for scaling up the development and transfer of affordable and environmentally sound technologies to developing countries, and ways to accelerate their deployment and diffusion; cooperation on research and development of current, new, and innovative technology; mechanisms and tools for technology cooperation in specific sectors. Enhanced action on the provision of financial resources and investment to support mitigation and adaptation: improved access to adequate, predictable, and sustainable financial and technical support and provision of additional resources, including official and concessional funding for developing countries; positive incentives for developing countries to enhance mitigation and adaptation actions; innovative means of assisting developing countries that are particularly vulnerable to adverse impacts of climate change, including financial and technical support to capacity building; incentives to implement adaptation via sustainable development policies; mobilization of public and private sector funding and investment, including facilitation of carbon-friendly choices. Source: summary based on the Bali Action Plan, UNFCCC COP 13/Decision 1. growth in CO2 emissions of the past several decades, sur- performance across individual countries within each passing projections used by the IPCC and most of the group. A reversal in the global trend in emissions requires other above-mentioned studies. An analysis undertaken bolder actions by developed countries as well as bolder by the World Bank for 70 countries with the largest CO2 multilateral action. emissions from fossil fuels shows that, by several mea- sures of CO2 performance over 1994­2004, developed The past year witnessed impressive consensus building countries as a group have not fared better than develop- on the urgency of addressing climate change that culmi- ing ones.5 Progress toward the emission reductions targets nated in an agreement by the 13th Conference of Parties under the Kyoto Protocol has also been mixed (see (COP 13) of the UNFCCC in Bali in December 2007 to Annex 1). There are significant differences in launch negotiations toward comprehensive, long-term 5 Bacon, Robert w., et al. 2007. Growth and CO2 Emissions: How do Different Countries Fare? Available at http://siteresources.worldbank.org/ INTCC/214574-1192124923600/21511758/CO2DecompositionfinalOct2007.pdf. A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 7 cooperative action by all countries. The framework for dollars per annum for several decades. This is much negotiations embraces mitigation of climate change beyond the current funds available through the dedi- (including, for the first time, consideration of reducing cated global financing mechanisms, such as the Global emissions from deforestation, sustainable forest manage- Environment Facility (GEF) and international emissions ment, reforestation, forestation, and forest and land deg- trading (see Annex 2). Importantly, financial resources radation), adaptation, technology development and are required in addition to the present level of official transfer, and provision of financial resources in support development assistance (ODA), so as not to compete with of developing countries' actions (see Box 3).5 achieving the MDGs. Even assuming that only a frac- tion of these amounts would be ODA-like financing, Climate change calls for reinvigorating the financial with a significant portion of investment flows coming architecture for development at a scale not seen before. from the private sector, the additional resource transfer Developing countries that have made lower historical needed by developing countries to secure their economic contributions to GHG concentrations have much lower gains and future progress will be comparable to (and per capita GDP and energy use and are much more vul- may exceed) total current ODA flows. nerable to the impacts of changing climate. Yet some analyses show that they may face bigger losses in GDP Road map. Helping developing countries access addi- from certain global mitigation policies than the indus- tional financial resources, technology, technical assis- trial world.6 The UNFCCC and the Bali Action Plan, tance, and knowledge, and effectively use those in their agreed by its 13th Conference of Parties in December national, regional, and local policies and programs so as 2007, require a cooperative arrangement to help develop- to reconcile development needs with climate risks and ing countries undertake "nationally appropriate mitiga- constraints, is at the core of the World Bank Group's tion actions in the context of sustainable development" (WBG) approach, which is articulated in the following without compromising growth, by transferring finance chapters. The next chapter describes WBG relations and technology from developed countries in a "measur- with the other players in the international arena of cli- able, reportable and verifiable" manner.7 Developing mate action. Chapter 3 outlines guiding principles and countries also need assistance with adaptation to the objectives for scaling up WBG engagement in address- impacts of climate change. ing the development costs of climate change. Chapters 4­9 detail specific operational responses. Chapter 10 Emerging, and not yet completed, cost estimates for concludes with a summary of progress on developing the additional investments in developing countries point to a results framework and key actions the WBG will under- financial gap on the order of hundreds of billions of US take in the next three years. 6 OECD 2008. 7 The Bali Action Plan, UNFCCC COP 13/Decision 1. 8 D E V E LO PM E N T A N D C L I M AT E C H A N G E by setting an example for all countries to transform eco- 2. wORkING wITH THE GLOBAL nomic processes, behaviors, and lifestyles; and by providing COMMUNITY TO ADDREss THE adequate assistance to those whose efforts to move up the development ladder are made more difficult and costlier GLOBAL CHALLENGE because of climate change. Reflecting growing consensus on the urgency of bolder climate action, several countries-- Climate change demands unprecedented global coopera- developed and developing--have recently taken important tion. Leadership by developed countries and trust of devel- steps (see Box 4). The political will to build on the momen- oping countries in equity and fairness of a global climate tum created by these initiatives is critical. policy and in neutrality of the supporting institutions are fundamental for such cooperation. Difficulties with mobi- The setting and implementing of global climate policies is lizing resources for achieving the Millennium the responsibility of the Parties to the UNFCCC, which Development Goals, notwithstanding the strong global are supported in their activities by the UNFCCC consensus behind these goals, and with agreeing on global Secretariat, and operational entities of the financial mech- trade underscore the concerns of developing countries and anism within the UNFCCC, such as the GEF. In addi- the complexity of the international political process. tion, a wide range of other actors are engaged in projects and programs in developing countries related to climate The developing world looks for strong leadership from the change: national and subnational governments and other developed countries to achieve a successful solution to the institutions, as well as regional organizations; the United most difficult collective action problem in human history. Nations (UN) system and its agencies, multilateral devel- Developed countries can demonstrate such leadership by opment banks (MDBs), bilateral donors, the private sector, meeting their current obligations under the Kyoto Protocol; research institutions, and civil society groups. BOx 4 NATIONAL INITIATIVES ON CLIMATE ACTION several industrialized countries have recently accelerated climate action. In addition to establishment of CO2 taxes and other policy improvements in energy and transport, future medium- and long-term targets are being voluntarily set. For example, the European Union has committed to reduce its overall emissions by at least 20 percent less from 1990 levels by 2020; Japan's "Cool Earth Initiative" calls for domestic reduction of 1 kg of CO2 per person per day; and the Uk's Climate Change Bill proposes a long-term target for CO2 reductions of at least 60 percent of 1990 levels by 2050. In a number of countries, municipal and regional governments have taken the initiative in climate action. Many developing countries are already contributing to global climate action in the context of their own sustainable develop- ment strategies. All major emerging economies have adopted national climate change strategies or actions plans, and are implementing policies and programs in the energy, transport, forestry, and other sectors that result in lowering the carbon intensity of their growth. Brazil, which has one of the cleanest primary energy mixes in the world and where deforestation is the major source of national GHG emissions, has put in place an array of policies and programs for the sustainable use of rainforests to improve livelihoods of local communities and reduce emissions. China reduced its energy intensity by 30 per- cent between 1995 and 2004, and targets an additional 20 percent reduction from 2005 to 2010 under its 11th Five-Year Plan.8 In India, CO2 emissions have grown considerably slower than the economy since almost a decade ago, amidst major efforts to increase power supply and electricity access, which reaches only about 50 percent of its population. The CO2 intensity of its economy has been declining by about 5 percent per year since 2000.9 Source: The wBG. 8 NDRC (National Development and Reform Commission). 2006. "Overview of the 11th Five-Year Plan for National Economic and social Development." India. 9 IEA 2007. A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 9 The WBG's role and comparative advantages. The WBG Yet the efforts to protect development from climate is a multilateral institution with the core mandate of change must be global. As a global player and knowl- growth and overcoming poverty in developing countries. edge provider, the WBG further sees its role in helping With respect to climate action, it adheres to the principles, inform the global economic transformation required by policies, and directions of the UNFCCC process, which is the climate constraints in a manner that does not place the primary international institution addressing global cli- an unfair cost burden on developing countries, which is mate change, including first and foremost actions by of particular concern for its poorest clients. It can do developed countries. The WBG mandate, with an associ- so through research, dialogue, facilitation, demonstra- ated asymmetry in its leverage over developing vis-à-vis tion, advocacy, and building effective partnerships. developed countries, sets both the direction and potential Through prototyping and innovating, the WBG, for boundaries for its role on global issues. example, has inf luenced the development of a global carbon market. In line with its core mandate of growth and overcoming poverty, the WBG sees its primary role and comparative Responding to the need to better support its clients in strength in helping its developing-country partners achieve dealing with the challenges of changing climate, while the MDGs and grow their economies under climate con- at the same time ensuring increased energy access in straints. The WBG, including the International Finance poor countries, the WBG formulated the Clean Corporation (IFC), has accumulated substantial experience Energy Investment Framework (CEIF), together with in helping developing countries take advantage of synergies the Action Plan, in 2006/2007. Within three years, between global climate and local development benefits, the WBG, including IFC, significantly expanded its access new and additional finance, and adopt better technol- activities and achieved good results in all three focus ogy. It has been the implementing agency of the GEF for 15 areas of the CEIF: (a) energy for growth, with a par- years, has helped pioneer the carbon market through the ticular emphasis on access to energy in Sub-Saharan Prototype Carbon Fund (PCF), and developed a robust Africa; (b) supporting country-led mitigation actions; carbon finance (CF) business. The WBG is one of the big- and (c) adaptation to the effects of climate change, which gest lenders to renewable energy and energy efficiency, and helped position adaptation as a major element of the cli- has long facilitated energy and water sector reforms that mate change agenda for developing countries both within provide incentives for efficiency, energy and water savings, and outside the WBG (see chapter 4). To demonstrate and better environmental practices. The adaptation dimen- its corporate commitment to climate action, the WBG sion of the climate change agenda in particular is directly has begun offsetting GHG emissions from office linked to the WBG mission of fighting poverty. operations and travel (see Box 5). BOx 5 LEADING By ExAMPLE: CARBON-NEUTRAL WBG The world Bank was the first UN agency to make its headquarters carbon neutral. Beginning in fiscal 2006, the wBG has mea- sured, reported, and offset greenhouse gas emissions associated with its washington-area business operations, including key meetings and air travel. Reduction opportunities have been identified and a commitment made to reduce absolute emissions by 7 percent by 2011. The remaining emissions are offset through the purchase of carbon credits from wBG client countries and Renewable Energy Certificates that support new wind power installations. In fiscal 2008, the wBG expanded its greenhouse gas inventory to include country offices. The inventory methods being used to measure emissions are based on the Greenhouse Gas Protocol, and are compatible with established international standards. As a result of these steps, wBG has been recognized as a leader among multilateral institutions for managing its "corporate footprint." The Bank is providing support and advice to the IMF, the Inter-American Development Bank (IADB), and the Asian Development Bank (ADB). since June 2007, at the UN's request, it has worked with UN agencies to help them reach their goal of climate neutrality and "green" their institutions. Source: The wBG. 10 D E V E LO PM E N T A N D C L I M AT E C H A N G E BOx 6 GLOBAL CONSULTATIONS ON WBG'S ROLE IN CLIMATE ACTION The formal consultation process was launched following the Board's endorsement of the Concept and Issues paper on March 20, 2008. During this period the document was translated into seven languages and posted on the Bank's external web site. During the consultation period of April 1, 2008, to July 15, 2008, 71 consultation meetings and briefings were undertaken around the world, with both developing and developed countries, to allow stakeholders to provide input on the drafting of the full Framework. Adding video-conference approaches, the global consultations reached over 1,800 partici- pants from 76 countries. The breakdown of the participants is as follows 43 percent--developing-country stakeholders, 36 percent--developed-country stakeholders, and 21 percent--international organizations. There was broad support for the wBG's approach to climate change as an added cost to development and for a major emphasis on climate risk management and adaptation. stakeholders emphasized capacity development and advocacy for developing countries; the importance of increasing energy access and access to cost-effective technologies for both mitiga- tion and adaptation; the need for financial flows that are additional to general financing for development assistance; and the added value of preserving intact ecosystems and biodiversity for both mitigation and adaptation. The importance of facili- tating global action that is firmly guided by the principles of the UNFCCC and the goal of equitable and sustainable growth was another consistent feedback from the consultations. Source: The wBG. Growing attention by the WBG to climate change over engagement on climate change through a development the past years leading to the preparation of this Strategic lens (see Box 6). Framework is a response to the recognition that climate change matters for development. In further scaling up its A consultation draft of the Concept and Issues paper response, the WBG will use several comparative advan- Towards a Strategic Framework on Climate Change and tages that build on the core business of its various institu- Development for the World Bank Group, a detailed plan for tions. Among those are: (a) multisectoral perspective; (b) consultations, minutes from each consultation event, and financial resources and leveraging power; (c) strong fidu- a report summarizing all comments have been provided ciary, environmental, and social policies; (d) engagement on an external consultation Web site which can be with the private sector; (e) partnerships with a wide accessed at www.worldbank.org/climateconsult. A sum- range of institutions and stakeholders; (f) knowledge base mary of the feedback and how it has been addressed in and policy advice; and (g) convening power, global reach, this document is attached as Annex 3. Moving into the and local presence. implementation phase, the WBG will develop and implement a knowledge sharing and communication Listening to others. Recognizing the multiplicity of platform to provide for continuing exchange. actors, activities, and needs, and that support to climate action for a long time was a relatively minor part of the Working in partnerships is particularly important for a WBG's overall business, the development of this challenge that is as massive and multidimensional as cli- Strategic Framework has been based on extensive consul- mate change. The WBG is one of the many international, tations with a full range of stakeholders from developing regional, national, and local actors in a complex interna- and developed countries about the WBG's role and areas tional arena of climate change. To effectively support of focus. Particular attention has been given to under- developing countries and to contribute to a global solu- standing and taking into account the needs and concerns tion, the WBG will continue strengthening existing and of developing countries. For example, consultations building new partnerships with the many international, involved participants from 37 countries in Africa--the regional, national, and local actors, basing the division of only region with such comprehensive coverage. The over- labor on the advantages and mandates of the respective all feedback indicated strong support for greater WBG institutions. The WBG will promote coordination among A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 11 aid agencies to enhance the effectiveness of aid and reduce Collaboration with the MDBs. The CEIF established its fragmentation, in support of the Paris Declaration. Its the foundation for scaling up collaboration among the broad approaches to partnerships with some of the key MDBs in the area of climate change. MDBs have produced stakeholders are outlined below. The description is not a joint report on CEIF implementation and combined exhaustive given that multiple partnerships are happening efforts in the design process for the Climate Investment at the regional, country, and local levels. Funds (CIF), managed by the WBG (see chapter 5). Several collaborative initiatives are underway, including a Partnership with developing countries. While support- series of MDB workshops on mitigation and adaptation ive of WBG's greater role, developing-country stake- to climate change; joint World Bank­AfDB consulta- holders consistently reiterated that they look for a true tions on developing a consistent approach to energy and partnership where their views, needs, and concerns are adaptation strategies for Africa; and a joint study on given primary consideration, and where the WBG climate change impacts and adaptation in Asian coastal focuses on the inequality and development implications cities being conducted by the World Bank (WB) and of climate change rather than on global environment the Japan Bank for International Cooperation (JBIC). outcomes, which is the primary responsibility of other international institutions. The WBG will attach top Going forward, strengthening partnerships among priority to building such collaborative relations with MDBs will focus on implementing the CIF within coun- developing-country partners and providing them cus- try-owned programs and scaling up joint sector work, tomized and demand-driven support through all its consistent methodologies, and knowledge sharing. With instruments and institutions--from financing to tech- respect to the CIF, client countries are likely to approach nical assistance to policy dialogue. In particular, tailor- the MDB that has a comparative advantage in terms of ing to the specific needs of a given country, the WBG local knowledge or the one that has taken a lead in a par- will focus on supporting country-grown initiatives con- ticular sector or technology area. Regarding tools and tributing to climate action, facilitating South-South knowledge, MDBs are collaborating on the development partnerships to share lessons of such initiatives, helping of a harmonized approach for assessing and reporting on increase accessibility to and reduce transaction costs of portfolio GHG emissions. The MDBs also see the need additional climate-linked resources, and building in- to work collaboratively on systematic knowledge- country knowledge and capacity to address climate costs exchange mechanisms and have agreed to pilot the estab- and risks in development programs and effectively par- lishment of joint climate change thematic groups.10 ticipate in the UNFCCC process. Strategic partnership with the GEF remains of key and To support climate actions in client countries, the growing importance. The GEF Trust Fund is the largest WBG will specifically partner with and strengthen source of grant financing for energy efficiency and renew- capacities of regionally and country-based institutions, able energy, with an overall cumulative commitment of including regional hydro-meteorological services, f lood over US$2.4 billion in mitigation and capacity-building- forecasting centers, and others. For example, the recent related activities. The GEF is also operating two special joint World Bank­African Development Bank (AfDB) UNFCCC funds, the Least Developed Countries Fund consultations with African countries highlighted the (LDCF) and the Special Climate Change Fund (SCCF). need to involve regional African institutions such as Both funds have adaptation as their first priority. The the New Partnership for Africa's Development WBG, as both Trustee and Implementing Agency of the (NEPAD), the African Union Commission, and GEF, will continue to advocate for stable financial flows to regional economic communities. the GEF and facilitate greater leveraging of GEF resources 10 For this pilot, the European Bank for Reconstruction and Development has agreed to take the lead on energy efficiency, the ADB on transport, the IADB on biofuels, the European Investment Bank on CCs, AfDB on adaptation, and the world Bank Group on renewable energy and cleaner coal technologies. 12 D E V E LO PM E N T A N D C L I M AT E C H A N G E through a wider use of programmatic approaches and joint program for supporting developing countries packaging with other instruments such as carbon finance with capacity building, awareness, and training (see and the CIF. also chapter 9); Collaboration with the UN system. The WBG has Continue and enhance its work with UNEP on been participating in the UN system-wide effort to pro- strengthening information systems; and with WMO vide a coordinated response to climate change, initiated on modeling and analysis for disaster and climate risk by the UN Secretary-General. In close cooperation with management; the UNFCCC Secretariat, the effort targets key focal areas in the Bali Action Plan as well as related cross- Strengthen coordination and cooperation with the cutting areas. The focal areas and respective convening UNFCCC Secretariat to more effectively support the agencies are: (a) reducing emissions from deforestation negotiation process and implementation of the agreed and forest degradation (REDD)--the Food and actions while not interfering in the Secretariat's work and Agriculture Organization of the United Nations (FAO), remaining neutral to any particular negotiation position; the United National Development Programme (UNDP), and the United Nations Environment Further build on the ongoing collaboration with UNEP, Programme (UNEP); (b) technology transfer--the UNDP, and the UNFCCC Secretariat on the Nairobi United Nations Industrial Development Organization Framework in Africa, including the jointly organized (UNIDO) and the United Nations Department of Africa Carbon Forum in September 2008; and Economic and Social Affairs (UNDESA); (c) finance (mitigation and adaptation)--the WBG and UNDP; (d) Strengthen, as necessary, existing cooperation of the capacity building--UNDP and UNEP; and (e) adapta- WBG country offices with the UN country-based tion--the High-level Committee on Programs (HLCP) teams, as the major mechanism for coordination of UN working group on climate change. In terms of cross-cut- agency activities on climate change at the country level. ting areas, the topics and convening agencies are: (a) sci- ence, assessment, monitoring, and early warning--the Partnerships with bilateral donors have been instru- World Meteorological Organization (WMO) and the mental for advancing the WBG work on adaptation, United Nations Educational, Scientific, and Cultural energy access, and climate finance. Various existing Organization (UNESCO); (b) supporting global, donor trust funds and programs--for example, the regional, and national action--UNDP, UNDESA, and Japan Policy and Human Resources Development UN Regional Commissions; (c) raising public awareness-- (PHRD) program, the Energy Sector Management UNEP and the United Nations Communications Group; Assistance Program (ESMAP), the Bank-Netherlands and (d) a climate-neutral United Nations--UNEP. Partnership Program (BNPP), the UK Department for International Development (DFID) Trust Funds, and Within this overall approach and building on its core the Trust Fund for Environmentally and Socially expertise, the World Bank Group will: Sustainable Development (TFESSD)--have given an opportunity to work on climate change ­development Convene, jointly with UNDP, a working group for linkages and, in particular, to scale up the work pro- the "finance" focal area. The objective is to advance gram on adaptation, and will continue to play a critical the consultative and substantive processes to develop a role. The new CIF, based on voluntary donor contribu- coherent work program, with attention to reducing tions on a large scale, is expected to allow for a signifi- aid fragmentation; cant scale up of clean technology transfer and deployment in developing countries, as well as to enable Work with UNDP and UNEP, convening agencies comprehensive piloting of climate-resilient development for the "capacity building" focal area, to develop a policies at the national level. A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 13 Responding to serious concerns from low-income develop- within sectors, including both North-South and South- ing countries that the resource needs for climate action, South cooperation models and designing innovative including adaptation, may crowd out core development insurance and capital market products. The WBG will finance for achieving the MDGs, the WBG has engaged, expand its work with private foundations, with the focus with help from donors, in a series of country-level assess- on adaptation, health, and social issues. ments of the nature and costs of adaptation responses. The findings of this work will provide the basis for discussions Partnering with research institutions. Recognizing mas- with the donor countries about the issue. The WBG will sive research efforts outside the WBG, analytical work further seek donors' support to raise project preparation on climate change and development has been and will be funds for climate-friendly investments that are often more undertaken in close partnership with international, difficult and expensive to prepare, and to facilitate transfer regional, and national institutions. Particular attention of technical expertise and technology. will be given to cooperation with national and regional research institutions in developing countries to both Working with civil society. The essential role of civil soci- obtain local knowledge and strengthen their capabilities ety organizations (CSOs) and nongovernmental organiza- for further research. tions (NGOs) in addressing climate change spans a wide range of activities. The WBG will expand its collaboration Communication and outreach. As part of its greater with these partners, building on successful cooperation in engagement with multiple stakeholders on climate and various initiatives at the global, regional, country, and local development, the WBG will strengthen its communica- levels. Key areas will include social aspects of climate tion and knowledge-sharing efforts. Its outreach will change, governance, integrating an ecosystem approach in focus on representing the impacts of climate change on development strategies to enhance mitigation and adapta- developing countries and their development goals and on tion, as well as working with indigenous peoples and inte- vulnerable population groups within countries, high- grating their knowledge into these programs. Engagement lighting (a) the costs of development in the context of with NGOs and CSOs will be particularly sought for climate change and the critical role of growth to enable identifying and implementing specific activities with developing countries to prepare for this challenge; (b) strong development benefits in pilot programs on climate developing countries' contributions to climate solutions resilience, innovative financing schemes, and capacity through national and local initiatives; and (c) the impor- building for local communities. tance of strong leadership by the developed countries in the required global economic transformation. An effort Engaging with the private sector. IFC, the private sector will be made to ensure that the key messages are consis- arm of the WBG, is leading the way in engagement with tently delivered at various levels--from task and country private sector partners and especially taking an active role teams to corporate management. in exploring opportunities in the areas of insurance, for- estry, water, and urban infrastructure, as well as early The WBG will also develop and execute a communica- stage investments in clean energy technologies. Moving tion plan, including its country offices, and enhance its forward, the IFC will expand successful partnerships, Web-based interface on climate change and develop- such as the Gas Flaring Initiative and the Equator ment. The communication plan will focus on the chal- Principles.11 The WBG also plans to develop new part- lenges of development in the context of climate change nerships with the private sector in the areas of dissemina- and WBG activities to support developing countries and tion and transfer of technologies and best practices the global process. 11 Based on the policies and guidelines of the IFC, the Equator Principles are a set of voluntary guidelines developed by private sector financial institutions for managing social and environmental issues associated with their financing of development projects. see http://www.equator-prin- ciples.com/index.shtml. 14 D E V E LO PM E N T A N D C L I M AT E C H A N G E change. The secondary objective of this Strategic 3. sCALING-UP THE wORLD Framework is to explore the WBG's potential to have an BANk GROUP REsPONsE: impact at the global level by facilitating actions and inter- actions by all countries. GUIDING PRINCIPLEs Importantly, climate change adds further urgency to the Focus on development. The primary objective of this core development priorities of accelerating economic Strategic Framework is to enable the WBG to effectively growth and achieving the MDGs. In low-income coun- support sustainable development and poverty reduction at tries in particular, meeting the basic needs and moving a the national, regional, and local levels, as additional cli- sizable portion of the population out of poverty is neces- mate risks and climate-related economic opportunities sary to create endogenous resources and capacities to arise. Building on the WBG core mandate and compe- address the problem. This has three fundamental impli- tencies, the Framework seeks to help the entities of the cations for the WBG approach: Group--including the International Finance Corporation, the Multilateral Investment Guarantee Support to climate action must not divert resources from Agency (MIGA), the International Development core development needs. The WBG attaches the utmost Association (IDA), and the International Bank for importance--and has demonstrated its commitment Reconstruction and Development (IBRD)--maintain by providing its funds--to increasing IDA resources. and increase the effectiveness and benefits of the core Access to reliable energy services remains a priority, as it development and poverty reduction efforts by developing was under the CEIF, and will be addressed within the countries, as these efforts are becoming threatened and Sustainable Infrastructure Action Plan and the Africa constrained by the added costs and risks due to climate Action Plan. FIGURE 4 A FRAMEWORK TO SUPPORT WORLD BANK GROUP OPERATIONS STRATEGIC FRAMEWORK Providing strategic directions to wBG entities for supporting development in the context of climate change Feedback: Regional & country needs & capacities Guiding principles s trategic role of the wBG, etc. Range of tools and instruments Highlight most urgent issue IFC MIGA Regional VPs Anchor Units WBI DEC Institutional and Regional Business Strategies and/or Plans: Institution- and Region-specific actions setting priorities through dialogue with countries and regional entities Applying new instruments and setting regional goals support clients in dealing with climate challenges Regional/Subregional Programs Country Subnational (e.g., incl. river basin based programs) Programs Programs A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 15 Adaptation to climate variability and change is critical to Hence, the Strategic Framework focuses on: sustaining and furthering development gains in virtually all developing countries and will become more urgent in the supporting sustainable development programs within next decades. From a stepchild of the climate change countries' strategies that have multiple benefits (eco- agenda, it is moving to the center of the WBG approach. nomic, social, and environmental, both local and global) and respond to new climate-related market The Framework will inform and support--not over- and business opportunities; and ride--operational strategies of the WBG entities. It pro- vides broad principles and directions within which the making available a "toolkit" of subnational, national, different entities of the Group, including IFC, MIGA, regional, and global products that help integrate cli- and various WB units, can selectively enhance their mate considerations into development programs assistance strategies and operational programs to help through a country-based assistance model. WBG clients--both public and private--better under- stand, analyze, manage, and adapt to the challenge of A three-year flexible Framework, with the focus on climate change (see Figure 4). Importantly, it does not intensive learning and capacity building. The attempt to impose climate-related priorities or condi- Framework recognizes that a future global policy and tions. The Framework seeks to enable the consideration financial architecture is yet to be negotiated by the sover- of climate-related factors by these strategies and pro- eign parties to the UNFCCC. It further takes account of grams as appropriate and when it directly impacts their continuously evolving scientific and economic knowledge development outcomes through providing tools, incen- about climate-development linkages, particularly at the tives, and financial products, and taking measures to national and local level; a nascent stage of understanding track progress. of the nature and costs of adaptation processes; and the lack of a decision-making framework to handle multiple A country-based, country-led approach that is driven by trade-offs and major uncertainties over the very long demand from WBG public and private sector clients. term. Practical experience with reconciling development The WBG experience is clear that a country-based, and climate is still very limited and skewed toward miti- demand-driven assistance model has proven to be key to gation-related actions, mainly in the energy sector. In the development effectiveness of aid. The 2008 this context, operational priorities focus on knowledge, Independent Evaluation Group's (IEG) Annual Review capacity, new business product development, and inten- of Development Effectiveness, Shared Global Challenges, sive and structured learning and lessons sharing to create further notes that a country-based assistance model has a common platform. The Framework will evolve as inter- been effective in dealing with the global public goods national negotiations, scientific knowledge, development when those have strong synergies with local priorities as policy research, and experience on the ground evolve. in the case of HIV/AIDS. Lessons from long-standing WBG engagement on climate change show that the Customizing support to diverse needs and demands. entry points to client dialogue and program development Recognizing the impacts of climate change on many sec- arise from the business opportunities of investing in tors, including exposure to increasing climate risks and energy efficiency and renewable energy; the multiple mitigation-related opportunities provided by additional benefits from sustainable forest and land management; climate financing, the Framework extends the energy- and the synergies among development progress, disaster focused CEIF to position the WBG to help its clients preparedness, and climate risk management. Importantly, take account of climate-related risks, costs, and opportu- development opportunities of climate action have to nities in several relevant sectors and thematic areas. accrue to all categories of developing countries, including Through the implementation of this Framework, the those whose economies are dependent on fossil fuel pro- WBG will develop knowledge and capacity to under- duction and export. stand and help interested clients address 16 D E V E LO PM E N T A N D C L I M AT E C H A N G E the climate linkages--as related to both adaptation and Exposure to climate risks, including the nature of the mitigation--in energy, transport, industry, urban develop- risks, the degree of exposure, and the time horizon ment, water, agriculture, forestry, biodiversity, economic within which the impacts might become significant; management, and social and human development. It also Natural resource endowments (forests, land, water, seeks to promote cross-sectoral approaches, such as inte- energy, etc.), which affect a country's emission profile, grated approaches to water and energy or coastal zone resilience to climate impacts, and potential for adjust- development, and greater synergies among various WBG ments in a climate-constrained future; entities when it helps to increase the effectiveness of their Structure of the economy and trade that can mediate or development assistance in the context of climate change. exacerbate the impact of climate risks and global cli- mate policies; Within this broad approach, the WBG responds to the Socioeconomic profile that points to how climate impacts distinct needs and demands of different countries, coun- and actions can affect intra-country inequality; try groups, and population groups within countries and Income level, which is a proxy for a country's capacity to to the need for differentiated approaches to help them deal with climate challenges, as well as determining with specific climate challenges. Such approaches will the Bank's instruments and advantages as a lending need to take into account countries' vulnerability to cli- institution; and mate risks, the potential impact of global climate action Additional considerations, such as being a fragile state on their economies or livelihoods, and the various with particularly severe capacity constraints, or a small degrees of synergy between their national/local develop- island state with unique risks and limitations, or an oil- ment objectives and the global climate change agenda. exporting economy facing an especially steep economic In the end, a specific program of assisting any interested adjustment. country will be developed as part of a country assistance or partnership strategy. Several generic parameters and Approach to low-income countries. In addressing capacity considerations that have emerged from consultations with and investment needs of low-income countries to deal with countries, the private sector, and WBG staff include (also the impacts of climate change, the Strategic Framework see Annex 4): builds upon the 2007 paper IDA and Climate Change.12 BOx 7 HIGHLIGHTS FROM THE "IDA AND CLIMATE CHANGE" PAPER IDA countries are highly vulnerable. IDA and IBRD-IDA blend countries are the most vulnerable to risks associated with (a) extreme weather events such as floods, droughts, and storms; (b) rising sea levels and related coastal issues; and (c) changes in agricultural production. Furthermore, most important health burdens in poor countries, such as malaria and waterborne diseases, are currently likely to be worsened by climate change. Due to the impacts of changing climate, maintaining effective levels of development assistance will require additional resources. IDA countries will need additional finance just to maintain the development benefits of projects at their "without climate change" level. The increase in development assistance that would make this possible has been estimated to range from Us$600 million to Us$1.9 billion per year (that is, a 6 to 21 percent increase from the total FY06 IDA credits), for each of the climate damage scenarios taken from the stern Review of the Economics of Climate Change. Approaching mitigation through the prism of local benefits. IDA countries contribute the least to GHG emissions, thus mitigating emissions constitutes a less pressing issue in the short to medium term. Yet some mitigation actions--such as expanding access to clean energy (including through regional projects) or financing improved land and forest management programs--can offer win-win opportunities in IDA countries, both in terms of supporting good local development and reduc- ing global GHG emissions. Source: world Bank, IDA and Climate Change, 2007. 12 world Bank. 2007. IDA and Climate Change: Making Climate Action Work for Development. washington, D.C. A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 17 As IDA countries comprise the majority of the most vul- IDA countries are the main contributors to their GHG nerable to adverse impacts of current climate variability emissions, in addition to causing local-level problems. and future climate changes, a key priority for the WBG Investments in addressing these issues could provide is to support a development process in IDA countries that multiple environmental and development benefits, strengthens resilience to climate risks. This will require including improved livelihoods for the poorest communi- helping IDA clients integrate climate risk management ties and greater resilience to climate risks. in their programs with the help of financing and capacity building that is additional to the current level of develop- Approach to middle-income countries. The Strategic ment assistance (see Box 7). Following strong replenish- Framework recognizes a range of situations among mid- ment, IDA15 has emerged as a good platform for dle-income countries (MICs) with respect to priorities integrating adaptation into the development programs of for climate action, including high vulnerabilities in sev- climate vulnerable poor countries, by leveraging addi- eral MICs such as: the Middle East's water-scarce econo- tional grant and concessional financing instruments like mies, Latin American countries exposed to glacial the Pilot Program for Climate Resilience (PPCR) and melting in the Andes, Asian countries with low-lying the Adaptation Fund. coastal areas, or the Caribbean and Pacific islands. The WBG already has a significant GEF portfolio to support The IDA countries have the lowest levels of energy adaptation activities in Latin America and, pending the access and energy-related GHG emissions per capita. availability of additional concessional financing, will Without focusing on mitigation itself in these countries, continue its support of adaptation in all vulnerable devel- the WBG will support "win-win" solutions beneficial for oping countries. local development, such as energy efficiency measures, cost-effective and reliable uses of renewable energy, and Many middle-income clients are also interested in WBG facilitating access to carbon markets and other additional financial and technical assistance with programs that climate financing as it becomes available. Furthermore, contribute to GHG mitigation, with support from the deforestation and land degradation in many GEF and carbon financing. Low-carbon growth studies, BOx 8 MExICO CLIMATE CHANGE DEVELOPMENT POLICy LOAN Mexico will be disproportionately affected by climate change--in particular, hurricanes, changes in temperature and precipita- tion, and increased frequency and severity of floods and droughts. Climate change will further reduce the country's already scarce water resources. Mexico is the twelfth largest emitter of GHGs in the world and second largest in Latin America. Recognizing the need to address these concerns, Mexico adopted a National Climate Change strategy (NCCs) in 2007 and is currently identifying priority actions and sources of financing. The Government of Mexico (GoM) has requested a Development Policy Loan (DPL) of Us$501.25 million from the world Bank, which the Board approved in April 2008. This is the first DPL provided by the Bank that will support government priorities within its climate change agenda. The GoM has requested that the Bank provide a series of on-demand analytical and advisory services and that it streamline the bulk of its lending program into one larger, annual Development Policy Loan. The stream- lined lending approach aims to minimize the transaction cost of borrowing from the Bank, thereby providing access to low-cost financing and freeing up human and budgetary resources for an enhanced, higher-value program of advisory services. The Climate Change DPL will support the GoM's efforts to incorporate climate change considerations into relevant public poli- cies. The operation consists of policy reforms in three areas: (a) improved analytical basis for policy responses through the sub- mission of a Third National Communication to the UN Framework Convention on Climate Change; (b) the approval of the National Climate Change strategy by the government's Intersecretarial Commission on Climate Change and its announcement by the President; and (c) the integration of climate change considerations in sector programs. Source: Mexico DPL 2008. 18 D E V E LO PM E N T A N D C L I M AT E C H A N G E currently undertaken in six countries, will likely provide BOx 9 IFC'S APPROACH TO ADDRESSING CLIMATE CHANGE the basis for expanded engagement, particularly through links to the CIF and programmatic carbon finance. The IFC adopts a balanced and demand-driven approach MICs are increasingly interested in an effective use of aligned with its mandate of supporting economic develop- emission trading mechanisms set up under the Kyoto ment in client countries while helping mitigate and adapt to global climate change. As long-term cooperative action is Protocol, including those outside the Clean Development being negotiated, IFC is well placed to be a leader with Mechanism (CDM). For example, the Bank has been ideas in respect to the role of the private sector and cli- working with several economies in transition, including mate-friendly investment in developing countries. Climate new EU members that have a surplus of allowances under change also provides IFC with the opportunity to expand its the Kyoto Protocol, on design options for Green activities and development impact. Investment Schemes (GIS) voluntary bilateral agree- Climate change is included as one priority in the IFC's sus- ments that assure buyers of the emission credits that the tainability pillar. while still evolving, key features of the IFC's proceeds from the transactions will finance environment- approach to climate change include near-term actions on: (a) and climate-friendly projects and programs through and enhanced support for renewable energy and energy effi- ciency investment; (b) partnerships to address climate beyond 2012. change mitigation and adaptation; and (c) extending carbon finance activities. IFC is also expanding its understanding of Overall, in line with its strategy for MICs, the WBG, the potential impacts of climate change on its activities, and through joint efforts by the IBRD, IFC, and MIGA, will proposes to review: (a) its role in adaptation to climate focus on innovative use of existing instruments, including change; (b) measuring the GHG emissions in its portfolio; and development policy loans (see Box 8) and subnational (c) the implications of using carbon shadow costs in project analysis. As part of its approach, IFC will increase its invest- applications of its financing tools, new financial prod- ment support, with the aim for a catalytic role in facilitating ucts, cutting-edge knowledge and technical assistance, the transfer of appropriate technologies and approaches to and partnership models that meet the needs of these the private sector in developing countries. countries in relation to the climate change agenda. IFC's Cleaner Production program already actively analyzes opportunities for implementation of energy efficiency pro- Approach to the private sector. The IFC's focus on cli- cesses in IFC's pipeline and portfolio projects. The assign- mate change has been prompted by growing demand ments consist of executing a cleaner production site-based from its private sector clients and expanding climate- audit followed by a written report about identified opportu- change-related market opportunities (see Box 9). The nities and recommendations for implementation of improvements. Findings of the assessments typically iden- scope for cost-effective, pro-development investments in tify savings in energy and water that can reach 25 percent, energy efficiency is particularly large and is increasingly significantly reducing greenhouse gas emissions while con- becoming a key target area for the IFC in increasing their siderably improving companies' net profits. Originally the support for low-carbon investments. MIGA is scaling up program used donor funds to subsidize audit costs but its operations in the field of renewable energy, which is more recently the IFC's General Manufacturing Department also becoming increasingly competitive. Technical assis- has integrated cleaner production as part of two loans to include financing for the environmental improvements. tance for understanding and managing portfolio exposure to climate risks and collaboration in the area of technol- The IFC is partnering with the wB, MIGA, and other institu- ogy are among other focus areas. tions on several analytical and capacity building initiatives of common interest such as GHG accounting tools and methodologies, adaptation studies, and effective private A global public good dimension. With respect to its sector access to the CIF. second objective to achieve a global impact by facilitating Source: IFC. actions and interactions by all countries, the Strategic Framework seeks to enhance the WBG's global role as a knowledge provider, a facilitator of North-South and South-South cooperation, a partner of global A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 19 international institutions, and an advocate of an efficient provides tools for supporting activities contributing to and just global climate policy implemented through neu- both adaptation and mitigation and attaches major tral and well-governed processes and institutions. The importance to working in partnerships in order to achieve WBG initiated in April 2008 and will continue facilitat- a development impact: ing an informal dialogue on climate change among finance and development ministers from both developed 1. Support climate actions in country-led development and developing countries during the Joint World Bank and processes; International Monetary Fund Annual and Spring Meetings. 2. Mobilize additional concessional and innovative finance; Respecting the primacy of the UNFCCC process, the 3. Facilitate the development of market-based financing WBG is neutral to any negotiating party position and mechanisms; will make a conscious effort not to pre-judge the out- 4. Leverage private sector resources; comes of the ongoing negotiations. The WBG sees its 5. Support accelerated development and deployment of role as supporting the UNFCCC process and contribut- new technologies; and ing to its outcomes through improving knowledge at the 6. Step up policy research, knowledge, and capacity local, national, regional, and global levels; sharing lessons building. of experience with implementing the financial mecha- nisms under the UNFCCC and other relevant activities, Links to WBG six strategic themes. The degree of the including innovative approaches and business models; WBG's impact on global progress will be an important and--in partnership with other UN agencies--building test of its broader effort to play a greater role with respect capacity of developing countries to manage development to Global Public Goods (GPGs), as one of its six strate- under climate constraints, understand the implications of gic themes.13 Importantly, the Framework is supportive alternative climate policies, and effectively participate in of and relates to all the other themes. Climate change the UNFCCC negotiations. affects both the WBG's effectiveness in reducing poverty, with a particular focus on Africa, and the WBG's rel- Six action areas. The WBG's operational response to evance for middle-income countries. Fragile states, as meeting the needs of its different clients related to cli- well as conflict-affected countries, are disproportionately mate change is drawing upon the comparative advantages represented among the countries most at risk from cli- of, and synergies among, its different institutions--IDA, mate-related threats, and require special business prod- IBRD, IFC, and MIGA--as well as its research capabili- ucts that take into account their severe institutional and ties. The Framework encompasses activities under six capacity constraints. Many countries in the Arab world interrelated action areas, corresponding to some of the face an exacerbation of already extreme water scarcity due key items in the Bali Action Plan (see Box 8). In imple- to climate change. For oil-exporting Gulf countries, this menting the Framework, the WBG will make a dedi- impact may be further compounded by the need for sig- cated effort to grow resources and capacity for supporting nificant economic diversification and adjustment to resilience to climate risks and adaptation efforts and work anticipated global climate policies. Finally, major focus towards closing the gap in the vastly different levels of on learning and knowledge about development in the knowledge, experience, and financial resources currently context of climate change makes a strong link to the available for adaptation and mitigation. Each action area Knowledge theme. 13 To help achieve an inclusive and sustainable globalization, the wBG has outlined six strategic directions: (1) Poorest Countries--help to overcome poverty and spur sustainable growth in the poorest countries, especially in Africa; (2) Fragility and Conflict--address the special challenges of states coming out of conflict or seeking to avoid breakdown of the state; (3) Middle-income Countries--develop a competitive menu of "development solutions" for middle-income countries, involving customized services as well as finance; (4) Global Public Goods--play a more active role with regional and global "public goods"; (5) The Arab world--support those advancing development and opportunity in the Arab world; and (6) knowledge--foster a "knowledge and learning" agenda across the wBG. 20 D E V E LO PM E N T A N D C L I M AT E C H A N G E effectiveness of these strategies to deliver the WBG's core 4. sUPPORT CLIMATE ACTIONs IN development objectives. COUNTRY-LED DEVELOPMENT At the country programming level, the country assis- PROCEssEs (ACTION AREA 1) tance strategy (CAS) process is the key to formulating operational priorities. As part of supporting country-led The scale of WBG support will be determined by client Poverty Reduction Strategy Paper (PRSP) processes demand and depend on its ability to make progress with and preparing country assistance strategies or country providing additional financing, facilitating transfer of tech- partnership strategies (CPSs), the WBG will agree nology, and building knowledge and capacity. In accordance with interested countries on their specific priorities for with the guiding principles described above, the WBG WBG support to climate actions. There is already an operational priorities are to help interested clients to: increasing demand for help with adaptation. Countries most vulnerable to climate risks will be given the top Strengthen climate resilience by focusing on the imme- priority for supporting their adaptation programs, diate climate and disaster risk reduction needs while building on the National Adaptation Programs of building capacity for dealing with longer-term adap- Action (NAPAs) where applicable. tation challenges; Realize multiple benefits of sustainable development At the project level, the WBG will focus on increasing through the implementation of development programs capacity to help its clients, based on demand, to take with a range of economic, social, and environmental account of climate-related risks and new economic and benefits, and adaptation-mitigation synergies, which financial opportunities in relevant sectors and areas. The are of particular significance in the agriculture, forest, five sectors with significant opportunities for climate water, and urban sectors; and actions, including better addressing climate risks--agri- Take advantage of low-carbon-growth opportunities aris- culture, water, energy, transport, and urban--account for ing from synergies with national or local benefits over 50 percent of WB's pipeline, ranging from about 40 (such as energy efficiency or reduced traffic conges- percent for IDA to 60 percent for IBRD (see Figures 5 tion) and availability of additional climate financing. and 6). Examples of typical Bank-supported projects include renewable energy projects, energy efficiency proj- CUsTOMIzING sUPPORT THROUGH ects, waste management projects, policy lending targeting OPERATIONAL sTRATEGIEs & PRODUCTs the energy sector, and more broadly, projects fostering sustainable management of natural resources and reduc- Several entities of the WBG are reviewing how their oper- ing the impacts of natural hazards. Similarly, IFC and ational strategies should take account of climate change to MIGA operate in sectors that are sensitive to climate risk best support their clients and respond to their requests for (such as tourism and agribusiness) or have significant technical and financial assistance. IFC has articulated its mitigation potential (such as oil and gas), or sectors for approach to climate change as part of the IFC Road Map, which both apply (such as infrastructure and industry). FY09­11; MIGA is looking at the implications for its Regional profiles are provided in Annex 5. Strategic Directions document; and each WB region is undertaking an assessment of the priorities and needs of "No-regrets" approach. The WBG will make a con- the countries it works with (see Annex 5). Climate consid- scious effort to support "no-regret" investments whose erations were reflected in the Transport Strategy (FY08) benefits to developing countries are robust, notwith- and Sustainable Infrastructure Action Plan (FY08), and standing uncertainties about future climate change poli- will be included in the forthcoming Urban (FY09), cies and impacts. Examples include financial and Energy (FY10), and Social Development (FY10) strate- technical assistance to managing climate risks, espe- gies, to the extent these considerations support the cially focusing on those countries that lack capacities A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 21 BOx 10 SUPPORTING CLIENT COUNTRIES TO REDUCE VULNERABILITy TO NATURAL HAzARDS The Global Facility for Disaster Reduction and Recovery is a partnership between the world Bank and UN/IsDR (United Nations International strategy for Disaster Reduction) to support the accelerated implementation of the Hyogo Framework for Action (HFA). The HFA specifically promotes risk reduction associated with existing climate variability and future climate change. GFDRR maintains effective relationships with donor partners, country governments, other UN agencies, research and academic institutions, regional organizations, the private sector, and other stakeholders. Highlights with respect to agreed actions include, for example, developing a common framework for sustainable recovery and reconstruction together with the EC and other partners, and supporting the development of a National school safety strategy and Plan of Action in five countries working together with the United Nations Children's Fund (UNICEF). GFDRR also has a partnership with the International Federation of Red Cross and Red Crescent societies (IFRC) in eight countries for capacity building on community- level and micro-level risk transfer. Highlights from the GFDRR work program include: support to the drought adaptation plan for Mexico's agriculture sector; a study on climate modeling and risk management in Africa; the design of building codes on the Pacific Islands; and land use and settlement planning in senegal. In its first year of operation, GFDRR focused on Malawi, Mozambique, Nicaragua, Nepal, and Vietnam. In fiscal 2008, the work program has been scaled up to expand operations to 49 more coun- tries. The goal of the GFDDR is to work with all disaster hot-spot countries identified by the world Bank's Global Disaster Hotspot study by 2015. Source: GFDRR secretariat. and infrastructure to deal with present climate variabil- adaptation are increasingly being operationalized within ity, as can be witnessed by their vulnerability to f loods, WBG programs at the country and regional levels. A droughts, and hurricanes. Another example of "no concrete action plan for closer collaboration with the regret" actions that would yield development benefits Global Facility for Disaster Reduction and Recovery under any future scenario of climate policies and cli- (GFDRR) (see Box 10) will be prepared in fiscal 2009. mate risks is support to investments that respond to The WBG has skills that can help countries, and regions expanding market and business opportunities for energy within countries, to anticipate and plan for disasters that efficiency and already competitive forms of renewable will affect them in the near term, even as they invest in energy. Other examples include critical "learning by long-term adaptation and risk reduction strategies. doing," with the help of additional financing to cover the incremental cost, such as building capacity to take Addressing climate risk in climate-sensitive investments with account of future climate risks in development plan- long life spans. During fiscal 2009­10, the WBG will ning, or supporting reduced emissions from deforesta- start screening its hydropower and selected water and tion and forest degradation, or facilitating the adoption agriculture projects to strengthen resilience in project of an advanced technology, such as for clean and afford- design, as necessary. Screening coverage and processes able energy supply or increased water use efficiency, in a will be strengthened during fiscal 2010­11, taking different country context. account of sectoral and climate risk priorities in different regions, the IFC, and MIGA. sTRENGTHENING ECONOMIC AND sOCIAL REsILIENCE TO CLIMATE RIsks Supporting climate risk management in development processes in the most vulnerable countries, on a demand basis and with The WBG will focus on: help of new financing. Depending on demand, this could range from national planning in key ministries, to Strengthening stronger operational linkages between the adap- strengthening coordination among national agencies and tation agenda and disaster risk reduction programs. Joint adaptive capacities of subnational institutions, to engaging approaches to disaster risk reduction and climate change local communities and NGOs. The PPCR, in 22 D E V E LO PM E N T A N D C L I M AT E C H A N G E FIGURE 5 WBG LENDING By SECTOR, Fy07 IBRD Lending IFC Investment Agriculture/Forestry Infrastructure 7% Energy & Mining 11% 4% Other Oil, Gas, Industry & Trade Mining & 40% 6% Financial Chemicals 45% 12% Agribusiness 8% Transportation 28% Manufacturing & Water/san/fld prot Other Services, 17% 15% 7% Source: IBRD (Business Warehouse of 1/27/08). `Other' includes Public Source: IFC Annual Report 07. `Financial' includes global financial markets, Administration and Law (21.3%), Education (3.3%), Finance and PSD subnational finance, and private equity and investment funds. `Other' (8.9%),Health and Social Services (6.9%), Information and includes information and communication technologies, and health and Communication (0.01%). education. IDA Lending MIGA Guarantees Agriculture/Forestry 7% Energy & Mining Financial 10% 24% Industry & Trade 4% Oil, Gas, Infrastructure Other Mining & 44% 57% Chemicals Transportation 12% 12% Manufacturing Water/san/ & Services, 10% Tourism, Construction, fld prot, 10% & Services, 8% Agribusiness, 2% Source: IDA (Business Warehouse of 1/27/08); `Other' includes Public Source: MIGA Financial Report 07. Administration and Law (23%), Education (14%), Finance (4%), Health and Social Services (16%), Information and Communication (1%). FIGURE 6 GHG EMISSIONS By SECTOR, IBRD-IDA conjunction with IDA-supported programs, will be a key COUNTRIES, 2000 tool for piloting and demonstrating climate-resilient development approaches in the context of several most Transportation vulnerable countries. In the next years, assistance to other Waste, 3% 12% Electricity & Heat interested countries will be provided with the help of tra- 10% ditional Bank instruments, including technical assistance, Land-use Change & and bilateral funds, when available. As the Adaptation Forestry Fund grows and an adequate global financing architecture 32% Industry 4% for climate change develops, the WBG will be prepared to scale up lessons and operations to support climate resil- Agriculture Other 10% 11% ience in a larger number of countries. Source: Climate Analysis Indicators Tool (CAIT) Version 5.0 Applying customized approaches to help countries facing (Washington, DC: World Resources Institute, 2008). high risks. Based on demand, the WBG can work with interested countries that are particularly vulnerable to A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 23 certain risks to support them through customized been initiated for some of the most vulnerable countries, assistance packages. For example, following a devas- such as Bangladesh. The WBG will focus on investments, tating cyclone in November 2007, the Bank is provid- technological innovation, and policies in agriculture and ing extensive technical and lending assistance to associated natural resource and ecosystem services that are Bangladesh for enhancing the resilience of coastal consistent with sustainable food production needs and areas and has supported a multidonor effort to raise improved livelihoods. It will also improve the understand- grant resources. Similarly, customized programs ing of linkages among agriculture, adaptation, and GHG might be needed for regions affected by glacier melt- emissions, such as in the case of intensive rice cultivation, ing in Latin America and Asia, for small island states, to facilitate carbon revenues to sustainable agriculture pro- or for Middle Eastern economies facing an aggrava- grams. The WBG will progressively apply diagnostic and tion of already extreme water scarcity (see Box 11). decision management tools to address climate risks in irri- gation and agriculture projects. The key importance of water and agriculture sectors. The WBG's efforts to reinvigorate growth in agriculture Climate change can profoundly affect both water availabil- will draw on lessons from the global food price crisis. ity and quality.14 Climatic impacts will have significant Analytical work on climate change and food security has consequences on various systems that are intimately linked BOx 11 WATER SCARCITy AND CLIMATE CHANGE IN THE MIDDLE EAST AND NORTH AFRICA REGION The Middle East and North Africa (MNA) region is drying up fast, eroding livelihoods for millions of people. with 20 percent of the population living on less than Us$2 per day, approximately 59 million people currently live below the poverty line. The region is chronically short of water and has been so for millennia, but it is now drying up further at an alarming rate due to climate change. The region's renewable water resource is already the lowest in the world at 1.100 cubic meters per capita annually, and climate change is expected to imply a 20 percent decrease in precipitation along the Mediterranean coast by 2099, and a 20­30 percent decrease in water runoff in most of MNA by 2050. This will have funda- mental adverse impacts on the region's agricultural output, which is expected to be reduced by some 21 percent by 2080, with respective adverse consequences for rural livelihoods. The likely erosion of productive and locational assets renders the rural population particularly vulnerable to climate change impacts that may enhance propensities for further social exclusion, social conflict, and migration. Building adaptation capacity on indigenous agro-biodiversity knowledge in yemen: In Yemen--among the poorest and most water-scarce countries in the world--the world Bank is working with the government to establish a project that applies climate adaptation technologies and management approaches to the rainfed rural areas. Targeting the rural producers, the project seeks to improve agricultural production, processing, and marketing systems, while protecting physical assets such as soil, water, rangeland, seeds, and animals, and supporting a farmer-based management system to support these activi- ties. Acknowledging the role of women farmers, who make up the majority of rural rainfed producers and have critical knowledge related to agro-biodiversity resources, an associated GEF-funded element of the project entails an effort to tap and analyze the agro-biodiversity knowledge developed by women farmers in the Rainfed Highlands on drought-resistant varieties, and to assess women's role in enhancing households' and communities' resilience to climate change. The world Bank and its partners are stressing the importance of basing household climate change risk management strategies on cost- effective approaches that are both inclusive of the most vulnerable and are contextually sensitive to the socioeconomic assets conditioning the communities' adaptive capacity. Source: The wBG. 14 key analytical work supported by the world Bank will center on four major water-related decisions: (a) operation of existing water infrastructure, (b) planning and design of new water infrastructure, (c) delivery of water services under increased climate uncertainty, and (d) water policies and institutions. The two-year work program will complement ongoing work in the regions by identifying critical factors arising from region-specific hydrologic variability and long-term trends in climate conditions and by developing a common analytical framework and guidelines for incorpo- rating climate change in the water sector. 24 D E V E LO PM E N T A N D C L I M AT E C H A N G E to water, including those that are associated both with deliv- economies, ecosystem services, and significant mitigation ering water services (including, for example, water and sani- and adaptation benefits. With 60 million indigenous tation) and with managing water (including multipurpose peoples totally dependent on forests, 350 million highly systems, watersheds, and flood control). An integrated forest-dependent people, and 1.2 billion people depen- approach to water and energy that is already taking place is dent on agroforestry, mitigation and adaptation activities expected to grow in demand and application, for example in in the forest sector will need to demonstrate that they can managing reservoirs and water infrastructure for multiple contribute to rural economic development and poverty uses including energy, flood regulation and management, alleviation. Currently, deforestation and forest degrada- water supply, irrigation, and ecosystems services. Lessons tion account for about 20 percent of total global green- from good practice application of integrated water resource house gas emissions worldwide, which is mainly management approaches will be extended to water resources happening in developing countries. planning, design, and operational decision making in the regions, taking account of future climate risks. In line with its Forest Strategy, the WBG will approach forest issues in a holistic manner, including afforestation, Regional and multicountry products are expected to grow reforestation, the restoration of degraded forests, and the in importance and demand where trans-boundary coop- use of bioenergy, which are also additional "mitigation" eration is needed to bring about lasting development solu- measures that create carbon sinks and store carbon in tions. In some cases, such solutions are made more urgent above- and below-ground biomass and in soils. The WBG or complex because of likely climate impacts. Major has been and will further support efforts to reduce emis- changes in river flows, such as those arising from the sions from deforestation and forest degradation through an shrinking of the Andean or Himalayan glaciers, might innovative Forest Carbon Partnership Facility (FCPF) require a multicountry approach to maintaining water sup- and a new forest investment program under the CIF to plies. Flood protection in downstream countries can often support the investments needed to scale up the impact of only be effectively addressed in cooperation with, and pos- activities piloted under the FCPF (see Box 13). sibly through, structural measures in upstream riparians (see Box 12). Similarly, greater regional trade in electricity Bioenergy, including--but not limited to--biofuels (see and natural gas could promote greater use of hydropower Box 14), is another area linking forests, agriculture, liveli- or gas, increase reliability of the supply through increasing hoods, and climate change, where the WBG, including the mix of energy sources, and help manage the risks in IFC, is scaling up knowledge to guide operational support the variability of renewable energy supply. for commercial bioenergy development. Bioenergy holds a promise of providing new business opportunities for rural CAPTURING MULTIPLE BENEFITs OF development and, in the context of many developing coun- sUsTAINABLE DEVELOPMENT tries, also has strong environmental health and gender dimensions through household fuel use such as cooking. In the realm of climate change, the WBG will increase attention on working with interested clients in adopting a Ecosystems and biodiversity. Climate change highlights the more holistic approach to using natural resources and importance of services and multiple benefits provided by building infrastructure. For example, forest, natural biodiversity and natural ecosystems. To this end, the WBG resource, or coastal zone management projects can pro- will--in partnerships with NGOs and local institutions-- vide multiple local and global benefits, including biodi- support natural-resource-based adaptation strategies that are versity conservation. cost effective and help indigenous and other marginalized people, and engage in effective partnerships with client- The role of forests is crucially important from many country institutions to increase capacity building and development perspectives. Forests provide multiple ben- knowledge management as related to climate change, bio- efits, such as support to local livelihoods and rural diversity, and ecosystem services. Key ecosystems A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 25 BOx 12 TRANS-BOUNDARy WATER RESOURCES AND CLIMATE CHANGE There are over 260 international river and lake basins that cover almost half of the Earth's surface and many of these have major issues of concern over water sharing, quality, navigation, and coordinated development and management of water infrastruc- ture. Even within countries, trans-boundary waters have similar problems and have often been a source of strife. In addition, the concerns associated with shared groundwater resources are also important and less understood. These basins have always been International River Basins subject to the vagaries of climate variability. Future climate change poses additional challenges that have unique implications to trans-boundary water resource planning, development, and management. These challenges could have many indirect and cascading impacts on the economic, environmental, and social fabric of basin riparians, often in complex and unpredictable ways, affecting economic growth and poverty. However, trans-boundary river basins have unique issues that make these impacts difficult to manage: Information: Increasingly complex hydrology is expected under climate change scenarios. This requires timely access to a good dynamic knowledge base of the basins' hydro-climatology. Yet, in trans-boundary basins, sharing information across countries in a basin is extremely difficult due to data secrecy and legacy issues that exacerbate the problems of paucity of data and shared water resources analytical tools. This is a major problem both for basin or investment planning as well as for real-time operations (for example, flood forecasting and management). This also affects analysis of the impacts of climate change (on glaciers, stream flows, and extreme events). Institutions: The lack of suitable institutions (and forums) at trans-boundary basin level and also the lack of adequate institu- tional capacity (knowledge, skills, and mandate) and collaboration for a shared vision on water planning, development, and management across institutions in a basin are major impediments to trans-boundary collaboration. This severely impairs the ability to manage climate risks. Existing trans-boundary agreements often allocate water based on historical flow regimes, which may also be significantly altered by climate change. Investments: Lack of coordinated planning and operation of water investments across countries in a trans-boundary basin are major sources of concern for managing climate change. For example, multipurpose storage development could help in adaptation to climate-change-induced hydrologic variability, but often requires good regional cooperation to materialize. A silver lining is that concerns over climate change can also help bring riparian countries together to manage a common problem. The scope and timeframe push countries to plan the use of their water resources for the longer term. This increases the pressure on countries to consider cooperative approaches to better plan, develop, and manage their shared resources. Information sharing, institutional arrangements and instruments, and cooperatively conceived and operated investments could help riparians of trans-boundary basins better unlock the development potential of these basins as well as better mitigate the devastating effects of hydrologic extremes. Enhanced development and trans-boundary export of hydropower may also mitigate the carbon footprint of fossil-fuel-based energy within national borders. New climate-smart techniques and technology transfers among riparians could aid countries in leapfrogging traditional development paths that could increase shared benefits. The Bank has been a facilitator for a number of initiatives on trans-boundary water resources cooperation, especially on the Indus, Nile (including on Lake Victoria), Mekong, Aral sea, senegal, Niger, Danube, and the Black sea. Through its regional water dialogue and investments, the wBG will continue to support developing countries to better integrate the challenge and opportunity of climate change into trans-boundary water management. Source: http://www.transboundarywaters.orst.edu/publications/register. 26 D E V E LO PM E N T A N D C L I M AT E C H A N G E of freshwater and marine wetlands provide a number of Indeed, more than two-thirds of modern energy con- functions including buffering against floods and droughts, sumption takes place in cities and they are the source of regulation of the local microclimate, and being a breeding 75 percent of the world's GHG emissions. Furthermore, ground for coastal fisheries and a habitat for a large range of many cities are located in coastal areas and deltas that are other species that support local fisheries and other food pro- likely to be affected by climate change. There are impor- duction. Such programs also contribute to mitigation tant synergies between adaptation and mitigation that through lowering and sequestering emissions. can be integrated into city planning and development. Responding to this challenge, more than half of the Urban development. At a city level, many multisectoral world's cities of over 100,000 people have entered into decisions and actions that contribute to adaptation and miti- some form of public agreement to reduce greenhouse gas gation can be taken. Cities recognize climate change as a emissions and better prepare for the potential climate formidable challenge, but also as a potential opportunity. change risks. BOx 13 SUPPORTING FORESTS, LIVELIHOODS, AND CLIMATE ACTION THROUGH REDD Reduced Emissions from Deforestation and Degradation (REDD) constitutes the first global program aimed at preventing the loss of tropical forests through carbon payments for forest conservation and management in developing countries. By credibly measuring, monitoring, and valuing forest carbon stocks, REDD may mobilize substantial funding for the forest sector. The scale of the program can be potentially very large as the world loses 13 million hectares of forest each year, much of it in tropical developing nations. Destruction of these forests, along with other land use activities, contributes about 20 percent of the greenhouse gas emissions that humans emit into the atmosphere each year. The discussed 50 percent drop in global tropical deforestation (equivalent to 2.4 Gt CO2 per year) implies a REDD financing mechanism worth as much as Us$15 billion annually. Indonesia--which is among the leading nations in terms of land use sector emissions--is at the forefront of REDD prepara- tions. To explore how a REDD framework could generate revenue and reduce Indonesia's rate of deforestation and to study how to implement a REDD, in mid-2007, Indonesia started a multistakeholder process of analysis and consultations called Indonesian Forest Climate Alliance (IFCA). The analysis is showing that Indonesia could significantly benefit from REDD: annual forest loss reduction of half a million hectares could yield between Us$1,200 and Us$6,000 per hectare or an aggre- gate value between Us$600 million and Us$3,000 million annually in terms of the value of CO2 not released into the atmo- sphere. As impressive as these figures are, accessing REDD financing will demand significant policy and institutional reforms and substantial improvements in forest governance, all of which will be difficult to achieve. At the same time, by virtue of the financial magnitudes that could be involved and by being performance based, this mechanism has a potentially greater opportunity to contribute to the implementation of required important governance reforms in tropical countries than do traditional financial assistance initiatives to control deforestation. In Latin America, fourteen countries have expressed interest in receiving support from the Forest Carbon Partnership Facility (FCPF). Of those, eight have already submitted their initial application for funding in the form of a Readiness Plan Idea Note (R-PIN). Those R-PINs provide an overview of the drivers and extent of deforestation and degradation; outline possible solutions, including using financial incentives for reducing emissions; suggest processes for stakeholder consulta- tions and biodiversity monitoring; and so on. The countries with the most active interest in the FCPF include inter alia Costa Rica and Mexico, which are already experimenting with payments for environmental services produced by forests. In addition to the FCPF, the BioCarbon Fund (BioCF) is piloting three innovative projects with payment schemes for REDD in Colombia, Honduras, and Madagascar. In Madagascar, a project in partnership with the national government and Conservation International is addressing deforestation through the promotion of sustainable livelihood activities in a new protected area. It is expected that this project would avoid the emission of 8 million tons of CO2 into the atmosphere. The BioCF also has a portfolio of over 20 projects, seven of which are in Africa, promoting afforestation and reforestation according to the Clean Development Mechanism methodologies. Source: The wBG. A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 27 As part of its Urban Strategy, the WBG developed a efficiency, in particular, brings commercial, energy secu- "sustainable cities" program that is bringing together rity, and environmental benefits at once. Some countries many sectors, such as health, social development, infra- have developed, often with WBG support, strategies for structure, disaster management, transport, water availing themselves of GEF and CDM resources, as well resources, agriculture, environment, and energy. For the as programs by MDBs to provide concessional financing next three years, it will pilot with interested cities an for climate-friendly projects, which would serve as the integrated assistance program that would provide techni- basis for WBG engagement. cal assistance and support urban investments with miti- gation and adaptation co-benefits, such as residential Specifically, the WBG envisages to: solar power systems, building materials and codes, green- ing of landfills and open spaces, and so forth. Climate- Expand the already established practice in IFC of financing instruments and subnational application of project screening for energy efficiency opportunities IBRD lending instruments would be important tools to to include WB energy and select infrastructure support such initiatives. (transport, urban, and water) projects over the three- year period, starting with a subset of energy sector sUPPORTING LOwER-CARBON-GROwTH projects in fiscal 2009; OPPORTUNITIEs Support large-scale investment programs with signifi- The WBG approach is firmly based on supporting coun- cant development and climate benefits in several try-based priorities and programs that happen to have interested countries, with the help of new instruments mitigation co-benefits,15 facilitating access to additional such as the Clean Technology Fund (CTF) and the climate financing, and helping with new technology Carbon Partnership Facility (CPF), and foster lessons commercialization, as detailed in chapters 5­8. Energy sharing; and BOx 14 BIOFUELS: A COUNTRy-By-COUNTRy APPROACH Biofuels offer a potential source of renewable energy and could lead to large new markets for agricultural producers. with nearly 40 years of experience, bioethanol in Brazil has expanded to account for over half of total gasoline-ethanol consump- tion, offering useful lessons to other countries. From a financial point of view, a ratio of energy prices to that of sugarcane has been encouraging ethanol use in recent years. Thanks to a growing ethanol market, ethanol and sugarcane bagasse together account for two-fifths of total renewable energy in Brazil and now make up 46 percent of the total energy use in Brazil, compared to 13 percent worldwide. In Brazil, ethanol is produced from sugarcane and does not directly displace food crops, in contrast to the impact on food prices from using such crops as maize, soybeans, or rapeseed to manufacture bio- ethanol. Given extremely high alcohol yields from sugarcane (over 7,000 liters per hectare) in the Center-south region of Brazil, relatively little land is required to produce ethanol: in 2007, sugarcane destined for ethanol production accounted for just 4 percent of Brazil's cultivated land. Owing to increasing yields, Brazil's food production has doubled in the last decade. Biofuel programs in other developing countries are much less developed, but many countries are beginning to enact policies to promote both bioethanol and biodiesel. In addition to government subsidies typically required to make biofuel programs viable, social and environmental costs might include: (a) upward pressure on food prices--rising prices of staple crops can cause significant welfare losses for the poor, most of whom are net buyers of staple crops, and (b) intensified competition for land and water and potential deforestation. Additional land converted for crops may result in a net increase of GHG emission. Overall, the potential for biofuel development in a country depends on the availability of water and land, climatic conditions, and other factors, and must be approached on a country-by-country basis. Source: The wBG. 15 For example, energy efficiency, renewable energy, and access to cleaner commercial technology that helps diversify energy supplies and reduce local environmental impacts. 28 D E V E LO PM E N T A N D C L I M AT E C H A N G E BOx 15 PUTTING THE CARBON MARKET TO WORK FOR SUSTAINABLE TRANSPORT In China, the urban transport sector is a large, fast-growing source of GHG emissions. The most powerful driver of the fast growth in transport CO2 emissions is rapid motorization, particularly in urban areas. Dramatically increasing rates of motoriza- tion are also causing severe urban traffic congestion and worsening urban air pollution. Action to control these risk factors would also provide ancillary benefits by improving mobility and oil security. As part of its efforts to reduce air pollution, congestion, and CO2 emissions, China is studying the potential for a viable carbon market in transport with support from the world Bank. A transport methodology developed with Bank financing in Nanchang is currently under review. Field work is also underway to test the viability of some fuel efficiency measures that have proven successful elsewhere (notably Japan) as CDM pilot projects in China. Source: The wBG. Facilitate demand toward less carbon-intensive proj- 2006­08, with a substantial increase in overall energy ects in energy and transport sectors, through innova- lending (from US$7.0 billion in fiscal 2003­05 to an tive applications and packaging of existing and new estimated US$15.0 billion in fiscal 2006­07). During financing instruments and technical assistance. fiscal 2006­08, lending for energy access was 30 percent and transmission and distribution was 12 percent, total- In the transport sector, the WBG will continue its sup- ing, together with low-carbon projects, 66 percent of the port to investments in the demand-side management and total WBG lending for that period. In fiscal 2008, the rehabilitation of the transport infrastructure. Combined WBG exceeded its Bonn commitment18 of investing with additional financing, this is expected to increase a US$1.9 billion in new renewable energy and energy effi- share of a lending portfolio that supports less energy and ciency for the fiscal 2005­09 period--one and a half thus less carbon-intensive modes, such as railway freight years ahead of schedule. The low-carbon-growth studies and public urban transport, improved traffic manage- being undertaken in six countries have improved the ment systems, fuel substitution and cleaner transport knowledge base. Through CEIF, the WBG has also fuels, and technical change. The WBG will aim to scale strengthened synergies between the IFC and IDA in up the applications of climate finance instruments in delivering reliable and clean energy services to the poor, transport projects where their applications have so far as demonstrated by the Lighting Africa Initiative. been limited. In the urban transport subsector, where local externalities related to air pollution and traffic con- Going forward, WBG projects an increase in its overall gestion are very high, the focus will be on developing share of low-carbon energy projects from 40 percent for analytical tools and projects that address both local and fiscal 2006­08 to 50 percent in fiscal 2011 (with the global benefits (see Box 15). other projects mainly supporting energy access, transmis- sion and distribution, and sector reforms), including: In the energy sector, the WBG will build on its strong progress within the CEIF. The share of support for low- Further increase financing for new renewable energy and carbon energy projects16 increased from 28 percent in energy efficiency, with an average rate of growth of 30 percent fiscal 2003­05 to an estimated17 41 percent in fiscal per annum during the five-year period fiscal 2008­12 16 Low-carbon projects: renewable energy projects (including all sizes of hydropower projects), energy efficiency, power plant rehabilitation; district heating; biomass-waste-fueled energy; gas-flaring reduction; high-efficiency coal- and gas-fired thermal plants (super-critical and ultra-supercrit- ical coal, or combined cycle gas where they upgrade plant efficiency relative to the business-as-usual scenario). 17 FY08 portfolio numbers are yet to be verified and finalized. 18 At the International Renewable Energies Conference in Bonn, Germany, in June 2004, the wBG committed to increase its lending for new renewable energy and energy efficiency by an average of 20 percent per annum during fiscal 2005­09 from the Us$209 million average over the previous three years. New renewable energy comprises solar, wind, biomass, geothermal, and hydropower with capacities up to 10 Mw per facility. A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 29 from a base of US$600 million (average commitment protection of the poor and vulnerable. Furthermore, in the previous three years), or a 50 percent higher reducing the overall level of energy subsidies improves growth rate and from a base that is three times larger fiscal performance and enhances the sustainability of than was implied by the Bonn commitment. The energy supply. impact of achieving this higher growth rate for financing energy efficiency and new renewable energy Helping reduce GHG emission from fossil fuels is of is that cumulative commitments between fiscal 2009 key importance in advancing the move to a low-car- and fiscal 2011 would be nearly US$1.3 billion higher bon trajectory of energy production. IEA and other than would be achieved under the Bonn target growth assessments conclude that fossil fuels, including coal, rate. IFC will increase lending to energy efficiency/ oil, and gas, will remain an important part of the pri- renewable energy by two to three times in fiscal mary energy mix for decades to come--in developed 2009­11 compared to fiscal 2005­07. At the same and developing countries alike. The use of natural gas time, opportunities for "greening access" will be given will continue to expand as the environmentally pre- close consideration, particularly when supported by ferred fuel of choice in countries where this resource additional concessional funding. For example, renew- can be made available. Recognizing the critical role able energy options will be an important component that electricity plays in supporting economic growth of both grid-based and off-grid electricity supply and poverty alleviation, the continued use of fossil options, drawing on sources of funds to buy down fuels will thus be an important component of meeting incremental costs when needed (see Box 16). these development objectives. The WBG will give pri- ority to interventions with direct GHG reduction ben- Continue and further scale up re-engagement in hydro- efits such as: (a) thermal power plant rehabilitation, power, which plays a dual role of contributing to (b) upgrading the efficiency of new thermal power both mitigation and adaptation. An increase in lend- plants, (c) early retirement of inefficient plants and ing volume to US$1.3 billion is planned for fiscal replacement with state-of-the-art facilities, (d) gas 2011 compared with US$800 million in fiscal 2008 f laring reduction, and (e) methane release reduction. and about US$500 million per year in fiscal According to the IEA, nuclear power will also play a 2005­07. Flexibility in meeting clients' needs calls role in meeting global energy needs. The upcoming for maintaining a portfolio of diverse project types Energy Sector Strategy (FY10) will articulate the ranging from small hydro to medium run-of-river WBG approach, including its role in supporting eco- rehabilitation to complex trans-boundary multi- nomic analysis and regulatory frameworks, to different purpose storage. renewable and nonrenewable energy resources. Make a concerted effort to secure the availability of grant Within the context of increased support to renewable financing from donors to help identify and introduce energy and energy efficiency, plant efficiency improve- emerging technologies such as new renewable tech- ment and rehabilitation, and transformational technolo- nologies or carbon capture and storage (CCS) for oil gies, the WBG, through its traditional financing and coal applications in interested client countries. instruments, could support client countries to develop new coal power projects, by considering the following: In the context of the country policy dialogue and sup- (a) there is a demonstrated developmental impact of the port to country-led energy sector reforms, the Bank project including improving overall energy security, will continue to emphasize the fiscal, economic, and reducing power shortage, or increasing access for the environmental benefits of the rationalization of energy poor; (b) assistance is being provided to identify and pricing. Reducing overall energy subsidies provides prepare low-carbon projects; (c) energy sources are opti- incentives for energy conservation and energy effi- mized, looking at the possibility of meeting the coun- ciency while better targeting allows for effective social try's needs through energy efficiency (both supply and 30 D E V E LO PM E N T A N D C L I M AT E C H A N G E BOx 16 GREENING ENERGy ACCESS IN AFRICA Lighting Africa is a world Bank Group initiative that aims to provide modern, non-fossil, safe, and low-cost lighting to 250 million people in sub-saharan Africa who rely primarily on kerosene and other, often hazardous, fuel-based products. Jointly managed by the world Bank and IFC, Lighting Africa is supported by the GEF and several other donors and emphasizes market-catalyzing actions rather than give-aways--aggregating market demand, evaluating products and consumer prefer- ences, financing suppliers and consumers where needed, and ensuring product quality in the market. Ghana: Energy Development and Access Project (IDA) supports Ghana's multifaceted energy sector strategy. The Energy Development and Access project will provide grants to developers of renewable energy generation projects--such as small hydropower, wind, and biomass--for the benefit of communities outside the main national grid system. It will also finance the establishment of an independent Rural Electrification Agency, which will coordinate all rural electrification programs. In all, 134,000 new customers in rural towns and villages will be connected to the national power grid by the project's end. Kenya: Olkaria II Geothermal Expansion (MIGA) consists of the design, construction, management, and operation of a base- load geothermal power plant with a combined capacity of 48Mw on a build-own-operate basis in the Olkaria geothermal fields of the Rift Valley, 50 kilometers northwest of Nairobi. Electricity generated by the plant will be sold under a twenty-year power purchase agreement with the national power transmission and distribution utility in the country--the kenya Power & Lighting Company Limited. Geothermal electricity production does not result in any of the conventional air pollutants associated with other fossil fuel generation options, thus improving local air quality as well as decreasing greenhouse gas emissions. The plant is situated in a rural area with high unemployment rates, and is expected to hire up to 200 new full-time employees and possi- bly up to 500 part-time employees during the construction period for the second phase. This project meets several of MIGA's priorities as it supports a south-south investment in the power sector in an IDA-eligible country in sub-saharan Africa. Source: The wBG. demand) and conservation; (d) after full consideration atmosphere and therefore the carbon-equivalent inten- of viable alternatives to the least-cost (including environ- sity of economic development. The CTF would sup- mental externalities) options and when the additional port the following: renewable energy; enhanced financing from donors for their incremental cost is not efficiency of energy usage; improved transport sector available; (e) coal projects will be designed to use the efficiency and modal shifts; and the improved effi- best appropriate available technology to allow for high ciency of energy supply. With respect to the improved efficiency and, therefore, lower GHG emissions efficiency of new fossil-fuel-based energy supply, a intensity;19 and (f) an approach to incorporate environ- proposed technology will have to meet both of the fol- mental externalities in project analysis will be developed. lowing two criteria: (a) there are highly cost-effective opportunities for significant GHG emissions reduc- For purposes of the CTF, a clean technology is tions and (b) there is potential for developing readiness defined as one which reduces GHG emissions to the for carbon capture and storage. 19 For additional technical guidance, please refer to the world Bank Group Environmental, Health and safety Guidelines. Both the General and (draft) Thermal Power Guidelines are relevant in this regard. Available at http://www.ifc.org/ifcext/enviro.nsf/Content/EnvironmentalGuidelines. A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 31 not an option given the probability of very severe to cata- 5. MOBILIzE ADDITIONAL strophic effects. CONCEssIONAL AND The importance of adequate global policy, as well as INNOVATIVE FINANCE clear rules and signals. Additional financial flows to (ACTION AREA 2) developing countries under the current UNFCCC mech- anisms cover only a tiny fraction of the estimated hun- The resource challenge. The resources needed to tackle dreds of billions of U.S. dollars per year that would be climate change are unprecedented compared to existing needed to make the required investments. A review of development and global public goods financing. To stabi- existing sources, both for mitigation and adaptation lize atmospheric concentrations at levels that are consid- (summarized in Annex 2, Table A2:3) points to an ered reachable and manageable, the latest estimates annual amount on the order of US$10 billion--against suggest that the additional investment costs for mitigation the gap of some hundreds of billions of U.S. dollars. just over the coming decades will be somewhere between Until an adequate global policy and a financial architec- US$200 billion to over US$1 trillion per annum (see ture that provides predictable and sufficient financing Annex 2, Table A2:1). This amount would be greater if, as flows due to clear rules and long-term price signals is a growing body of science indicates, even lower levels of negotiated under the UNFCCC, it will be impossible to greenhouse gas concentrations were needed to avoid cata- fully cover the financing gap. Therefore, the focus of the strophic impacts. The economic cost estimates are of simi- WBG--and other MDBs--has been on piloting, proto- lar magnitude and will be partly offset in the form of typing, and demonstration and learning through avail- energy savings and other potential benefits, such as able instruments, such as the GEF and carbon funds, and improved public health from reduced air pollution. At least leveraging resources with the help of these instruments. tens of billions of U.S. dollars per year should be added to finance the cost of adaptation due to the inevitable amount Focus on learning at scale. Recognizing the critical of warming that the world will experience, albeit the esti- importance of additional financing for developing mates of the adaptation cost are very incomplete and pre- countries, the WBG respects the primacy of the ongo- liminary (see Annex 2, Table A2:2). ing negotiations. So, in the immediate future, it sees its key strength as supporting the development of the Tackling climate change requires an unprecedented level global financial architecture for addressing climate of global cooperation in designing and enacting financial change by learning from implementation experience. mechanisms that are effective, efficient, and equitable. A It will be doing so with involvement of all its institu- large share of these additional investments is estimated to tions, including an increasing role of the IFC and take place in developing countries from private and MIGA, as well as through stronger partnerships with public sources. While the global costs appear modest the other MDBs, international financial institutions when compared to the expected global GDP and invest- (IFIs), and the private sector; and collaborating with ment flows (falling between less than 1 percent and 3 GEF and other partners. This will provide practical percent for most estimates), it depends on how they are lessons and capacity for developing-country clients and distributed--there could be a significant burden for many international financial institutions. economies. As the Growth Report (2008) 20 highlights, reducing GDP growth by 1 or 2 percent means depriving An important opportunity for significantly increased an entire generation or more from a chance to overcome assistance to developing countries and learning is pro- poverty, particularly for developing countries. Inaction is vided by the Climate Investments Funds portfolio (see 20 The world Bank on behalf of the Commission on Growth and Development. 2008. The Growth Report: Strategies for Sustained Growth and Inclusive Development. washington D.C. Available at http://cgd.s3.amazonaws.com/GrowthReportComplete.pdf. 32 D E V E LO PM E N T A N D C L I M AT E C H A N G E Box 17). With over US$6 billion in pledges, the new Specific priorities for the WBG in collaboration with CIF will build on progress made by many of the develop- other MDBs, the GEF, the UNDP, the UNFCCC ing countries, with the objectives of scaling up invest- Secretariat, and other partners, in the next three years will ments in low-carbon technologies (Clean Technology include the following (see also Action Areas 3 and 4): Fund) and supporting various programs to test innovative approaches to climate action (Strategic Climate Fund-- First and foremost, the WBG will work toward good SCF). Recognizing the importance of climate risks and progress of IDA 15 and further increased levels of IDA adaptation for poor countries, the first program under the replenishment. This is critical for achieving the MDG SCF is the Pilot Program for Climate Resilience. targets, particularly in the context of increasing costs Designed as an interim instrument, the CIF includes of development due to several factors, including cli- specific sunset clauses. mate change. This is also important for ensuring that BOx 17 CLIMATE INVESTMENT FUNDS Approved by the Group's Board in July 2008, the CIF is an interim instrument with specific sunset clauses linked to agreements on the future of the climate change regime. Funding and Governance. By combining significant concessional financing from international financial institutions, public and private sector flows, and other climate financing (such as carbon finance and GEF), the CIF will demonstrate how MDBs can help developing countries combine overcoming poverty and growth objectives with climate action. key features include trust fund committees with a balanced representation of recipient and donor countries and project approval by MDB boards. A Partnership Forum--a broad-based meeting of stakeholders, including donor and recipient countries, MDBs, the United Nations and UN agencies, the GEF, the UNFCCC, the Adaptation Fund, bilateral development agencies, NGOs, private sector entities, and scientific and technical experts--will be convened annually to provide a forum for dialogue on the strategic direc- tions, results, and impacts of the CIF. Clean Technology Fund. The CTF aims to scale up financing to contribute to demonstration, deployment, and transfer of low- carbon technologies with a significant potential for long-term greenhouse gas emissions savings. As country circumstances differ, investment programs would be developed on a country-specific basis to achieve nationally defined objectives. In order to maximize impact, the CTF will work with both the private and public sectors to bring sufficient technological knowhow and capital to dramatically scale up clean technology deployment, while remaining technology neutral. The CTF will build on and complement the GEF, and link to the capacity building programs of UNEP and UNDP. It will provide grant elements tailored to cover identifiable additional costs necessary to make projects viable. It will use a range of concessional financing instruments, such as grants and concessional loans, as well as risk mitigation instruments, such as guarantees and equity. Strategic Climate Fund. The sCF aims to provide financing to pilot new development approaches or to scale up activities aimed at a specific climate change challenge or sectoral response through targeted programs. The first program--the Pilot Program for Climate Resilience--will pilot national-level actions for climate resilience in several highly vulnerable countries. The Forest Investment Program to support the investments needed to reduce deforestation and forest degradation and promote sustainable forest management is under design. An important objective is to maximize co-benefits of sustainable development, particularly in relation to the conservation of biodiversity, natural resources ecosystem services, and ecologi- cal processes. Another program under consideration would support energy efficient and renewable energy technologies to increase energy access in low-income countries. World Bank's Role. Together with other MDBs, the wBG will be responsible for implementing programs and projects financed by the CIF, following the normal programming and implementation procedures of its constituent entities. In addi- tion, the Bank, on behalf of the wBG, will serve as the Trustee for the two trust funds and will host a small administrative unit to administer the CIF. The world Bank, as Trustee, will enter into multidonor trust fund administration agreements with donors and financial procedures agreements with each MDB for CIF funds. The IFC will also participate with a focus on inno- vative private sector projects with significant potential market impact. Source: The wBG. A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 33 new climate finance is additional to the core develop- assistance and knowledge products, and bilateral ment finance for the MDGs. At the same time, a funds, when available. As the Adaptation Fund strong IDA can help create a platform for strengthen- becomes operational and grows, and an adequate ing climate resilience of the development processes in global financing architecture for climate change poor countries through leveraging new financing develops, the WBG will be prepared to quickly scale from the Adaptation Fund, the PPCR, and other up lessons and operations to support climate resilience donor funds. in a larger number of countries The WBG will support continued strong financial flows The WBG will better use its existing arsenal of instruments to the GEF and work with the GEF on scaling up to support development projects with mitigation and/ programmatic approaches and securing significant or adaptation co-benefits through customized "product co-financing. The WBG will work with the packaging." The IBRD/IDA/IFC/MIGA committed Adaptation Fund Board and other stakeholders to about US$1.4 billion in loans, credits, equity invest- integrate lessons from the PPCR and from its expe- ments, and guarantees to its members and to private rience in leveraging GEF financing into the activi- business for low-carbon projects in fiscal 2007, includ- ties financed by the Adaptation Fund, in addition to ing GEF and CF resources. Going forward, IBRD's its role as a trustee. loans, partial risk guarantees, partial credit guarantees, and policy-based guarantees; MIGA's political risk Jointly with other MDBs, the WBG will strategically guarantees; and IFC's equity, loan, and risk-manage- utilize the CIF to develop capacity in client countries to ment products have a potential to be customized to address climate action and development at scale. With finance pro-development low-carbon and adaptation over US$6 billion in pledges to the CIF that is avail- investments. These instruments can be further pack- able to all participating MDBs, the goal is to make aged with the GEF, carbon finance funds, and, as the CTF operational by early 2009, and the PPCR by recent experience shows, Montreal Protocol funds. 21 end of fiscal 2009. Additional work will be under- A significant potential for packaging is expected for taken to assess the need and modalities for other the CIF. A summary of instruments and their cur- potential windows under the SCF, such as the Forest rent or potential applications is given in Annex 2 Investment Program and Renewable Energy Access. (Table A2:4). Several new financial products address- ing specific barriers to climate investment are Special emphasis will be given to helping mobilize addi- described in chapters 6 and 7 (Action Areas 3 and 4). tional resources for adaptation. The WBG recognizes that experience gained in mitigation and mitigation The WBG will strengthen technical assistance (TA) finance, such as through GEF and carbon finance, programs to generate demand for, and help prepare, needs to be matched by a stepped-up response by climate-friendly projects. Information, knowledge, global players to help developing countries adapt to an enabling policy framework, and extensive TA sup- climate risks. The PPCR, in conjunction with IDA- port are among the key "barrier removal" activities for supported programs, will be a key tool for piloting economically viable investments, such as energy effi- and demonstrating climate-resilient development ciency. The development of climate-friendly projects approaches in the context of several most vulnerable is usually more expensive and lengthier compared to countries. In parallel, assistance to other vulnerable the "business as usual" alternatives. For some catego- countries will be provided, per demand, with the help ries of projects, there could be an arrangement when of traditional WBG instruments, including technical additional preparation funds might be "borrowed" 21 Montreal Protocol finances the phase-out of ozone-depleting substances but the supported investments also have considerable GHG reduction benefits through energy efficiency and other process improvements. 34 D E V E LO PM E N T A N D C L I M AT E C H A N G E until (and if) the project becomes fully economical. base and facilitate learning. The WBG will compile Furthermore, with an increasing number of instru- and share findings and lessons from the country- ment and product offerings, there is a growing need and sector-specific assessments of incremental costs for helping consolidate the offerings at the recipient of climate actions in development programs that are level so that clients could access the most attractive being undertaken for several countries as part of the financing instrument or package for a given project economics of adaptation programs and low-carbon- with low transaction costs. To address this, the WBG growth country studies. It will also mobilize its will prepare a training program and guidance materi- research capabilities for evaluating alternative global als on the use of different products, work on creating climate policy and financial options and sustainable a "one-stop" source of access to a full menu of the mechanisms for financing adaptation and mitigation WBG financial product offerings, and increase the in developing countries. outreach about its menu of products. Responding to a major concern by developing countries In collaboration with other development partners, the about a potential reallocation of core development aid and WBG will contribute to the design of a global financial the need for better monitoring, the WBG will work with architecture for climate action, by both providing les- the UNFCCC Secretariat, UNDP, the UN Statistical sons of practical experience and undertaking analyti- Division, and the Development Assistance cal work. The WBG will start systematically Committee (DAC) of the OECD on developing con- documenting and disseminating lessons from its use sistent monitoring and reporting of financial flows to of climate instruments. In addition to estimating ex support developing countries' efforts in mitigation ante the difference between climate-friendly and and adaptation, including provision of new and addi- least-cost project designs for the purpose of identify- tional financing for meeting the incremental costs ing the concessional finance element in WBG- imposed by climate change. It will include select indi- supported projects, when applicable, the WBG will cators of progress with global climate action into its start to collect, analyze, and report data on the annual flagship World Development Indicators report incremental costs in order to improve its information (see also chapter 9). A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 35 force). Over the past eight years, carbon finance activities 6. FACILITATE THE DEVELOPMENT have grown to US$ 2.1 billion, through 10 funds, pooling OF MARkET-BAsED FINANCING stakes from 16 governments and 66 private companies. Carbon finance, with its significant leveraging, has MECHANIsMs (ACTION AREA 3) become among one of the main channels to support low- carbon investment. The estimated leverage factor is 6.22 An important role for markets. Market mechanisms or economic incentives, when appropriately designed, coordi- IFC's Carbon Finance Unit has been engaged directly with nated with domestic and international regulatory and the carbon market since 2002 and its involvement has policy decisions, and matched by an adequate regulatory recently shifted from intermediation efforts on behalf of the capacity, can play a key role in mobilizing financing for Dutch government to leveraging its ability to take long-term development with environmental benefits. They can project and credit risk in emerging markets and take carbon- potentially lower the costs of climate change action and related exposure for its own account, primarily via its inno- they also provide incentives to opt for available low-carbon vative flagship product, the Carbon Delivery Guarantee. alternatives, to take steps to reduce vulnerability to current The product capitalizes on the synergy between IFC's climate variability and upcoming climate risks, and to sup- strong balance sheet and its ability to assess and take emerg- port the development of innovative climate-friendly tech- ing market project and credit risk (see Box 18). nologies. Sustained growth in the carbon market over the past few years, together with other factors, such as oil Barriers and limitations. Despite its strong momentum, prices, has contributed to the rise of (private sector) clean the project-based carbon market faces challenges, includ- energy investment worldwide, and financial institutions ing the absence of market continuity beyond 2012, which have actively expanded their activity toward the nascent puts at risk this additional source of financing for clean markets for climate-change-related goods and services. energy and other low-carbon investments in developing countries. In addition, the carbon market faces the fol- Nevertheless, challenges and barriers remain before cli- lowing key barriers: mate-friendly markets can reach their full potential, in supporting both adaptation and GHG reductions. Because carbon markets are in their infancy, investors Adequate private sector capacities and institutions are in potential mitigation projects face huge uncertain- needed in both developed and developing countries. ties regarding the cost and time required to register The WBG can play a significant role in the facilitation carbon credits from their projects, as well as regarding of market development and financial intermediation to the eligibility, volume, and prices of credits that they reconcile climate and development. Through its experi- would ultimately generate. ence with market-based instruments, the WBG can offer practical lessons related to the performance and The carbon market does not address the need for regulatory needs of some of the financial instruments upfront financing of mitigation investments. Given being considered by the UNFCCC negotiations. the risks to the underlying projects, there have been few attempts by financial institutions to monetize for- ExPANDING THE BOUNDARIEs OF THE ward carbon revenue streams to provide the invest- CARBON MARkET ment capital required. Experience to date. The World Bank launched its first Transaction costs and uncertainties linked to project- public-private partnership, the Prototype Carbon Fund, in based mechanisms (complex and changing rules, delays April 2000 (years before the Kyoto Protocol entered into and bottlenecks along the project cycle, project 22 Excluding hydrofluorocarbon (HFC) projects. 36 D E V E LO PM E N T A N D C L I M AT E C H A N G E BOx 18 IFC'S CARBON DELIVERy GUARANTEE: MANAGING RISK AND MAxIMIzING RETURNS Projects under the kyoto Protocol's Clean Development Mechanism generate carbon credits (known as Certified Emission Reductions or CERs) when they reduce their GHG emissions and can sell these credits in global markets. Given IFC's experience in the carbon market and its financial strength, IFC is in a unique position to help qualifying clients maximize the benefits of the carbon market. Under its new Carbon Delivery Guarantee (CDG), IFC assures delivery of carbon credits from companies in developing coun- tries to buyers in developed countries. The new product provides companies selling CERs access to a wider range of potential buyers by mitigating country and project risks. Acting as an intermediary, IFC sells credits on behalf of companies in the global market and passes the attractive prices back to the projects. Clients profit from IFC's credit rating by gaining access to markets and benefit from full price transparency. For buyers in developed countries, IFC provides certainty by eliminating the risk of not receiving the carbon credits when promised. The CDG product is a key pillar of IFC's climate change strategy and can help clients maximize the potential for clean energy and other climate-friendly and low-carbon investments. IFC signed its first CDG agreements in sub-saharan Africa and south Asia in early 2008 and is actively pursuing other CDG deals throughout the developing world. In south Africa, IFC's agreement is to help sell up to 900,000 carbon credits from Omnia Fertilizers, one of the country's leading fertilizer producers. The installation of a nitrous oxide abatement facility will not only gen- erate carbon credits, it also mitigates pollution by employing cleaner technology that prevents nitrogen oxide (NOx) emissions. In addition, Omnia has committed to contributing 5 percent of revenue generated by the CERs to reducing poverty in the surround- ing community. In India, IFC signed a deal for 850,000 carbon credits from Rain CII Carbon (India), an IFC client for over 15 years and now the largest merchant of calcined coke in the world. Their 50 megawatt waste heat recovery power plant will generate power that reduces Rain's dependence on fossil-fuel-based power from the grid in a country with severe power deficits. Source: IFC. performance, and so on), as well as the riskier business initiatives that help catalyze a change in the way Bank environments for project-based emission reductions client countries approach GHG mitigation. The CPF (that is, developing countries and economies in transi- also addresses market continuity issues as the purchase tion vis-à-vis creditworthy industrialized countries), of carbon credits might extend to 2022. During fiscal and lack of local capacity may also deter investors. 2009­11, 12 to 16 Emissions Reduction Programs are expected to be developed under the CPF. WBG priorities for further action. Building on its experi- ence, the WBG is further exploring and piloting a number Address areas so far bypassed by the carbon market, with of avenues to deepen the reach of carbon finance in support- the Forest Carbon Partnership Facility offering a key ing long-term, climate-friendly investments and harness the channel for action. The FCPF, launched in Bali new carbon finance potentials outlined below: alongside the COP 13 in December 2007, will aim at preventing deforestation by compensating developing Target systematic programs of investments in a strategic countries for carbon dioxide reductions realized by way (as opposed to the more random, short-term proj- maintaining their forests. Most of the forest-rich ect-by-project mode of today's carbon market), with the countries are among the poorest in the world. By end Carbon Partnership Facility providing a key leverage. fiscal 2009, 18 readiness grants to help developing The CPF, approved in 2007, will promote GHG emis- countries build the technical, regulatory, and sustain- sion reductions on a large scale through long-term able forestry capacity for reducing emissions from investments (such as power sector development, energy deforestation and degradation are expected to be pro- efficiency, gas flaring, transport, and urban develop- vided, with at least five pilots completed by end fiscal ment, including integrated waste management sys- 2010. The WBG will continue its efforts to increase tems), help create an enabling environment for access to carbon markets by African countries. Efforts mitigation programs, and scale up the delivery of should also extend to mitigation potentials from the carbon finance through programmatic and sectoral agricultural sector (for example, carbon soil) so that A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 37 carbon finance can encourage sustainable practices BOx 19 FACILITATING ACCESS TO CLIMATE RISK and increase climate resilience in a key sector for INSURANCE AND REINSURANCE development and overcoming poverty. Insurance linked to weather indexes: To improve the penetra- tion of private insurance to reach poor and vulnerable popu- Further expand the use of risk management products and lations, the wBG has helped clients develop property insur- their combination with WBG projects. Such risk man- ance schemes linked to weather indexes. The wBG has pro- agement products, including IFC's Carbon Delivery vided technical assistance for the development of innovative Guarantee and MIGA's insurance (see Boxes 18 and agriculture insurance programs in several low- and middle- 22), increase the confidence of potential carbon asset income countries. The Index-Based Livestock Insurance Program was established by the Government of Mongolia to buyers or of potential investors in the underlying project, protect herders against excessive livestock mortality. More and can help project sponsors secure better terms for than 550,000 animals are currently covered under this pro- financing or for the transaction of the carbon assets. gram. The Government of India, with technical assistance Efforts will be pursued to further combine such products from the wBG, established a weather Based Crop Insurance with carbon finance operations. scheme, which currently protects more than 600,000 farmers against drought. similar initiatives are ongoing in Ethiopia, Malawi, and Thailand, for example. In cases where vulnerable In addition, the WBG is developing new methodological people have very limited ability to pay, donor funding has approaches and extending collaboration with client coun- been mobilized to pay premiums for privately provided tries and other clients in the design, development, and drought insurance on behalf of small farmers as part of a implementation of innovative host-country-driven CF wider program to offer weather-index-based derivative vehicles. In Mexico and Argentina, national carbon intermediations to IDA and IBRD countries. funds have been established and already operate as vehi- Catastrophe Risk Deferred Drawdown Option: Policy cles for aggregating small projects and reducing the responses to extreme weather events include ex-ante adap- transaction costs. In Brazil and India, technical assis- tation and ex-post recovery efforts, for which immediate tance has been provided for the design of auctioning plat- availability of funds is necessary for effective action. The Catastrophe Risk Deferred Drawdown Option facility, or CAT forms and development of related domestic capacities and DDO, helps to meet this need by providing immediate liquid- infrastructure. IFC is considering capacity building via ity during an emergency, while other forms of assistance are its advisory services business that will help provide access being mobilized. It accomplishes this by providing a contin- to markets for a wide range of underrepresented sectors gent DPL whose disbursement is deferred until a natural and market participants, including work with municipali- disaster happens. Eligible countries are IBRD and IBRD-IDA- ties and wholesaling credits from smaller projects via blend countries with an adequate macroeconomic policy framework and with a satisfactory implementation of a disas- domestic financial institutions in developing countries. ter risk reduction program. In order to avoid "moral hazard" These financial institutions are expected to be the con- problems, the DDO becomes available after satisfactory duit for significant flows of private capital to low-carbon implementation of a hazard risk management program (the projects. With the capacity to bring yet unexplored miti- client is notified if not compliant). Repayments will com- gation potentials to the market and operate in multiple mence from the date of the drawdown, but the terms can be marketplaces, the WBG will enhance the liquidity and determined at the time of commitment or drawdown. scope of carbon trading. Ongoing work on new products: The wBG is investigating other financial services, including the intermediation of CUsTOMIzING CLIMATE RIsk weather derivatives between the member countries and the market counterparts. It is supporting the creation of MANAGEMENT PRODUCTs the Global Index Reinsurance Facility (GIRIF), a multidonor trust fund linked with a specialized index-based reinsur- Natural disasters in middle- and low-income countries ance company that will promote index-based insurance in have major fiscal and developmental implications. developing markets. Engagement by the private sector has, however, been very Source: The wBG. limited to date due to correlated risks (large 38 D E V E LO PM E N T A N D C L I M AT E C H A N G E weather systems can affect a large portion of an insurance combine responses to immediate catastrophic risks with company's portfolio), adverse selection (whereby only longer-term climate risk management. the riskier clients seek insurance), lack of data and objective indicators of damage, the small size of indi- OTHER INITIATIVEs vidual coverages (in the case of small farmers), and the lack of willingness or ability of smaller clients to pay The following three initiatives illustrate how WBG can insurance premiums. Therefore, the WBG has begun utilize its capabilities and experience in vastly different offering a complementary suite of products and services areas. Building on its financial expertise, the WBG is to assist countries in developing tailor-made catastrophe seeking to proactively use capital markets to raise funds for risk financing strategies, increase penetration of insur- climate-friendly investments, both in mitigation and in ance, and access reinsurance markets (see Box 19). adaptation (see Box 20). The WBG, particularly IFC, is expanding support to developing markets of energy effi- Going forward, the WBG will explore the potential for ciency services. The WBG will continue its innovative replicating such insurance and reinsurance instruments programs of payments for ecosystem services (PES) that for managing climate risk linked to changing climate. also bring mitigation or/and adaptation co-benefits. Further integration of disaster risk reduction and climate Building on a successful pilot program in Costa Rica sup- adaptation work will strengthen the foundation for devel- ported by the GEF, several WBG projects in Latin America oping applications of the risk management products that and the Caribbean have been modeled on this approach. BOx 20 PUTTING CAPITAL MARKETS TO CLIMATE ACTION The world Bank's Treasury is actively developing new tools to engage investors looking for investment opportunities that con- tribute to sustainable development using the capital markets. Examples of recent initiatives (developed with the collaboration of the Carbon Finance Unit or CFU) include the first CER-linked Uridashi Bond, nicknamed the "Cool Bond," with Daiwa securities Group, and the world Bank Eco-3Plus Note--a six-year bond issued by ABN AMRO for investors in the Netherlands, Belgium, and Luxembourg. By purchasing the Uridashi Cool Bond, investors can indirectly participate in the market for greenhouse gas emission reduc- tions. After a fixed rate annual coupon of 3 percent for an initial period, the coupon will be linked to the future performance of CER market prices and the actual-versus-estimated delivery of CERs generated by a hydropower plant located in the Guizhou Province in China, which has been registered as a CDM project. Other similar bonds are under development. In the same way, the Eco-3Plus Note has an annual minimum coupon (3 percent) plus a potential additional amount based on the performance of an environmentally focused index. Other initiatives being considered include "Green Bonds" to fund development activities with climate mitigation and adaptation benefits and an International Finance Facility for Climate Change based on the model used by the International Finance Facility for Immunization, whereby development aid for mitigation and adaptation activities is frontloaded, using the capital markets. On the climate risk management side, the wB Treasury is helping partners hedge financial losses related to adverse weather events and/or natural disasters. For example, the Caribbean Catastrophe Risk Insurance Facility (CCRIF), which was launched in June 2007, and renewed in 2008, on behalf of the Caribbean Community (CARICOM) heads of government and under the guidance of the world Bank with donor funding, provides immediate liquidity to Caribbean governments after a catastrophic hurricane or earthquake. This regional institution is the first multicountry risk pool in the world, and is also the first insurance instrument to successfully develop a parametric policy backed by both traditional and capital markets. The IBRD has arranged for CCRIF to transfer a portion of the catastrophe risk to the capital market through a cat swap transaction. This swap between IBRD and CCRIF enables emerging countries to use a derivative transaction to access the capital market to insure against natu- ral disasters. The first transaction was executed last year, when CCRIF was launched, which was also the first time a diversified pool of emerging market countries' catastrophe risk was placed in the capital markets. The wBG is also developing a multi- country catastrophe bond that would pool the risks of several countries and transfer the diversified risk to capital markets. Source: The wBG. A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 39 7. LEVERAGE PRIVATE sECTOR uncertainties with respect to the eligibility and definition of credits from carbon avoidance projects; and lack of REsOURCEs (ACTION AREA 4) awareness on climate risks together with overwhelming uncertainties of investing in unfamiliar technologies. The private sector role. Generating 86 percent of global investments, the private sector has a vital role in the The WBG role and priorities. The WBG will address global economic transformation required by the climate some of the constraints to a more significant participation constraints.23 The UNFCCC study estimates that the of the private sector through a collective effort of its differ- private sector is to provide 80 percent of mitigation ent institutions--IFC, MIGA, and WB. First, it will con- finance and a significant share of adaptation financing. tinue its core support to improve an overall investment In developing countries, the private sector has contrib- climate and capacity of the public sector in developing uted to over 75 percent of total investments in renewable countries to channel private sector resources through energy and energy efficiency. policy dialogue, technical assistance, and lending. Recognizing that an ability to attract any private invest- There are several generic barriers to private investment in ment flows is necessary for a country to start attracting many developing and transition economies. These include climate-friendly investment flows, the Strategic riskier business environment, smaller transaction size and Framework reinforces the importance of IFC's increasing thus higher financing costs, and the lack of creditworthy focus on facilitating private sector investments in Africa project sponsors. In addition, barriers specific to climate and developing frontier markets. Second, the WBG will financing include higher financial costs; the absence of a intensify its work in supporting an enabling regulatory and clear, durable, consistent, and sufficient price of carbon; investment environment for renewable energy and energy BOx 21 INVESTMENT CLIMATE ASSESSMENT FOR RENEWABLE ENERGy IN INDIA In India, the Ministry of New and Renewable Energy (MNRE) set a guideline tariff for purchase of power by utilities from renewable generators that lapsed in 2004. since then, state governments/regulators have stepped in to set purchase prices as well as renewable quotas. As a consequence, the incentives for renewables today depend on the accuracy of the regula- tors' estimation of the costs, and the future energy market within which renewables will have to compete has become more uncertain. while the Electricity Act 2003 provides a framework for the introduction of wholesale competition and open access, the details of the design of the market structures and rules are not defined and will be important for the viability of the renewable energy projects. Furthermore, with the introduction of competition, existing mechanisms for encouraging renewables, such as quotas and regulation of purchase prices, may require modification of their scope or may become less applicable. what is now required is an environment policy that takes account of costs, benefits, and barriers to renewable energy in a consistent manner and creates the appropriate investment climate for renewable technologies. This calls for the regulatory and wider policy framework to adequately take account of prevailing knowledge on costs and institutional requirements for renewable energy and to seek to reduce barriers and increase incentives where appropriate. Accordingly, the main objective of this study is to allow policymakers to take full account of the considerable information available on costs and other aspects of different renewable energy technologies to deliver coherent policy in this area, while facilitating involvement from a wide set of important stakeholders in the policymaking process. The study will comprise the development of a number of scenarios for government policy objectives ranging from low renewable targets to high renewable targets, according to the 11th Five-Year Plan and other policy pronouncements. For each target, policy mechanisms will be set out that would help meet this range of targets in key Indian states. Source: The wBG. 23 UNFCCC, 2007. 40 D E V E LO PM E N T A N D C L I M AT E C H A N G E efficiency. To support such investments, developing and that utilize available sources of concessional climate transition countries need incentives and have to level the finance to reduce financial and other barriers to climate playing field for the private and public sectors (see Box 21). investments. These will include: Third, it will make further contributions toward develop- ing mature, efficient, and accessible carbon markets, as Packaging IFC or IBRD instruments with frontloading described in Action Area 3. mechanisms against anticipated carbon revenues, and lever- aging GEF or CIF (private window) resources to cover the In addition, the WBG will continue developing innova- incremental cost of climate investment. The IFC and WB tive applications of WBG instruments largely aimed at already have significant experience, often with the help financing private sector pro-development investments of the GEF, in using small initial subsidies and BOx 22 MIGA'S SUPPORT TO PRIVATE SECTOR CLIMATE-FRIENDLy ENGAGEMENT Through its noncommercial risk guarantees, wBG's Multilateral Investment Guarantee Agency has facilitated private sector engagement in greener infrastructure projects that build renewable energy capacity, encourage resource conservation and distribution efficiency, improve sanitation, and offset greenhouse gas emissions. since fiscal 1990, MIGA has provided more than Us$2 billion in guarantees for 59 green infrastructure projects in all regions of the world. As part of environmental due diligence, MIGA's teams are also assessing the robustness to climate risks of prospective projects involving water manage- ment, such as mining and hydropower, and, in particular, how these could manage likely changes in local hydrology as pro- jected by climate models. MIGA developed an innovative instrument to mitigate a series of risks to carbon finance project performance, including host-country political risk such as administrative/regulatory decisions by the government that may affect projects' opera- tions, expropriation, withdrawal from the kyoto Protocol, and inability of auditors to enter the project site due to politically motivated violence. In fiscal 2006, MIGA provided Us$1.8 million in guarantees for a landfill gas flaring project in san salvador. MIGA's guarantee helped the investor raise funds from the carbon market and assures the company of reimburse- ment in the event that a harmful political event puts a stop to operations. MIGA's infrastructure team is working with the world Bank to explore ways to apply this guarantee structure to similar projects. MIGA is formulating its approach to climate change in the context of developing its three-year strategic Directions docu- ment (FY09). Efforts are focused on scaling up operations in the field of renewable energy and clean energy. The current pipeline of the applications is of Us$600 million, with about Us$280 million of projects expected to close in fiscal 2009. One of the priorities for fiscal 2009­10 is to develop a pipeline of new applications for renewable and energy efficient projects. working in collaboration with the wB staff, MIGA has identified new leads and opportunities that include: New hydropower development in Ethiopia Large hydro and mini-hydro projects in Turkey A hydropower independent power producer (IPP) in Albania Multiple geothermal projects in Indonesia Geothermal projects in kenya and Djibouti wind farms in Ethiopia and Pakistan New large hydro developments in Lao People's Democratic Republic. New transmission projects in Latin America Coal/diesel replacement projects in Asia Going forward, MIGA will further address climate considerations in its relevant activities, accelerate business development building on existing clients and targeting new players (including south-south investors), develop new products to address political and regulatory risks associated with climate change mitigation, and intensify awareness raising and capacity build- ing around MIGA's products that could be used to support climate friendly projects. Source: www.miga.org/climatechange. A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 41 extending credit lines to small and medium enterprises most cost-effective opportunities for mitigation and through financial intermediaries to help energy effi- adaptation co-benefits are located in such entities, even ciency and renewable energy programs mature and if the proposed investment is not driven by climate become self-sustaining. More recently, the WBG has objectives. Yet these entities may have limited borrow- been exploring several frontloading mechanisms such ing capacity and may not be able to secure the central as encouraging lending against anticipated carbon rev- government guarantee required for MDB financing. enue streams that IFC is starting to lead on. IFC is Efforts to serve these clients could involve subnational further considering monetization transactions where it lending plus technical assistance with the goal of will provide loans against future carbon revenues with improving the creditworthiness of these entities to recourse only to the off-take agreements. IFC is also enable future borrowing on commercial terms. The looking to expand the structures of its quasi equity Bank is currently piloting subnational application of loans (C-loans) to include upside returns from carbon financial tools for entities that cannot access sovereign credits beyond 2012. Financial packages utilizing new guarantee, with 10 loans planned for fiscal 2009. At instruments, such as the CIF and CPF, will allow least three of these projects will have climate co-bene- extending support to investments with climate benefits fits. Continuing with this instrument, given that the at a larger scale. pilot is successful, will increase opportunities for sup- porting climate-friendly development investments. Using IFC, MIGA, and IBRD guarantee instrument s more effectively would enable local financial institu- Other WBG activities. The WBG, led by IFC, will tions to offer financing at sufficient maturities for further work to build awareness in the private sector clean energy and other climate-friendly investments. of climate-related risks to investment and of business MIGA, which provides guarantees against noncom- opportunities linked to mitigation and adaptation. mercial risks, is scaling up its portfolio of private IFC has initiated several technical-assistance-focused sector investments into renewable energy and energy activities toward meeting its goal of at least doubling efficient projects in developing countries, with the its clean energy investments over the next three fiscal current pipeline of over US$600,000, and plans to years. In addition to growing its cleaner production increase the pipeline considerably in fiscal 2009­10 program, IFC is testing the potential for using clean (see Box 22). energy as a business development strategy, such as using information on clean energy opportunities to Addressing the needs of underserved clients, such as munici- suggest nontraditional sectors dominated by private palities and small and medium-sized enterprises, through business (that is, construction) in which IFC could subnational application of financial products. Some of the focus its lending efforts (see Box 23). IFC will also BOx 23 CLEAN ENERGy AS A BUSINESS DEVELOPMENT STRATEGy AT IFC studies by the International Energy Agency, Mckinsey Consultants, and many other experts consistently show large oppor- tunities for profitable investments in measures to improve energy efficiency and reduce greenhouse gas emissions. These opportunities are especially large in some of the largest and most rapidly growing developing nations such as China and India, both of which have many power plants, factories, and buildings that are substantially below international energy effi- ciency standards. IFC has initiated a pilot study in China to test whether some of these readily identifiable inefficient indus- tries might be the basis for a targeted lending program. This is in contrast to established programs that rely on finding incre- mental improvements within traditional investment sectors, e.g., adding a waste heat recovery component to an investment in a cement manufacturer. If successful, the pilot will point to sectors where IFC is not currently engaged but where its lend- ing can contribute significantly to both development and greenhouse gas reduction. Source: IFC. 42 D E V E LO PM E N T A N D C L I M AT E C H A N G E increase its efforts to build the private sector's knowl- Finally, as a market facilitator sharing knowledge and edge and capacity in other sectors--including forestry experiences of diverse players, the WBG will convene and transport--toward economically attractive low- public and private actors to dialogue on financing cli- carbon projects. On the adaptation side, it is impor- mate-change-related activities, e.g., on incentives to tant to offer state-of-the-art tools and methodologies stimulate investments in clean technology and climate- to help private sector clients consider the long-term resilient technology and further rely on public-private impacts of climate change on investments (see chap- partnerships. This will be undertaken in collaboration ter 9). with other MDBs, IFIs, and the UNFCCC Secretariat. A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 43 8. sUPPORT ACCELERATED for rapid commercialization and deployment in developing countries is the key to reducing future costs and making the DEVELOPMENT AND task of fighting climate change feasible (see Figure 7). DEPLOYMENT OF NEw Unfortunately, global investments in clean energy R&D reached some of its lowest levels during 1990s, and despite TECHNOLOGIEs (ACTION AREA 5) a rise in public spending in the past few years, at US$16.3 billion in 2006 they remain much below the Technology is central to both adaptation and mitigation levels in 1980s when measured in real terms. solutions. The scale of changes needed in the global GHG emissions trajectory, agricultural productivity, and water use The WBG will tailor its clean energy technology support efficiency to reconcile the high growth needed in developing to the needs of its different client countries along the four countries, climate, and other sustainability considerations stages of the technology cycle: (a) the research and devel- cannot be achieved with technologies commercially opment stage; (b) the demonstration stage; (c) the scale-up available today. The Bali Action Plan emphasizes the stage; and (d) the commercial stage. This needs to take importance of effective mechanisms for scaling up the into account the capacity of the WBG's client countries development and transfer of affordable and environmentally and the market conditions for specific clean energy tech- sound technologies to developing countries, and accelerating nologies in those countries. For example, in some develop- their deployment and diffusion, including support to the ing countries, wind farms can readily be established under development and enhancement of the developing countries' existing policy frameworks, utilizing financing made endogenous capacities and technologies. available from local sources, and even obtaining turbines from local companies. In other countries, the capacity to Many commercial clean energy technologies could signifi- measure the wind speed accurately or to identify the steps cantly reduce emissions, often at negative incremental costs, in moving toward the establishment of a grid-connected but are not being fully deployed in developed or developing wind farm may not even exist. Market barriers and non- countries. Accelerated investment in technology and market barriers may exist for the development and dis- research and development (R&D) combined with effec- semination of those technologies, which may be considered tive North-South and South-South partnership models relatively commercialized in a relatively mature market FIGURE 7 GHG EMISSION SCENARIOS: WITH AND WITHOUT ACCELERATED TECHNOLOGy INNOVATION 120% % CO2 Emission Change from 2005 Business as Usual 100% 80% Business as Usual 60% 40% Medium Tech Medium Tech 20% Acceleration Acceleration High Tech High Tech Acceleration Acceleration 0% -20% 2030 2050 -40% Source: IEA, "Energy Technology Perspective." Note: the first scenario assumes that only technologies already commercialized or nearly so would be available. This "Business as Usual" scenario results in a 60% growth of CO2 emissions from 2005 to the year 2030 and a 100% growth by 2050. A second scenario, labeled "Medium Technology Acceleration," would limit growth of CO2 emissions to an increase of approximately 10% over 2005 emissions for both 2030 and 2050. Only under a third scenario labeled "High Technology Acceleration" is there any chance to reduce global CO2 emissions below their 2005 levels by the years 2030 and 2050. 44 D E V E LO PM E N T A N D C L I M AT E C H A N G E elsewhere. Some countries have the capacity and the technologies might still require Bank support with resources to become actively engaged with a technology developing the policy and regulatory frameworks as well that is considered to be at the R&D stage or early in the as in scaling up to make the local markets viable. demonstration stage, whereas others do not. The challenge is further compounded as the technology sectors are For technologies in the scale-up stage, the WBG's role will be increased and by the nature of the markets in the various to find innovative and creative ways to encourage the early client countries. adopters of the technology, to work to grow the market, and to scale up the number of installations where the new, The WBG will adopt the following approaches to clean technology is deployed. As part of its analytic and technology acceleration: advisory work, the WBG can support countries in the development of a technology-specific regulatory envi- For technologies in the commercial stage, the WBG will ronment to encourage investments in the clean energy remain active through its policy and advisory functions, and technology. The WBG, including IFC and MIGA, will regular lending operations. Both the World Bank and IFC work closely with and build upon past initiatives of the have significant roles to play in stimulating the growth GEF, and other partners, as well as utilize the resources of the markets for the clean, mature energy-generation, made available to it through the CTF and the GEF/ energy efficient, industrial, and transport technologies as IFC Earth Fund (see Box 25). they work with the private sector to expand these mar- kets in their client countries (see Box 24 for examples in The WBG's support to the deployment of clean technologies Africa). In some lower-income countries, some mature in the demonstration stage will focus on creating the BOx 24 ExPERIENCE WITH CLEAN TECHNOLOGy DEPLOyMENT IN SUB-SAHARAN AFRICA Technology development can help developing countries avoid the energy intensive development path of today's rich countries. sub-saharan Africa (ssA), with a largely untapped demand for energy services, has perhaps one of the greatest potentials for the development of clean energy technologies. Below are some examples of how the world Bank is tapping that potential. Currently, only less than 5 percent of the Rift Valley geothermal resource potential is being utilized, primarily in kenya. If developed, such potential would represent between one-quarter and three-quarters of current worldwide production from geothermal sources. Geothermal-energy-based power can reduce dependency on expensive imports of petroleum fuels, hedge hydrology risk, and mitigate climate change through substituting and avoiding fossil fuels. The world Bank is prepar- ing a GEF-funded African Rift Geothermal Development Facility (ARGDG) project that will help bring down the necessary costs linked with the development of the technology. At present, 80 percent of ssA's population does not have access to electricity services. Most of these consumers rely on ker- osene and battery in households and diesel generators for business. However, most renewable energy resources, including small hydro, biomass, solar, and wind, are nearly untapped in Africa. The world Bank is helping a number of sub-saharan African countries to put in place legal, policy, and regulatory frameworks for the private sector to sell electricity to the grid, provide financing, and build capacities for local developers. Compact fluorescent lamps (CFLs) can enable energy savings of up to 80 percent for residential customers. Bulk procure- ment and distribution of CFLs is the quickest way to assure load reduction and mitigate power crises at less than a tenth of supply costs. Distributing a large number of CFLs through such programs helps market development for high-quality and low-cost CFLs and builds up customer confidence and the CFL image; this will lead to increased market acceptance. The Bank financed distribution of approximately 2,000,000 CFLs in Ethiopia, Rwanda, and Uganda, which can cut peak demand by 100 Mw. In addition, Ghana distributed 6 million CFLs on their own as the short-term response to the power crisis last year, and south Africa distributed 7­8 million CFLs and plans to distribute 30 million more. Source: The wBG. A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 45 diodes (LEDs). Lessons of these experiments will need BOx 25 THE GEF/IFC EARTH FUND to be carefully assessed, possibly by a third party. The GEF Earth Fund was approved by the GEF Council in June 2007, and endorsed by the GEF CEO in May 2008. The pur- The WBG is exploring its appropriate role in supporting pose of the GEF Earth Fund is to leverage private sector technology research and development. The WBG is not an funds, creativity, and energy to generate global environmental benefits in a sustainable and cost-effective manner. It is envi- R&D institution. R&D is an expensive, risky process sioned that the GEF Earth Fund could be a first step for the that frequently leads to dead ends or to long, circuitous GEF to more systematically engage with the private sector, routes to solve technological problems. Yet the WBG fostering innovation and opening new markets that would recognizes the need to help client countries become (or deliver environmental benefits. The GEF Earth Fund has an remain) appropriately engaged in the R&D process for initial allocation of Us$50 million to fund a variety of "plat- clean energy technologies and, particularly, to acceler- forms," or envelopes of funding managed by GEF-eligible agencies or other entities approved by the GEF Council. ate connecting R&D to the next stages of the technol- Platforms can be "thematic" or "programmatic" consistent ogy cycle. The recently established--jointly by the with the GEF strategic Priorities and are approved by the GEF GEF and IFC--"Earth Fund" can, among other Council on a no-objection basis with recommendation by the things, explore support to early innovations in the clean GEF Earth Fund Board, a Board established to provide strate- energy area particularly through the use of prize com- gic guidance to the platforms and the GEF Council. petitions for clean technologies. The IFC will manage the first Platform (the "IFC Earth Fund") with an initial funding of $40 million, of which an The WBG is in the process of formulating several allocation from the GEF Earth Fund is $30 million. The IFC approaches for supporting clean technology development Earth Fund will fund a portfolio of subprojects that contrib- ute to market transformation through (a) the testing, devel- and commercialization. The IFC and WB are cooperat- opment, and establishment of new technologies, financial ing on a corporate approach for supporting clean technolo- products/structures, and business models, and (b) the scale gies. Through the GEF/IFC "Earth Fund," IFC will up of previously successfully tested initiatives, with priority explore the use of prize competitions for early clean tech- given to those projects with the highest potential to make a nology innovations. Drawing on a WB study24 of technol- significant contribution to the reduction of GHG emissions ogy development models in non-energy sectors, the WBG or the highest contribution to the biodiversity objectives of the GEF. The IFC Earth Fund became operational by the is designing a program to help catalyze commercialization end of 2008. of clean energy technologies in developing countries.25 The WBG will develop this proposal through further research Source: The wBG. and consultations with the private sector and developing- country partners in 2009. knowledge base to facilitate countries-based decision making. Technologies still in this nascent stage of devel- The role of new technologies in adaptation is also critical opment tend to be more expensive than their more and requires location-specific approaches. One of the key mature competitors and can impose both significant challenges will be to increase food production in a sustain- incremental costs and risks upon the early adopters. able and affordable manner to meet growing demands in the With support from the GEF, the WBG and particularly context of climate change and the impacts of its policies on the IFC have played a role in early-stage demonstrations the agricultural sector. The Consultative Group on of clean energy technologies in developing countries, International Agricultural Research's (CGIAR) role is such as concentrating solar power, advanced biomass becoming ever more important and support by the WBG power generation, stationary fuel cells, and light-emitting will be scaled up and reinvigorated to deliver on this task. 24 world Bank. 2008. Accelerating Clean Energy Technology Research, Development and Deployment: Lessons from Non-Energy Sectors, washington, DC. 25 The work is being undertaken in parallel to the preparation of this Framework. 46 D E V E LO PM E N T A N D C L I M AT E C H A N G E regional, and global levels. It is preparing a World 9. sTEP UP POLICY REsEARCH, Development Report (WDR) on climate change, to be kNOwLEDGE, AND CAPACITY released in calendar year 2009. Table 1, which does not aim to be exhaustive but rather illustrative of the richness BUILDING (ACTION AREA 6) of an ongoing analytical effort and the WBG potential to scale up quickly, summarizes some of the major ongoing ENHANCING THE REsEARCH PROGRAM research programs, undertaken in close partnerships with international, regional, and national institutions. Over the past year, the WBG--including the Development Economics Vice Presidency (DEC) and The main objectives of scaling up the research program most Bank networks and regions--has significantly are to (a) support WBG client countries in understand- stepped up its research and analytical work on climate ing climate change and development linkages with a change across sectors and issues, at the local, national, major focus given to the nature, costs, and social TABLE 1 SELECT OF MAJOR STUDIES Study / Research Program Key Issues (see key below) 1 2 3 4 5 6 7 WDR 2010: Climate Change and Development n n n n n n n Global warming and Developing Countries: An Economy-wide Perspective n n n Adaptation in Agriculture n Economics of Adaptation to Climate Change n n state and Trends of the Carbon Market (annual report) n n Low-carbon-growth studies (Brazil, Mexico, China, south Africa, Indonesia, and India) n n n n n Examples of regional adaptation studies: n n n n n n g Adaptation to Climate Change in Europe and Central Asia g Mitigating and Dealing with Climate Change in Latin America and Caribbean g Climate Change and Africa's water: what are the Operational Implications? g study on Climate Impact and Adaptation in Asian Coastal Cities (with ADB) g Morocco--Adaptation to Climate Change in Agriculture g India--Climate Change Impacts in Drought and Flood Affected Areas PREM Policy Notes on Climate Change n n n The Role of the Flexible Mechanisms in Reducing GHGs n n Accelerating Clean Energy Technology Innovation n water and Adaptation to Climate Change: Implications on Investment and Project Design n n Research Program on social Impacts of Climate Change n Key to table: 1 Latest scientific evidence on anthropogenic climate change, emission trajectories and the costs of inaction or delay 2 Technology and costs of mitigation 3 Competitiveness and structural changes: threats and opportunities 4 Targets, trading and financial flows 5 Deforestation 6 Adaptation 7 Processes for building a collaborative response A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 47 dimensions of adaptation processes in a country-specific The WBG has engaged and will work with other devel- context, and inform WBG dialogue and operations, and opment partners, such as the UN Statistical Division and (b) inform the international process of reaching an agree- UNFCCC Secretariat, to improve knowledge and facili- ment on the future of the climate change regime and the tate systematic, consistent, and comprehensive monitor- respective policy and financial architecture. ing and reporting on progress with global climate action, including progress toward meeting international climate Going forward, the WBG will make an effort to keep agreements and financial flows to developing countries abreast of outside research, ensure effective partnerships in support of their mitigation and adaptation-related with global and national research communities, maximize actions. This work will build on its flagship global synergies within the ongoing work by the WBG itself, knowledge products with broad outreach, such as the promptly operationalize the main findings, and become a World Development Indicators and the State and Trends of recognized knowledge leader on the development policies the Carbon Market that are issued on an annual basis. and practical solutions in the context of climate change. It WDR 2010 on climate change, the ongoing six low-car- will particularly strengthen partnerships with regional and bon-growth country studies, and other analytical work national research communities in developing countries. will provide an important learning platform to support this process. As part of another global initiative, the Given that the challenge is global and its scientific WBG will include GHG-related indicators for urban understanding is based on a suite of global models, fur- areas in the Global City Indicator Program that it has ther attention will be given to coordinating the work by already initiated (see Box 26). the WBG operational units that utilize global models and projections and outside technical capacity (such as The WBG will also work with the OECD DAC on that provided by WMO to several studies). It will also be improving tracking and reporting of the provision of new important to minimize duplication through fostering and additional finance to meet the incremental costs of real-time knowledge sharing about the work within and climate actions as part of the ODA flows. Following a outside the WBG. Enhancing the coherence, focus, and three-year pilot program, the DAC recently included quality of a growing program of analytical work across markers for mitigation-related funding in its reporting of various operational units of the WBG will be one of the bilateral aid, but financing for adaptation is difficult to key responsibilities of the Senior Climate Change track. A recently initiated global study on the economics Advisor to the Sustainable Development Network. The of adaptation, undertaken by the WB in several develop- Advisor will collaborate with DEC and other technical ing countries in collaboration with local institutions, will experts within the WBG, including IFC, and external help address a major knowledge gap with respect to esti- experts as necessary. mating and monitoring incremental costs due to the need to adapt to changes in climate. wORkING wITH PARTNERs TO FACILITATE GLOBAL PROGREss sTRENGTHENING ExPERTIsE AND CAPACITY TO MANAGE DEVELOPMENT­ The WBG will extend its knowledge sharing, dia- CLIMATE LINkAGEs IN A DEVELOPING- logue, and outreach to the global level. It is assessing COUNTRY CONTExT several options for the design of a global climate policy and financial architecture, focusing on distributional Economic dimensions. In addition to continuing policy implications and adaptation needs. It is also examining dialogue in its traditional areas where climate implica- the role of technology in the development process, tions reinforce the importance of good economic policies, including the realistic span of new technology uptake such as energy and water pricing, the WBG will support at scale and developing effective technology coopera- its clients in strengthening technical and policy expertise tion models. on development-climate linkages and decision-making 48 D E V E LO PM E N T A N D C L I M AT E C H A N G E BOx 26 GLOBAL CITy INDICATORS FACILITy while indicators to measure city performance are commonly used by many levels of government, academia, and interna- tional agencies, they are not yet standardized, consistent, or comparable across time or across cities. There is an urgent need for a standard, comprehensive system for measuring and monitoring city performance and quality of life. Recognizing the need for a comprehensive system to collect and monitor city indicators, the world Bank worked with key stakeholders to establish the Global City Indicators Facility (www.cityindicators.org). now housed at the University of Toronto. The Facility will initially monitor twenty-seven "core" indicators and twenty-six "supporting" indicators as collected by participating cities. The indicators also provide a framework for additional "indices" of more complex city characteristics such as total greenhouse gas emissions, competitiveness, subjective well-being, etc. The indicators and indices are being designed in a manner to facilitate third-party verification. This will help to provide a sufficiently robust structure to enable cities to publicly meet local service and contribute to global action. Source: www.cityindicators.org. capacity at the country level. There is a growing interest operations. Building on activities initiated in fiscal 2008, from finance and economic ministries in climate financ- the WBG will work, through the development of social ing instruments. Other areas include fiscal and expendi- analysis tools, good practice guidelines, and capacity ture policies, trade, competitiveness, social safety nets, building, toward: governance, and decentralized decision making. Among the main recent studies addressing development-climate Ensuring that the poorest, least resilient social groups who linkages are a new "climate change" series of policy notes are most vulnerable to climate change impacts are sup- by PREM (2008), the IMF report on fiscal implications ported in developing adaptation strategies, so the short- of climate change (2008), and the Growth Report (2008) term well being and long-term livelihoods of these by the Growth and Development Commission that reit- vulnerable groups are not unduly compromised. This erated the priority of rapid growth in developing coun- will include understanding and supporting social tries in the face of climate change. safety nets, providing social investment funds to rebuild communities in the advent of natural disas- Even with the availability of new and additional ters, and developing weather-linked agriculture insur- financing, there will be a need to make decisions about ance schemes customized to reach the poor. cost-effective resource allocation that are vastly com- plicated by the very long-term and uncertain nature of Taking into account that impacts are often differentiated costs and risks. The WBG will work with interested by gender. The prevailing lack of equal rights of clients on improving the understanding of how women to land, irrigation water, and access to educa- national policy responses by developing countries to tion renders them especially vulnerable in a future climate change can enhance their development outcomes, with anticipated increases in pressure on these including how to make decisions that address trade-offs resources. Women, therefore, may often have a lower and manage uncertainties, related to both climate science adaptive capacity arising from prevailing social and economic cost, while dealing with the very long- inequalities and are ascribed social and economic roles term time horizon. that lead to increased hardship (e.g., through reduced food security or shortage of water resources). Social and human development dimensions. An impor- tant area of the WBG work will be to advance the under- Understanding the impacts of mitigation actions on poor standing of the impacts of climate change and mitigation people's livelihoods, through applying social analysis to actions on different social groups to inform relevant the design of (a) policies (e.g., changes in price A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 49 regimes to promote low-carbon growth globally and Update guidance for existing tools and instruments nationally), (b) investment projects (e.g., large use of to take account of climate considerations when hydropower) to ensure that poor people benefit from necessary; and the project, and (c) new forms of climate action and finance so that poor people's assets are protected and Develop, test, and refine new instruments as needed. they are included in benefit streams created by these new opportunities. Outside the WBG, several initiatives are underway to create and organize databases and decision-aiding tools Supporting local institutions in helping facilitate adapta- in order to provide a wide variety of audiences with cli- tion, economic diversification, and growth strategies that mate and vulnerability-related information. Most of the maintain or increase social resilience and cohesion. The tools are still limited in one way or another (e.g., in terms specter of increasing rural-urban migration, increas- of sectors, ability to respond to user needs, reliability of ing population in urban slums, social unrest, growing climate information provided at a relevant scale, etc.), yet unemployment, sense of exclusion, and increased con- a range of these tools applied within their useful range flict can already be witnessed in a number of coun- can inform the design of adaptation components within a tries, particularly in the MNA region where fewer job particular initiative (e.g., using community-based assess- opportunities in agriculture push people to move. ments; economic analysis of adaptation options, etc.). While difficult to attribute to human-induced climate The WBG will continue to inform and share experience change, such examples highlight the possible scale of with other players to develop a suite of tools needed to future issues. support actions at a sectoral and country level. Understanding the scope of health impacts caused by A range of existing tools and instruments used within the climate change and addressing these, including WBG are well suited to include relevant climate issues at increased incidence of communicable diseases, malnu- the country, sector, and project level. The core instru- trition, foodborne illness, heat- or cold-related expo- ments for applying environmental, economic, and social sure, migration-related negative health effects, mental analysis to development policy dialogue and the design of health, drowning, and other impacts on vulnerable operations will therefore be important channels for the groups differentiated by age and gender. WBG's evolving work on climate change (see Annex 6). DEVELOPING A sUITE OF TOOLs TO In fiscal 2009­10, the WBG will review and update sUPPORT POLICY DIALOGUE AND guidance notes for existing analytical instruments to aid OPERATIONs operational staff with taking account of climate change dimensions when appropriate. For example, the Bank has The WBG uses a wide range of analytical approaches worked with OECD on guidelines for integrating climate and instruments to inform its policy dialogue and lending change in strategic environmental assessments (SEAs), at the project, sector, and country level. In addition to and will pilot this approach on a demand basis, during this, the Bank works closely with client countries to fiscal 2009­11. A DPL toolkit on climate change is inform and support national, sectoral, and local develop- being prepared and will be available in fiscal 2009. ment policy and planning, while the IFC similarly sup- ports its private sector clients. To support its clients with New instruments. The development of new and/or wider climate aspects in their projects and programs, the WBG application of emerging instruments and approaches will will take the following steps: be required in two specific areas. The first one relates to taking better account of climate risk and vulnerabilities. Make relevant use of analytic instruments and infor- The second area is linked to the need to better understand mation generated outside the WBG; the impacts of the WBG's activities on GHG emissions. 50 D E V E LO PM E N T A N D C L I M AT E C H A N G E The WBG's move toward greater application of risk close cooperation with clients and local institutions. screening tools to climate-sensitive projects implemented An emerging approach in all three sectors is to under- by IBRD/IDA, particularly to costly long-term infra- take GHG assessment, focusing on net emissions from structure investments, will require further work to a project, as part of a broader analysis of all project develop, apply, and test robust tools. Several screening benefits and external costs, including a range of exter- tools for natural risks and hazards, such as MiRisk, nalities (e.g., urban air pollution and congestion for Hazuz-MH, as well as the ADAPT tool developed transport; ecosystem benefits for forests). This would within the Bank, are commonly available, but so far are allow analysts to place the GHG analysis of a project limited to a few sectors; and the choice of risk screening in the context of its development impact and assess the tools and approaches to use will depend on the context. trade-offs where applicable. The IFC will progres- The WBG will also work with interested client countries sively apply these tools to its projects, to inform its to develop and pilot methodologies for rapid climate risk dialogue with its private sector clients on climate- and vulnerability assessments at a country level. related business opportunities and risks. The method- ologies will be coordinated with other MDBs, IFIs, The private sector initiatives, led by IFC and MIGA, and other stakeholders, which are developing similar will continue to pilot approaches for risk assessments tools and methods, with a view to greater harmoniza- relevant to their private sector clients. IFC initiated in tion in approaches. 2007 the first series of assessments of the risks posed by climate change to private sector investments. As part of These initiatives are intended to: environmental due diligence, MIGA is also assessing the climate-related risks of prospective projects, such as Build staff and client capacity for carbon analysis to those involving water resources management, mining, prepare for a carbon constrained future; and hydropower, and, in particular, how the design of these investments would be sufficiently robust with Gather information to better understand the respect to changes in local hydrology that are projected implications of possible new approaches; by climate models. As part of its larger Adaptation Program, the IFC will use a set of initial case studies to Identify low cost mitigation opportunities help produce an understanding of the risks to the pri- across operations, especially in sectors which vate sector and the relationship to financial perfor- may be currently overlooked (i.e., beyond energy mance. The program will also address the larger role of and transport); private sector adaptation opportunities and its relation to public sector initiatives. Facilitate an analysis of alternatives; and Methods for GHG analysis. As part of strengthening Help promote the efficient use of emerging climate the knowledge base and capacity, the WBG is develop- funds (including the CTF). ing and piloting methods to analyze GHG emissions. The focus is on facilitating access to and effectively This is an analytical and learning exercise, not a busi- using additional climate finance. Some applications of ness requirement, and it will not be used for decision these tools, including accounting for and valuing GHG making about projects using traditional WBG financ- emissions, are already used in GEF and carbon finance ing instruments. By the end of the piloting period, a projects. They will extend, for learning and information proposal will be prepared for Board consideration on purposes, to a larger pool of projects. the future applications of tools appropriate for Bank and IFC business models, client needs, and available climate The Bank will select pilot projects in energy, trans- financing instruments, taking into account the out- port, and forestry on a demand basis, and will work in comes of the UNFCCC deliberations. A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 51 sCALING UP CAPACITY BUILDING through the Institutional Development Fund and other institutional development operations Enhancing skills and capacity to apply new and exist- could be implemented based on country and ing knowledge inside the WBG and in client coun- regional demand. tries has been identif ied as a high priority by both external stakeholders and WBG staff. This set of Supporting Global and Regional Leadership Networks activities will be implemented in cooperation with aimed at creating communities for leaders and practi- other development partners with a mandate for tioners in the area of climate change in developing capacity development such as UNDP. The WBG will countries, in a conjoint effort to strengthen existing seek to collaborate with key regional, international, regional institutions and professional networks. An and national partners to support the capacity of example of an existing program via which this could developing countries to apply relevant knowledge for be done is the World Bank Institute's Leadership both mitigation and adaptation. Development Program. Specific actions will include the following: Ensuring shared learning from CIF through the Partnership Forum. To achieve the learning and Capacity Development through WBG Operations . As knowledge sharing goal of the CIF, a "learning- climate change considerations are being factored and-sharing" program would be initiated in con- into regional, country, and sectoral programs, sup- junction with the Forum, starting from the very port to task teams will be given to help include a early design stage. This program would put in component or integrated action into relevant oper- place a well-structured shared learning event that ations that is building analytical and technical would be convened by the World Bank in collabo- skills and strengthening organizational capabili- ration with other partner organizations (including ties in a country to respond to climate challenges. think tanks and developing-country research In addition, standalone technical assistance organizations). BOx 27 CARBON FINANCE ASSIST (CF-ASSIST): A MULTIDONOR CAPACITy DEVELOPMENT FUND CF-Assist's work program includes three main components: capacity building at the national and/or regional levels; facilitat- ing carbon market development through global and regional events; and market assessment and outreach through sectoral studies, learning guidebooks, and market trends reports (www.cfassist.org). Country-level activities are implemented through the Regions, and the large annual Global "Carbon Expo" jointly with the Carbon Finance Unit. Approximately 10,000 people have participated in CF-Assist activities, which include: Capacity development and knowledge management activities in over 50 countries; Assistance in developing approximately 200 CDM projects; support of several regional forums; Creation of new institutions and/or provision of technical assistance (TA) for institutional strengthening in over 20 countries; Partnering in creation of innovative instruments (e.g., Argentina and Mexico Carbon Funds); Development of new project methodologies in transportation, biomass energy, Integrated Gasification Combined Cycle (IGCC) in the power sector, and forestry as new "project types" have been included in CDM; Co-organization of the successful annual Global Carbon Expo (which has been attracting an increasing number of partici- pants) and facilitation of host-country participation (i.e., those who are the hosts of current CDM projects); Playing an active role in the Nairobi Framework through partnerships with UNDP and UNEP in sub-saharan Africa. Source: world Bank Institute. 52 D E V E LO PM E N T A N D C L I M AT E C H A N G E Working with other development partners to scale up a sTRENGTHENING CAPACITY AND skILLs multiagency coordinated effort to support capacity OF wORLD BANk GROUP sTAFF building. This will support a move toward program- matic CDM approaches, including the use of CPF; To strengthen the World Bank Group's internal capacity to provide access to financial instruments that are provide necessary assistance, a comprehensive, program- outside CDM, such as the GEF, FCPF and CTF; matic, and multi-mode Climate Change for Development and address the adaptation needs drawing on the Professionals (CCDP) Learning Initiative has been devel- Adaptation Fund, PPCR and climate risk insurance oped and is being rolled out to WBG staff. Launched at the products. The WBG will take lessons from and Sustainable Development Forum in February 2008, it is explore synergies with the Carbon Finance Assist, expected to cover 8,000 staff over fiscal years 2009­11 which has carried out capacity building activities in (FY09­1,500; FY10­ 2,500; and FY11­4,000). In collabo- about 50 countries and has helped to initiate CDM ration with WBI, the CCDP will be extended to develop- projects (see Box 27). ment practitioners in client countries. Developing cost-effective delivery mechanisms. Most Other activities to enhance staff knowledge, skills, and capacity development programs have used a face- capacity include: (a) the roll-out of the Sustainable to-face delivery approach, severely limiting reach Development Leadership Program (SDLP) for senior staff and coverage. In the face of rapidly increasing and managers (launched in Cambridge in June 2008); (b) needs, the WBG expands the range of delivery inclusion of climate change modules in regular mass train- mechanisms to sustain a significant scaling up, ing programs (such as introduction to Bank operations, while allowing focus on the different components economic analysis of projects, etc.); and (c) improving the of capacity development (awareness, understanding, staff skills mix through strategic hiring. In addition, the practical action, and leadership). This will include WBG will explore options (assessing GWMATE, e-learning, Web-based learning, and other distance ASTAE and other models) and establish facilities to pro- and multimedia approaches. vide just-in-time, on-demand operational expertise to sup- port climate actions, using high-quality outside know-how. A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 53 10. DEVELOPING THE REsULTs investment and regional departments are reviewing their strategy and work program to take into account climate FRAMEwORk change considerations relevant to private sector activity in their respective areas. The design of a results-based framework to measure progress with supporting climate actions in development Significant progress has already been made with low- has been initiated. Given knowledge and capacity gaps in carbon definitions and project-tracking in the energy understanding linkages and impacts, a phased approach sector under the CEIF. The next steps are to further will be followed that allows for additional analytical refine these definitions, and expand to other sectors in work, learning from project experiences (supported in a consistent fashion while taking account of sector spe- particular by CIF and other climate financing products), cifics, as well as to harmonize with other MDBs. consultations, and dialogue with development partners, Priority attention was given to understanding and client countries, and a range of other stakeholders. measuring the impact of WBG-supported programs on adaptation to climate change. The working group Specifically, the Strategic Framework has adopted a focused on: (a) operationally relevant definitions of dual-track approach to establishing the results frame- adaptation, vulnerability, and adaptation projects; and work: (a) identify an immediate set of key actions, (b) procedures to track the adaptation aspect of various deliverables, and indicators that will be used to monitor development projects where relevant. the WBG progress; and (b) initiate a longer-term process of developing, in a consultative manner, an outcome- Given the need to better monitor adaptation aspects oriented results framework. in relevant operations, including possible additional costs, the WBG will devise a system of tracking A working group of WBG staff was formed and the work adaptation-enhancing projects. This will assist with is expected to continue through fiscal 2009­10, in close operationalizing the PPCR and reporting on progress collaboration with staff Bank-wide, client countries, and with leveraging adaptation-related actions through other stakeholders to agree on a core set of indicators for IDA 15. Much of the WBG's development work in specific sectors and at various scales (at project and pro- climate-sensitive sectors such as agriculture, forestry, gram, country, sector, or regional levels). These need to or water resources infrastructure is in effect reducing be designed to allow effective monitoring and evaluation vulnerability in countries and communities, and and at the same time be adaptable to varying ways in thereby helping them adapt to climate risk. A system which countries are affected by climate change. Tracking that is able to capture these "coincidental" climate progress will allow both clients and the WBG to learn adaptation benef its, as well as other adaptation more rapidly from what works and what does not and dimensions of WBG projects, will be developed and adjust actions accordingly. piloted during f iscal 2009, applied Bank-wide in f iscal 2010, and extended to WBG-wide reporting in The work has focused on how climate action can support f iscal 2011. development goals and proposes a range of indicators for key sectors that would measure progress toward develop- An important area of collaboration with the MDBs and ment outcomes through more climate-resilient and less UN partners will be a coordinated effort to create a GHG-intensive investments. A generic template was common system by which progress with supporting developed and is now being customized to relevant sectors. climate action can be consistently tracked--including According to the template's logic, the core sector devel- tracking the additional costs and how they are met. opment goals are identified first, followed by identifica- Analysis being done under the "Economics of tions of the climate-relevant input, output, and outcome Adaptation" research program will contribute to this. indicators supporting these goals. At the IFC, all 54 D E V E LO PM E N T A N D C L I M AT E C H A N G E The key actions for tracking progress over fiscal 2009­11 country-driven demand for activities that support their are summarized in Table 2. Within this period, the Bank climate-related knowledge and actions--and at the corpo- Group will remain flexible to incorporating new develop- rate level, with the Sustainable Development Network, for ments in negotiations and knowledge, and lessons from example, receiving an additional budget allocation of implementation and consultations. An interim progress US$2 million in fiscal 2009 to fulfill its corporate man- report will be prepared in the second half of the fiscal date. The Framework is embedded in existing business year 2010, following the release of the World Development processes, and the scale of new initiatives will depend on Report 2010. progress with providing additional climate finance and technology to developing countries. Donor trust funds to During the initial implementation of this Framework, the support knowledge, tools, and capacity development will WBG will largely rely on internal reallocations of budget be critical for the proposed initiatives to materialize. resources toward new initiatives to address the develop- The WBG will use the period until end calendar 2009 to ment challenges of climate change, as well as on signifi- monitor and assess the need for any additional budget cant support from trust funds. Internal reallocations have resources to support the scaling up of the proposed activi- already taken place, both at the country level--based on ties and initiatives by different WBG units and entities. TABLE 2 ACTIONS AND DELIVERABLES FOR FISCAL 2009­11 Objective Action Products/Processes/Indicators 26 Timeline Action Area 1: Enhance cooperation Collaboration with the UN and its agencies on a coordinated FY09­11 Support Climate with development approach to climate change, particularly financing, capacity Actions in Country-led partners to facilitate building, and monitoring Development Processes global action [Note: climate actions are Joint implementation of CIF funds with other MDBs FY09­10 supported by all six action areas; so this section New partnerships established, particularly to facilitate the work on FY09­10 focuses only on products technology and adaptation and activities not covered by the other sections] support climate Actions to strengthen climate resilience are supported by several FY09­11 actions by CAss , with an estimated demand by at least 10 countries with high operational strategies vulnerability to climate risks support to climate actions included in business strategies for wB FY09 regions, MIGA, and IFC strategy updates for relevant sectors include consideration of climate risks and support to climate actions --Urban FY09 --Energy, social Development FY10 support climate A plan for strengthening synergies between support to disaster risk FY09­10 actions in lending management and support to adaptation developed and programs implementation started screening of relevant projects for climate risks introduced --starting with hydropower projects FY09 --extending to other vulnerable sectors within regional context FY10­11 screening for EE opportunities in infrastructure projects introduced --starting energy sector projects FY09 --extending to transport, water and urban projects FY10­11 26 specific indicators for wBG operations, when provided, are based on existing pipeline and estimated demand. A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 55 TABLE 2 CONTINUED Objective Action Products/Processes/Indicators 26 Timeline Action Area 1: support climate Increase in wBG financing for RE and EE by an avg. of 30% per annum FY09­11 Support Climate actions in lending Actions in Country-led programs wBG low-carbon energy projects share reaches 50% FY11 Development Processes Increased demand for and lending in support of modal shifts in FY09­11 freight and public transport (as compared to FY06­08) A program to assist with sustainable urban investments is FY09­11 developed and piloted in at least 5 cities Develop an A set of definitions and outcomes developed by the wBG FY09 outcome-based results framework Improved climate-related portfolio tracking, with the focus on FY10 projects addressing climate risks and vulnerability in IDA countries Action Area 2: Mobilize Increase access to Maintained or increased IDA replenishment levels, and improved FY11 Additional Concessional additional finance tracking of ODA to climate-related actions, mitigation and and Innovative Finance to cover higher costs adaptation (with DAC) and risks Climate Investment Funds operational with a target of Us$6 billion FY09 Increased leverage of GEF funds through programmatic approaches FY09­11 Guidelines to help access various financing instruments and reduce FY09 transaction costs prepared Action Area 3: Facilitate Increase access to FCPF rolled-out: the Development of market products, --at least 18 readiness grants provided FY09 Market-based Financing including for REDD and --at least 5 countries having successfully built FCPF capacity FY10 Mechanisms adaptation CPF operationalized: --initial capitalization of at least 350 million FY09 --12­16 CPF Emission Reduction Programs developed FY11 Access to climate risk management products and reinsurance FY10 markets increased Action Area 4: Leverage Increase leveraging of MIGA guarantee instruments increasingly used for low-carbon FY09­11 Private Sector Resources private investments (RE/EE) investments--at least 10 guarantees provided in the FY09­11 period Innovative financing packages combining CF, GEF, and/or CIF to FY09­11 leverage private investments structured and applied by IFC--at least 10 during FY09­11 IFC leverage of low-carbon private investment is at least 4 to 1 in FY11 dollar values subnational-level application of financial tools is tested for projects FY09 with climate co-benefits--at least 3 in a pilot phase (further estimates to be provided if/when post-pilot stage approved) 56 D E V E LO PM E N T A N D C L I M AT E C H A N G E TABLE 2 CONTINUED Objective Action Products/Processes/Indicators 26 Timeline Action Area 5: Develop new Proposals for supporting clean energy technology innovation FY09 Support Accelerated partnerships and prepared by IFC and wB Development and approaches for Deployment of New technology Program to support technology innovation piloted FY10 Technologies cooperation work by CGIAR on climate resilient agriculture technologies scaled FY09­11 up (measured by increase in funding) Action Area 6: Step Up Advance knowledge on The global economics of adaptation study completed and improved FY10 Policy Research, climate and the knowledge of adaptation processes, costs, and benefits Knowledge, and development Capacity Building Low-carbon-growth studies provided knowledge of the incremental FY09 costs and benefits of development programs with lower GHG emissions--at least 5 studies completed in FY09 WDR 2010 on climate change launched and contributed to global FY10 knowledge and dialogue Monitoring on global climate action improved, through joint effort FY10 with the UN and OECD, and reported in flagship wBG knowledge products (such as WDI). Develop and test new Good practice guidelines to help relevant operations account for FY09 analytical tools social and gender dimensions of climate change prepared Toolkits and decision-making guides for adaptation to climate FY09­10 change in agriculture and water sectors developed and applied GHG analysis is developed and applied in IFC real investment portfolio FY09­11 and select wB energy, transport, and forestry sector projects Capacity building Country-level expertise and capacity to manage development- FY09­11 climate linkages and access additional finance strengthened Potential of existing programs reviewed and enhanced, and a FY09 coordinated program with UN agencies developed wide coverage of staff and managers by specialized training FY09­11 programs on development and climate change; climate issues included in other training programs, as appropriate Enhanced skill mix to support climate actions FY10 Outreach and Communication and outreach plans for the implementation phase FY09­10 communication developed and implemented GHG emissions for all wBG offices enrolled in the carbon-neutral FY11 program reduced by 7% by 2011, and remaining emissions offset by purchase of carbon credits A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 57 ANNEx 1 IMPACTS ANd EMISSIONS kEY IMPACTs Water scarcity problems. Many of the drought-prone, semi- arid areas of the developing world are expected to become even drier. Low-income countries are among the most vulnerable to water and other resource scarcities (Figure A1:1). In Africa, for example, by 2020, between 75 and 250 million people are projected to be exposed to increased water stress due to climate change. Regions facing potential long-term drying trends will likely need to reconfigure societal water use, particularly as related to agriculture, which accounts for approximately three- quarters of water withdrawals in developing countries. The developing countries are more vulnerable to the impacts of increased intense tropical storm activity, storm surges, and hurricanes, which are heavily impacting many countries in Latin America and South and East Asia. Importantly, the population in some of the most exposed countries is clustered in low-lying areas, which amplifies the economic and social impacts of even modest increases in storm intensity or sea-surge levels. Over time, sea-level rise presents an ultimate threat to small island states and low-lying densely populated coastal areas. Loss of the glacial meltwater sources for irrigated agricul- ture and other uses in the Latin American Andes, Central Asian lowlands, and parts of South Asia and sea-level rise in cereal-producing river deltas of Asia and North Africa represent grave long-term climate risks, above and beyond temperature rise and changes to the hydrologic cycle. Food security concerns. As little as a 1ºC rise in temperature is estimated to result in a 5 to 10 percent yield reduction of major cereal crops in low latitude regions. Rainfed 58 D E V E LO PM E N T A N D C L I M AT E C H A N G E FIGURE A1:1 WATER WITHDRAWAL IN RELATION TO WATER AVAILABILITy Water Stress Indicator Low < 0.3 0.3 ­ 0.4 0.4 ­ 0.5 0.5 ­ 0.6 0.6 ­ 0.7 0.7 ­ 0.8 0.8 ­ 0.9 0.9 ­ 1 High >= 1 No discharge Major River Basins Note: water demand currently exceeds supply in regions that contain 40 percent of the world's population, and it is in some of these regions where both increased population growth and reduced runoff volumes from climate change are projected. water scarcity index values >0.7 (yellow, orange, and red areas) indicate over- appropriation relative to total availability of the resource. 27 FIGURE A1:2 POTENTIAL IMPACT ON AGRICULTURE: PROJECTED PERCENTAGE CHANGE IN AGRICULTURAL PRODUCTIVITy By 2080 n.a. n.a. <­25 < ­25 <­25 to ­15 ­25 to ­15 ­15 to ­15 to ­5 ­5 to 0 ­5 to 0 0 to 5 0 to 5 to 15 5 to 15 15 to 25 15 to 25 >25 > 25 Note: scenario: sREs A2. 28 27 Falkenmark, Malin, and Rockstrom, Johan. 2006. Rain: The Neglected Resource­Embracing Green Water Management Solutions. swedish water House/sIwI/sEI, available at: http://www.siwi.org/documents/Resources/Policy_Briefs/PB2_Rain_the_neglected_resource_2005.pdf (Original map source: smakthin, Vladimir U. et al., 2004. Taking Into Account Environmental Water Requirements in Global-Scale Water Resources Assessments, Comprehensive Assessment of water Management in Agriculture Research Report 2. Colombo. International water Management Institute.) 28 Cline, william R. 2007. Global Worming and Agriculture: Impacts Estimated by Country. Center for Global Development. washington D.C., available at http://www.cgdev.org/content/publications/detail/14090 A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 59 agriculture, in particular, is highly vulnerable to reduced developing countries. Emissions from land-related rainfall and shifts in rainfall timing and distribution. activities in developing countries are double those of Studies of semiarid economies in Africa and South Asia developed countries, but these data fail to capture the show that agriculture GDP and farmers' incomes closely emissions from land clearing in the now developed mirror rainfall variations. Significant areas of semiarid and countries prior to 1850 (Figure A.1:3). Per capita dry subhumid zones in Africa are projected to lose 5 to 20 emissions since the 1950s have remained approximately percent of their growing season length by 2050. Similarly, four times higher in developed countries than in productive rangelands in the Mediterranean basin could developing countries with the difference being even incur major losses in ecosystem services. Projections show greater for the least developed countries. that the main productivity losses will occur in developing countries (Figure A1:2). Figure A1:4 shows the change in emissions relative to the Kyoto targets, and Figures A1:5 and A1:6 show The health status of millions of people will be adversely carbon dioxide and greenhouse gas intensity by region. affected by extreme weather events, increased burden of Tables A1:1 and A1:2 detail emissions data by country. diarrheal diseases, and altered distribution of some infec- tious disease vectors. In Africa, malaria is already creeping up into the highlands of Kenya, Rwanda, and Tanzania. FIGURE A1:4 PROGRESS TOWARD THE KyOTO PROTOCOL TARGETS EMIssIONs Change in emissions from base year (1990­2005) Historically, the cumulative emissions of carbon dioxide excluding LULUCF from fossil fuels and cement production are almost three times higher from developed countries than Annex I non-EITs, KP Parties -6% 5% -2% Annex I EITs, -35% KP Parties FIGURE A1:3 HISTORIC CUMULATIVE EMISSIONS Cumulative emissions, Billions tonnes CO2 Annex I, non-KP Parties 18% 800 TOTAL KP Parties -14% -4% 600 -40% -30% -20% -10% 0% 10% 20% 30% Percent (relative to 1990) 400 Actual change as of 2005 Kyoto target to 2008-2012 Notes: kP ­ kyoto Protocol; EITs ­ Economies in Transition, LULUCF ­ Land Use, 200 Land Use Change, and Forestry. The aggregate GHG emissions reduction target of countries listed under Annex B of the kyoto Protocol is 5.2 percent below 1990 levels. Given that not all countries listed under Annex B have ratified the kyoto Protocol, the aggregate target of Parties to the kyoto Protocol is slightly more than 4 percent below 1990 levels. Annex I non-EIT kP Parties: Australia, Austria, 1850 1875 1900 1925 1950 1975 2000 Belgium, Canada, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Japan, Liechtenstein, Luxembourg, Monaco, Netherlands, New zealand, Norway, Portugal, spain, sweden, switzerland, and United kingdom. Annex I EIT Industrialized countries Developing countries kP Parties: Belarus, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Land-based Land-based Lithuania, Poland, Romania, Russian Federation, slovakia, slovenia, and Ukraine. emissions emissions Annex I non-kP Parties: Turkey and the United states. The European Community, also a Party to the UNFCCC and the kyoto Protocol, is not shown on this chart. Fuel-based Fuel-based emissions emissions Source: UNFCCC web site (http://unfccc.int/ghg_data/ghg_data_unfccc/time_ Source: Carbon Dioxide Information Analysis Center, www.cdiac.ornl.gov. series_annex_i/items/3814.php) 60 D E V E LO PM E N T A N D C L I M AT E C H A N G E FIGURE A1:5 CO2 AND GHG INTENSITy By REGION CO2 emissions / GDP (PPP) (excluding land use, 2005) GHG emissions / GDP (PPP) (including land use, 2000) 0.90 3.50 0.80 SSA EAP 3.00 Intensity (kgCO2 /GDPppp) 0.70 ECA 2.50 0.60 MNA SSA 0.50 2.00 SAR EAP 0.40 1.50 0.30 1.00 ECA LAC SAR High LAC MNA 0.20 Income 0.50 0.10 High Income 0.00 0.00 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 55,000 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 Cumulative income (billions US$, constant 2005 PPP) Note: The charts show significant variations in energy-related CO2 and total GHG intensities per GDP by region and a significant shift in ranking when a measure of emissions changes from CO2 to GHG. The ECA region has the highest energy-related CO2 emission intensity per GDP, while LAC has the lowest. High-income countries generate by far the largest volume of CO2 emissions. Taking into account all GHG emissions, including those arising from land use, land use change, and forestry, would tend to increase ssA, EAP, and LAC intensities and contributions to global GHG since land degradation and deforestation has been progressing at a rapid pace in these regions. Source: CO2 emissions (emissions from energy use) from EIA web site (as of september 18, 2007); GDP PPP (constant 2005 Us$) from World Development Indicators database; GHG emissions from Climate Analysis Indicators Tool (CAIT) Version 5.0 (washington, DC: world Resources Institute, 2008). Comprehensive (as many countries and GHG as possible) data for emissions are only available up to 2000. FIGURE A1:6 CO2 INTENSITy TRENDS By REGION, WITH PPP AND MER CO2 Intensity Trends by Region (PPP) CO2 Intensity Trends by Region (MER) kg CO2 per GDP, PPP (constant 2005 int$) kg CO2 per GDP (constant 2000 US$) 1.5 5 4 1.2 3 0.9 2 0.6 1 0.3 0 '90 '92 '94 '96 '98 '00 '02 '04 '90 '92 '94 '96 '98 '00 '02 '04 AFR EAP ECA High Income AFR EAP ECA High Income LAC MNA SAR LAC MNA SAR Note: The charts show that the dramatic decline in CO2 intensity during 1990s in highly intensive regions has been reversed (EAP) or slowed down (ECA). Meanwhile, CO2 intensity in other regions remains relatively stable. The use of PPP or MER measures does not change the relative ranking of different regions, except for high- income countries that have the lowest intensity when MER is used. Source: CO2 emissions (emissions from energy use) from EIA web site (as of september 18, 2007), and GDP, PPP (constant 2005 Us$) from world Development Indicators database. A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 61 TABLE A1:1 EMISSION CHARACTERISTICS By COUNTRy, 2005 GDP per CO2 CO2 CO2 CO2 CO2 capita, CO2 intensity, intensity, growth, growth, per PPP, Emissions, PPP, 2005 MER, 2005 1995­ 2000­ capita, 2005 Income 2005 (t CO2 per (t CO2 per 2000 2005 2005 ($ per group, Country (Mt CO2 ) Million $) Million $) (%) (%) (t CO2 ) annum) 2005 1 United states 5,957 480 480 1.9 0.5 20.1 41,813 High 2 China 5,323 998 2,372 0.5 12.8 4.1 4,088 Lower middle 3 Russian Federation 1,696 999 2,218 -0.5 1.4 11.9 11,861 Upper middle 4 Japan 1,230 318 270 2.0 0.7 9.6 30,290 High 5 India 1,166 478 1,441 2.9 3.2 1.1 2,230 Low 6 Germany 844 336 303 -0.7 -0.1 10.2 30,445 High 7 Canada 631 559 558 2.0 2.5 19.5 34,972 High 8 United kingdom 577 305 259 0.0 0.8 9.6 31,371 High 9 korea, Republic of 500 486 631 3.1 2.6 10.3 21,273 High 10 Italy 467 287 264 0.8 1.0 8.0 27,750 High 11 Iran, Islamic Republic 451 700 2,347 4.1 7.2 6.6 9,314 Lower middle 12 south Africa 424 1,066 1,751 2.2 2.0 9.0 8,478 Upper middle 13 France 415 223 194 1.5 0.8 6.8 30,591 High 14 saudi Arabia 412 841 1,307 4.3 7.3 17.8 21,220 High 15 Australia 407 630 603 4.3 2.9 20.0 31,656 High 16 Mexico 398 339 519 3.6 0.9 3.9 11,387 Upper middle 17 spain 387 328 344 5.4 3.7 8.9 27,180 High 18 Brazil 361 228 409 3.7 1.1 1.9 8,474 Lower middle 19 Indonesia 359 508 1,253 4.9 5.8 1.6 3,209 Lower middle 20 Ukraine 343 1,303 3,977 -5.1 1.2 7.3 5,583 Lower middle 21 Poland 285 550 936 -1.0 -0.4 7.5 13,571 Upper middle 22 Netherlands 270 479 429 2.4 1.6 16.5 34,492 High 23 Thailand 234 526 1,327 2.2 7.8 3.6 7,069 Lower middle 24 Turkey 230 308 475 5.7 2.8 3.2 10,370 Upper middle 25 kazakhstan 198 1,503 3,466 -0.4 7.9 13.1 8,699 Lower middle 26 Egypt, Arab Rep. 162 486 1,804 3.9 6.3 2.2 4,574 Lower middle 27 Malaysia 156 519 1,134 4.6 6.9 6.1 11,678 Upper middle 28 Venezuela, RB 151 574 1,040 1.6 2.5 5.7 9,924 Upper middle 29 Argentina 147 350 800 2.9 1.3 3.8 10,815 Upper middle 30 United Arab Emirates 138 679 1,063 1.8 4.7 30.4 49,451 High 31 Belgium 136 409 366 2.1 -1.2 13.0 31,699 High 32 singapore 134 724 1,118 5.3 4.6 30.8 43,334 High 33 Pakistan 121 357 1,110 4.4 2.3 0.8 2,184 Low 34 Uzbekistan 118 2,236 8,246 0.3 2.2 4.5 2,017 Low 35 Czech Republic 113 544 905 -1.6 0.3 11.0 20,280 Upper middle 36 Nigeria 105 430 937 -4.2 5.5 0.7 1,731 Low 37 Greece 103 317 364 3.4 0.5 9.3 29,261 High 62 D E V E LO PM E N T A N D C L I M AT E C H A N G E TABLE A1:1 CONTINUED GDP per CO2 CO2 CO2 CO2 CO2 capita, CO2 intensity, intensity, growth, growth, per PPP, Emissions, PPP, 2005 MER, 2005 1995­ 2000­ capita, 2005 Income 2005 (t CO2 per (t CO2 per 2000 2005 2005 ($ per group, Country (Mt CO2 ) Million $) Million $) (%) (%) (t CO2 ) annum) 2005 38 Romania 99 490 1,005 -5.4 1.4 4.6 9,368 Upper middle 39 Iraq 98 .. .. -0.9 6.1 .. .. Lower middle 40 Algeria 88 364 861 -1.0 1.1 2.7 7,370 Lower middle 41 Vietnam 80 451 1,514 6.9 11.1 1.0 2,143 Low 42 Austria 78 279 256 1.7 4.2 9.5 34,075 High 43 Philippines 78 312 791 4.2 2.1 0.9 2,956 Lower middle 44 kuwait 77 669 915 8.3 5.3 30.2 45,198 High 45 Chile 66 334 560 6.8 3.7 4.1 12,173 Upper middle 46 Israel 65 410 495 5.1 0.9 9.4 22,886 High 47 Portugal 65 309 351 4.6 0.6 6.2 19,956 High 48 Belarus 61 735 2,033 -0.7 0.6 6.3 8,541 Lower middle 49 Hungary 60 349 541 -0.7 1.5 5.9 17,014 Upper middle 50 Colombia 59 223 478 1.5 0.4 1.3 5,867 Lower middle Note: The table presents top 50 countries ranked by total CO2 emissions from fossil fuel use. It shows that most countries rank differently by several measures, such as total CO2 emissions, emission intensity of GDP, and the rate of emission growth. CO2 intensities are tons of CO2 per unit of GDP in million Us$. Source of CO2 emissions is Us Energy Information Administration (EIA) web site (as of september 18, 2007). GDP PPPs (constant 2005 Us$), GDP MER 2005, and Population data in 2005 are from World Development Indicators database (septenber 08). Income groups for 2005 as follows: low income, $875 or less; lower middle income, $876­$3,465; upper middle income, $3,466 - $10,725; and high income, $10,726 or more (GNI per capita in 2005, Atlas method). TABLE A1:2 CHANGES IN EMISSIONS FOR ANNEx I COUNTRIES OF THE KyOTO PROTOCOL E xCLUDING LULUCF INCLUDING LULUCF Gg CO2 Percent Gg CO2 Percent eq 1990 Actual eq 1990 Actual Percent (base Gg CO2 eq change as (base Gg CO2 eq change as Kyoto target year) 2005 of 2005 year) 2005 of 2005 2008­2012 spain 287,366 440,649 53.3 244,603 390,972 59.8 15.0 Portugal 59,921 85,540 42.8 63,749 89,467 40.3 27.0 Greece 108,742 137,633 26.6 105,549 132,231 25.3 25.0 Ireland 55,374 69,945 26.3 55,495 69,288 24.9 13.0 Australia 418,275 525,408 25.6 499,903 522,189 4.5 8.0 Canada 595,954 746,889 25.3 473,310 729,710 54.2 -6.0 New zealand 61,900 77,159 24.7 42,920 52,658 22.7 0.0 Austria 79,053 93,280 18.0 67,151 76,253 13.6 -13.0 Italy 516,851 579,548 12.1 437,033 469,538 7.4 -6.5 A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 63 TABLE A1:2 CONTINUED E xCLUDING LULUCF INCLUDING LULUCF Gg CO2 Percent Gg CO2 Percent eq 1990 Actual eq 1990 Actual Percent (base Gg CO2 eq change as (base Gg CO2 eq change as Kyoto target year) 2005 of 2005 year) 2005 of 2005 2008­2012 Norway 49,751 54,153 8.8 35,032 26,934 -23.1 1.0 Japan 1,272,043 1,359,914 6.9 1,179,935 1,263,872 7.1 -6.0 switzerland 52,749 53,636 1.7 51,045 53,387 4.6 -8.0 Luxembourg 12,687 12,738 0.4 12,413 12,465 0.4 -28.0 Netherlands 212,963 212,134 -0.4 215,355 214,475 -0.4 -6.0 Belgium 145,766 143,848 -1.3 144,335 143,478 -0.6 -7.5 European 4,257,837 4,192,634 -1.5 4,040,425 3,877,452 -4.0 -8.0 Community France 567,303 558,392 -1.6 533,314 495,440 -7.1 0.0 Finland 71,000 69,241 -2.5 49,610 38,308 -22.8 0.0 Denmark 70,442 65,486 -7.0 70,993 64,033 -9.8 -21.0 sweden 72,191 66,955 -7.3 68,652 63,042 -8.2 4.0 United kingdom 771,415 657,396 -14.8 774,310 655,361 -15.4 -12.5 Germany 1,227,860 1,001,476 -18.4 1,199,619 965,400 -19.5 -21.0 United states* 6,229,041 7,241,482 16.3 5,529,241 6,431,935 16.3 .. slovenia 18,537 20,391 10.0 15,351 14,961 -2.5 -8.0 Croatia 31,552 30,481 -3.4 25,271 22,702 -10.2 -5.0 Poland 485,407 398,952 -17.8 452,685 366,848 -19.0 -6.0 Hungary 98,108 80,219 -18.2 94,230 75,743 -19.6 -6.0 Czech Republic 196,204 145,611 -25.8 194,493 140,966 -27.5 -8.0 Russian 2,989,833 2,132,518 -28.7 3,166,421 2,289,167 -27.7 0.0 Federation slovakia 72,051 47,866 -33.6 69,662 47,017 -32.5 -8.0 Romania 248,734 153,654 -38.2 212,887 116,233 -45.4 -8.0 Bulgaria 116,611 69,995 -40.0 110,692 51,958 -53.1 -8.0 Belarus** 127,361 75,594 -40.6 105,333 50,662 -51.9 .. Estonia 42,625 20,939 -50.9 33,262 12,843 -61.4 -8.0 Lithuania 49,370 22,682 -54.1 38,631 13,581 -64.8 -8.0 Ukraine 923,844 418,923 -54.7 872,377 360,358 -58.7 0.0 Latvia 26,442 10,880 -58.9 5,772 (3,552) -161.5 -8.0 Turkey*** 170,059 296,602 74.4 126,527 222,528 75.9 .. Liechtenstein 230 271 17.4 223 264 18.4 -8.0 Monaco 107 104 -3.1 107 104 -3.2 -8.0 Source: UNFCCC web site (http://unfccc.int/ghg_data/ghg_data_unfccc/time_series_annex_i/items/3814.php). Notes: *The United states, although a signatory to the kyoto Protocol, has not ratified the Protocol and has no binding target. **The amendment to the kyoto Protocol with an emission reduction target for Belarus adopted by decision 10/CMP.2 has not entered into force yet. ***Turkey has no reduction target assigned since it was not a party to the UNFCCC at the time of signing the kyoto Protocol. 64 D E V E LO PM E N T A N D C L I M AT E C H A N G E ANNEx 2 COSTS ANd FINANCING SOuRCES TABLE A2:1 GLOBAL ESTIMATES OF COSTS AND INVESTMENT REqUIREMENTS FOR MITIGATION Study Estimate Basis wBG, Clean Energy Us$30 billion/annum for power Investment estimate, assuming stabilization at 450 ppm, on top of Framework 29 sector in developing countries Us$160 billion per year for electricity supply in developing countries 04/2006 over 2010­30, of which currently only half is financed stern Review30 Us$1,000 billion/annum Annual global macroeconomic cost; central estimate by 2050, 11/2006 consistent with stabilization at 550 ppm; represents 1% of global GDP by 2050, ranging from net gains of 1% global GDP to reduction of 3.5% UNFCCC31 Us$200-210 billion/annum Estimate of annual global investment and financial flows by 2030, 08/2007 broadly consistent with stabilization at 550 ppm IPCC 32 5.5% to -1% (gain) reduction in Estimate of annual macroeconomic costs to global GDP, ranging from 11/2007 global GDP 3% to small increase by 2030 and from 5.5% cost to 1% gain by 2050 for targets between 445 to 710 ppm OECD Environmental Us$350­3,000 Annual global macroeconomic cost, central estimate, consistent with Outlook to 203033 billion/annum stabilization at 450 ppm; represents a 0.5% loss to global GDP by 05/2008 2030 and 2.5% by 2050 or an average 0.1% slow down of growth IEA Energy Technology Us$400­1,100 Global cumulative additional investment needs between now and Perspectives 200834 billion/annum 2050 for energy sector estimated at Us$17 trillion, or 0.4% of 06/2008 for energy sector global GDP (~550 ppm), and Us$45trillion, or 1.15 of global GDP (~450 ppm) 29 world Bank. 2006. Clean Energy and Development: Towards an Investment Framework, available at http://siteresources.worldbank.org/ DEVCOMMINT/Documentation/20890696/DC2006-0002(E)-CleanEnergy.pdf. 30 stern, Nicholas. 2007. The Economics of Climate Change: The Stern Review. Cabinet Office --HM Treasury, available at http://www.hm-treasury. gov.uk/independent_reviews/stern_review_economics_climate_change/stern_review_Report.cfm. 31 UNFCCC. 2008. "Dialogue on long-term cooperative action to address climate change by enhancing implementation of the Convention," Dialogue working Paper 8, available at http://unfccc.int/files/cooperation_and_support/financial_mechanism/ financial_mechanism_gef/ application/pdf/dialogue_working_paper_8.pdf. 32 IPCC. 2007. Fourth Assessment Report synthesis Report, available at http://www.ipcc.ch/pdf/assessment-report/ar4/syr/ar4_syr.pdf. 33 OECD. 2008. OECD Environmental Outlook to 2030, available at http://www.oecd.org/environment/outlookto2030. 34 IEA.2008. Energy Technology Perspectives 2008: Scenarios and Strategies to 2050, available at http://www.iea.org/w/bookshop/add. aspx?id=330. A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 65 TABLE A2:2 ESTIMATES OF COSTS AND INVESTMENT REqUIREMENTS FOR ADAPTATION IN DEVELOPING COUNTRIES Study Date released Estimate Basis Various academic 1990s on Various Usually sectoral and long term--for instance, end of century--and with widely differing assumptions world Bank (CEIF) as 04/2006 Us$4­37 billion/ Investment to "climate proof" all adaptation-related activities in revised by the stern annum developing countries Review 11/2006 IPCC 4/2007 No new estimates, but argue that most studies show a high benefit- cost ratio for adaptive actions Oxfam 5/2007 Us$8­33 billion Costs of immediate priorities similar to those in national adaptation programs of action (NAPAs) applied to all developing countries UNFCCC 10/2007 Us$28­67 billion Investment needs for adaptation activities in developing countries in 2030 in 2030--all sectors, private and public UNDP (HDR 2007­08) 01/2008 Us$86 billion/ "New and additional" finance for adaptation through transfers from annum by 2016 rich to poor by 2016 to protect progress toward the MDGs and prevent post­2015 reversals in human development Note: The adaptation estimates are less advanced and reliable, and cannot be directly compared with the mitigation cost estimates. 66 D E V E LO PM E N T A N D C L I M AT E C H A N G E TABLE A2:3 ExISTING RESOURCES AND FINANCING INSTRUMENTS DEDICATED TO CLIMATE CHANGE Financing Source Role/Scope MITIGATION CDM Improves financial returns through long-term purchase agreements for the Value of Primary CDM transactions: Us$7.4 billion in GHG emissions reductions resulting from climate-friendly projects 2007, estimated to leverage Us$36 billion35 GEF TF Finances incremental costs of removing barriers to market development of Us$250 million per annum near commercial technologies, institutional development, innovation, (2006­10) piloting, and demonstration Other Grant financing for climate change knowledge products, capacity building, Trust funds and partnerships housed in MDBs upstream project work or pilots ADAP TATION Adaptation Fund--Us$80 million to Us$1 billion Funding for the Adaptation Fund will mainly come from a 2 percent levy on million per annum by 2012 (best estimate: Us$300 to revenues generated by the CDM Us$500 million); UNFCCC Special Funds (administered by GEF) LDCF helps in the preparation and financing of implementation of national Least Developed Countries Fund Us$180 million; adaptation programs of action (NAPAs) to address the most urgent adaptation needs in the least developed countries special Climate Change Fund Us$90 million sCCF supports adaptation and mitigation projects in all developing countries, with a large emphasis on adaptation GEF TF sPA is a funding allocation within the GEF Trust Fund whose objective is to strategic Priority to Pilot an Operational Approach on support pilot and demonstration projects that address local adaptation Adaptation (sPA) --Us$50 million till 2010 needs and generate global environmental benefits in all GEF focal areas Global Facility for Disaster Reduction Partnership within the UN International strategy for Disaster Reduction and Recovery (GFDRR) (IsDR), focusing on building capacities to enhance disaster resilience and Us$8 million in FY07 andUs$40 million FY08 adaptive capacities in changing climate UNDP Adaptation facilities for Africa: Us$90­120 million Other Grants for climate change knowledge products, capacity building, upstream ADB: Us$40 million initial capitalization project work or pilots Bilateral resources (e.g., adaptation programs run by national development assistance institutions) CGIAR: Climate-related research for agriculture Us$77 million (50 million) Trust funds and partnerships housed in MDBs 35 At this stage, estimates for the future size of the carbon market and potential flows to developing countries are unreliable as they depend on the ongoing UNFCCC negotiation process. A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 67 TABLE A2:3 CONTINUED Financing Source Role/Scope BLENDED RESOURCES FOR MITIGATION AND ADAP TATION Climate Investment Funds US$6 billion Two trust funds will be created under the Climate Investment Funds: The Clean Technology Fund will provide new, large-scale financial resources to invest in projects and programs in developing coun- tries which contribute to the demonstration, deployment, and transfer of low-carbon technologies. The projects or programs must have a significant potential for long-term greenhouse gas savings. The second fund, the strategic Climate Fund, will be broader and more flexible in scope and will serve as an overarching fund for various programs to test innovative approaches to climate change. The first such program is aimed at increasing climate resilience in developing countries. EC Global Climate Change Alliance (GCCA) US$450 million (300 million) Thematic Program for Environment and sustainable Management of Natural Resources (including Energy) --managed by the European Commission Directorate General Development/ EuropeAid (110 million) European Development Fund--managed by DEV/AIDCO--budget framework 2008­13 ( 280 million) Notes: The GEF is the largest source of grant-financed mitigation resources, with about Us$250 million per year going to mitigation activities over 2006­10. 36 The CDM unambiguously dominates the project-based market, with more than 1.5 billion Certified Emissions Reductions (CERs) transacted from 2002 onward for a cumulative value exceeding Us$16 billion, estimated to have leveraged Us$59 billion. JI and AAU/GIs transactions could also contribute to leverage financing for climate action, particularly in Europe and Central Asia countries. There are currently at least 17 funds and facilities managed by MDBs totaling close to Us$3 billion, of which a large part (about two-thirds) is already committed. with respect to adaptation, multilateral funds are expected to contribute slightly more than half a billion U.s. dollars over the next few years. Financial resources that will be made available through the Adaptation Fund are difficult to quantify, and could be in the range of Us$300­500 million per year until 2012. Adding all possible sources of financing (including bilateral funds and the EC GCCA fund) is difficult due to lack of firm estimates from many new sources, but the total amount appears unlikely to exceed Us$1 billion per year in the next several years. 36 In addition, some Us$15 million from the special Climate Change Fund (a GEF-administered UNFCCC special Fund) are available for technology transfer. with respect to world Bank engagement against climate change, cumulative GEF resources committed to mitigation projects reached Us$1.64 billion at mid-FY08, with a leverage (on IBRD/IDA resources) of roughly 2.2. 68 D E V E LO PM E N T A N D C L I M AT E C H A N G E TABLE A2:4 WBG INSTRUMENTS FOR CLIMATE ACTION Financial product Adaptation Mitigation Description Status Carbon Funds and The world Bank, through its Carbon Finance Unit (CFU), Ongoing Facilities (CDM, JI, manages Us$2.1 billion, through 10 funds and facilities AAU/GIs) pooling stakes from 16 governments and 66 private companies, and is currently establishing two new facilities: the Forest Carbon Partnership Facility (FCPF), to pilot an output-based market mechanism to provide incentives for reducing emissions from deforestation and land degradation and the Carbon Partnership Facility (CPF), to use carbon finance to catalyze a transformation toward low-carbon economic development. IFC also gained significant experience from managing Dutch governmental carbon funds (Us$135 million committed in 12 transactions). IFC Carbon Delivery IFC essentially provides a credit enhancement and Ongoing Guarantee guarantees the delivery obligation of projects for a risk- based guarantee fee. The premium in pricing obtained by an AAA-rated seller in the secondary markets is passed on to the projects net of guarantee fees. MIGA Carbon MIGA developed an innovative instrument to mitigate a Ongoing Insurance Product series of risks to carbon finance project performance, including host-country political risk (such as administrative/ regulatory decisions by the government that may affect a project's operations, expropriation, withdrawal from the kyoto Protocol, inability of auditors to enter the project site due to politically motivated violence). Climate Investment Two trust funds will be created under the Climate Approved Funds Investment Funds: -- The Clean Technology Fund will provide new, large-scale financial resources to invest in projects and programs in developing countries which contribute to the demonstration, deployment, and transfer of low-carbon technologies. The projects or programs must have a significant potential for long-term greenhouse gas savings. -- The second fund, the strategic Climate Fund, will be broader and more flexible in scope and will serve as an overarching fund for various programs to test innovative approaches to climate change. The first such program is aimed at increasing climate resilience in developing countries. A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 69 TABLE A2:4 CONTINUED Financial product Adaptation Mitigation Description Status Global Facility for Partnership within the UN International strategy for Disaster Ongoing Disaster Reduction Reduction (IsDR), focusing on building capacities to and Recovery enhance disaster resilience and adaptive capacities in changing climate. Climate Risk The wBG has been assisting countries develop risk financing Ongoing / under Management strategies, increase penetration of insurance and access to development Products reinsurance markets. select examples include index-based insurance schemes for farmers or catastrophe property insurance as well as the Caribbean Catastrophe Risk Insurance Facility (CCRIF), offering parametric insurance against hurricanes and earthquakes, or the Global Catastrophe Mutual Bond, pooling risks of several countries and transferring them to capital market (ongoing). Bonds Issuance Examples of recent initiatives include the first CER-linked Ongoing / under Uridashi Bond, nicknamed the "Cool Bond," with Daiwa development securities Group, and the world Bank Eco-3Plus Note by ABN AMRO for investors in the Netherlands, Belgium, and Luxembourg. Trust Funds Examples of trust funds that can support climate-related Ongoing activities include: EsMAP, Japan PHRD, Norwegian TF for Private sector and Infrastructure, Bank Netherlands Partnership Program, Public-Private Infrastructure Facility, TF for Environmentally and socially sustainable Development, Japan social Development Fund, Institutional Development Fund. 70 D E V E LO PM E N T A N D C L I M AT E C H A N G E ANNEx 3 THE CONSuLTATION PROCESS The formal consultation process was launched following the field in a coherent and cost-effective manner; and (c) to the Board's discussion of the Concept and Issues paper, ensure that feedback from the consultations was reported "Towards a Strategic Framework on Climate Change and back as accurately and uniformly as possible. Face-to-face as Development for the World Bank Group," on March 20, well as video consultations were used to reach both external 2008. The document was translated into seven languages clients and WBG staff. (Arabic, Chinese, French, Portuguese, Russian, Spanish, and Vietnamese). Global consultations were undertaken A global consultations Web site-- www.worldbank.org/ in two phases to allow stakeholders to provide input for climateconsult--was established and promoted on the drafting of the full Framework. A "rolling process" was Bank's home page and through other internal and exter- employed to consider comments on the Concept and nal means (distinct Web sites were also created in six of Issues paper as they were received through the global the above-listed languages). On the Web site, stakehold- consultations and as the draft of the full paper has been ers were given the opportunity to register to be notified formulated. The deadlines for receiving comments on the of Web site updates and to submit detailed comments on Concept and Issues paper and the draft Framework paper the Concept and Issues paper. Resources on the Web site via the Web were, respectively, July 15, 2008, and designed exclusively for the consultations included a September 15, 2008. Strategic Framework PowerPoint presentation, a multi- media slideshow presentation, an "easy read" summary Consultations were held globally with government rep- version of the Paper written with "non-development resentatives, donor agencies, civil society, parliamentar- practitioners" and youth in mind, and Frequently Asked ians, the private sector, academia, indigenous peoples, Questions. Among the Web site links is one to a dedi- youth, and other stakeholders. Internally, feedback has cated Web site created by the Africa region on its climate been solicited via different means across the Bank change consultations. A parallel site was also created for Group. This feedback has been essential to help shape the Climate Investment Funds (CIF) documents-- the Strategic Framework. www.worldbank.org/cif. To aid Bank staff in consulta- tions, long and short versions of the Strategic Framework A full account of these consultations is captured in a sep- PowerPoint presentation as well as complementary sets of arate, free-standing document, which provides an analy- slides on climate-change-related issues (notably, the CIF) sis of stakeholders reached during the consultations, key were updated regularly, and were made available together messages raised, and summary records from the indi- with materials to support the logistical aspects of orga- vidual consultation events. This is available on the con- nizing the consultations. sultation Web site. Collaboration across the WBG. The key group for coor- Consultation mechanisms and tools. The global consulta- dination and information sharing regarding climate tions used a suite of communications tools designed to change is the Climate Change Management Group achieve three main objectives: (a) to make the draft Concept (CCMG), chaired by the Director of the World Bank and Issues Paper available to as many interested stakeholders Environment Department. CCMG has been regularly as possible, in a user-friendly manner; (b) to make it possible briefed on both the Strategic Framework and the CIF for as many Bank staff as feasible to conduct consultations in consultation process. A range of staff across sectors, A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 71 regions, and WBG institutions contributed to the were held to discuss specific inputs and aspects of the Strategic Framework. Other staff fora included face-to- Framework. The Africa region combined consultations face as well as video consultations (e.g., a June 2008 on the Africa region climate change strategy with the brown bag lunch on the Strategic Framework attracted Strategic Framework consultations reaching 37 countries over 130 staff members). across the continent within three regional consultations; the Africa consultations were conducted together with the African Development Bank (AfDB) GLOBAL CONsULTATIONs Addressing key messages from the consultations. While PHAsE I a comprehensive report of consultations and summaries to the six consultation questions is made available as a Reaching out to developing and developed countries and separate document, Table A3:1 summarizes feedback on other development partners. During the period from the Concept and Issues paper from consultations received April 1, 2008, to July 15, 2008, 71 consultations and with regard to key issues. It also provides a short sum- briefings were held to discuss the Concept and Issues mary on how these issues have been addressed in the paper, with over 1,800 participants attending in person draft full Strategic Framework paper. It should be noted and in some instances by video conference. Of the total that the summary does not substitute for the full record number of participants, 43 percent (833) were from of the consultations; not all issues raised can be addressed developing countries and 36 percent (652) were from in this summary; yet an attempt was made to fairly repre- developed countries. Twenty one percent of the feedback sent the most frequent and/or most pressing issues raised. came from multilateral institutions, including the WBG The full consultation record can be accessed on the (397 participants). In addition to this, targeted meetings Strategic Framework Web site. TABLE A3:1 KEy ISSUES AND RESPONSES (PHASE I) Issues Responses OB JEC TIVES AND ROLES The wB strategic Framework should emphasize The wBG mission is to address poverty alleviation and sustainable growth and the Bank's role as a development organization development; climate change considerations threaten development outcomes if not and should center on development strategies in addressed. The strategic Framework, therefore, aims to enable the wBG to effectively the context of climate change. support sustainable development and overcoming poverty in the new realm of changing climate, through demand-based approaches that focus on new business opportunities and economic benefits accruing to developing-country clients. ADAP TATION / MITIGATION while the focus on mitigation is important, The strategic Framework gives considerable attention to climate risks and equally if not more important in developing adaptation. It also recognizes the distinct needs and demands of different countries is the challenge of adapting to the countries, country groups and regions, and local areas within the countries, as well impacts of climate change. Especially in the case as the need for differentiated approaches to help address climate challenges in of adaptation, the impacts must be considered at interested countries based on vulnerability to climate risks, the potential impact of the very local level. The wB should take a country, global climate action on economies or livelihoods, and the various degrees of regional, and/or sectoral approach to both synergy between national/local development objectives. Implementation of the mitigation and adaptation and support how to strategic Framework, therefore, will follow demand-driven sectoral, regional, and determine the most cost-effective methods and country-based approaches. It is important to stress that the strategic Framework is initiatives to integrate climate change into its a framework document for development in the context of climate change: specific operations. country, sectoral, and local strategies and business plans will be developed and carried out in the context of regional operational development programs. 72 D E V E LO PM E N T A N D C L I M AT E C H A N G E TABLE A3:1 CONTINUED Issues Responses FINANCE Funding for climate change should be additional The strategic Framework stresses the importance of new and additional finance for to ODA and should not be subject to climate change without undue conditionalities. conditionality. How will the issues of incremental costs Among its guiding principles (see chapter 3) the strategic Framework emphasizes (additionality) be addressed and defined? that climate change action should not compete with financing for support of achieving the MDGs, in particular that resources to address climate change need to be additional to current levels of ODA funding (unless there are clear win-win options at no additional costs). As outlined under Action Area 2 of the Framework, the wBG will seek to mobilize concessional and innovative finance to scale up climate action. The CIF represents new sources of financing. A study on the economics of adaptation is being undertaken to increase understanding of the incremental cost. The wBG will work with partners to improve monitoring and reporting of financial flows to developing countries in support of climate action and their additionality. The wB should increase funding for adaptation Donors are increasing funding for projects that enhance resilience and increase needs now and support harmonization of climate adaptive capacity through the GEF and UNFCCC special Funds, the CIF, and change financing, avoiding fragmentation. dedicated TFs. To address the dangers of fragmentation of assistance and other risks to the global financial aid architecture on climate change, a number of initiatives are currently ongoing, such as (a) the UN system-wide coordinated effort on climate change (wherein UNDP and the wBG have a convening function on financing); and (b) the CIF Partnership Forum (with the CIF being implemented by the MDBs). such developments are reflected in the strategic Framework (see, for instance, Action Areas 1, 2 & 6). How to ensure new sources of CC funding will not Assistance will be provided on a demand basis in support of climate actions incentivize stand-alone initiatives that do not embedded in country-led development programs and strategies. adhere to a country's own development strategy? DEFINITIONS strategic Framework language should define The strategic Framework builds on basic definitions across the wBG on, e.g., low- several terms, e.g., low-carbon growth, clean carbon investments, renewable energies, and energy efficiency. Clean technology technology. is defined in the Framework for the purpose of the Clean Technology Fund only; in other cases, the wBG adheres to internationally accepted definitions. Beyond that, further work is needed to, e.g., classify operations in terms of adaptation actions. This will be taken up in fiscal 2009. SOCIAL ISSUES AND GENDER How will the wB address issues of gender The strategic Framework will be an opportunity for the wBG to further enhance and equity? attention to important social dimensions in the development agenda in policy dialogue and all its lending and non-lending activities. The wBG's work on climate change will give specific attention to ensuring that the poorest, least resilient social groups who are most vulnerable to climate change impacts are supported in developing adaptation strategies. This includes taking account of the fact that climate impacts are often differentiated by gender. This is highlighted in the Framework and will be operationalized through regional and sector strategies; attention to this will be kept in the design and appraisal of projects supported by climate-change-related funds. A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 73 TABLE A3:1 CONTINUED Issues Responses DISA S TERS RISK REDUC TION The Framework should coordinate closely with the Under the strategic Framework, the wBG will be scaling up joint work on disaster work on disaster management and prevention, risk reduction and climate risk management. A particular focus will be on the including the shift from disaster relief to disaster design of preventive measures and preparedness building on common vulnerability preparedness. and risk assessments. In addition, synergies exist in devising and advancing options for risk transfer and insurance schemes. ENERGy The Framework should give priority to the issue of The importance of energy access for overcoming poverty in poor countries has energy access for developing countries. been one of the three pillars of the CEIF. Many IDA countries continue to have low levels of energy access; thus, increasing access to energy remains a top priority. This will be supported through the sustainable Infrastructure Action Plan and the Africa Action Plan. The strategic Framework specifically pays attention to the distinct needs of different countries. ENERGy How will the wBG deal with the apparent supporting the reduction of GHG emission from fossil fuels is of key importance in dichotomy of supporting measures to address advancing the move to a low-carbon trajectory for energy production. According climate change while at the same time continuing to the IEA, fossil fuels, including coal, will remain an important part of the energy to support fossil-fuel-based investments to mix, in both developed and developing countries, for decades to come. Going expand energy access, including the use of coal? forward, the forthcoming Energy sector strategy will articulate an approach to providing support to developing countries for meeting energy needs in a sustainable manner. In the meantime, the wBG will increase the overall share of low-carbon energy projects from 40 percent for fiscal 2006 ­08 to 50 percent in fiscal 2011 and will increase financing of renewable energy and energy efficiency at 30 percent per year. It will strategically use its engagement in financing fossil fuels to promote measures that reduce GHG emissions and local environmental impacts. Priority focus will be given to interventions with direct GHG reduction benefits such as: (a) thermal power plant rehabilitation; (b) upgrading of efficiency of new thermal power plants; (c) early retirement of inefficient plants and replacement with state-of-the-art facilities; (d) gas flaring reduction; and (e) methane release reduction. C APACIT y DE VELOPMENT AND K NOWLEDGE SHARING The need for capacity development, knowledge The need to enhance skills and capacity to support development in the context of sharing, and awareness raising were raised as key climate change is identified as a high priority by the strategic Framework. The wB issues by a wide variety of stakeholders, including will work in collaboration with UN agencies, particularly the UNDP and UNEP, the developing-country representatives and Bank GEF, other MDBs, developing-country think tanks, learning centers, and NGOs to staff. The wBG was asked to help educate pivotal develop and promote knowledge sharing on key issues of climate change that are stakeholders (e.g., Finance Ministers), raise relevant for developing countries. awareness, increase the ability to communicate and share information and lessons learned (i.e., The wBG has significantly stepped-up knowledge work at the global, regional, from the CDM) while ensuring coherence of country and local levels. It has also initiated an informal dialogue on climate approaches. The wB should fill the role of a true change among finance and development ministers during the Bank-IMF Annual "knowledge Bank" and demonstrate leadership and spring Meetings. in integrating climate change into development programs and the establishment of partnerships. The wBG was also encouraged to work closely with other partner organizations in this key area, including relevant UN agencies. 74 D E V E LO PM E N T A N D C L I M AT E C H A N G E TABLE A3:1 CONTINUED Issues Responses C APACIT y DE VELOPMENT AND K NOWLEDGE SHARING How to deal with low priority given to climate A series of activities will be implemented by the wBG in full alignment and change issues by developing countries and many cooperation with other development partners to scale up awareness raising poor populations? actions in developing countries and vulnerable areas to climate change. The wBG will seek collaboration with key regional, international, and national partners to support the capacity of local institutions and populations and apply relevant knowledge for both mitigation and adaptation. TOOL S The wB should support the development of tools The strategic Framework addresses this within Action Area 6, stepping up Policy for monitoring and verification, as well as for tools Research, knowledge, and Capacity Building, in a specific section on tools and that help identify the impacts and key areas of instruments as well as within some of the key sector where there is a particular action at the country level. need for advancing this in cooperation with developing partners, such as the UN family, other MDBs, and through cooperation with others. FOOD SECURIT y How will the strategic Framework relate to the The global food crisis and climate change pose increased strains especially on the food crisis? world's poorest countries. Future climate change--combined with a variety of other factors--could further aggravate the problem of declining food access and availability for the world's poor. Lessons from the food crisis also show that climate change mitigation policies may have adverse distributional impacts that need to be understood and taken into account by designing adequate safety nets for the poor. The response to the global food crisis is also an opportunity to increase support for sustainable food production and for conducive policies for production and trade of food and related commodities that will also help manage climate risks. what are the considerations in relation to biofuels The wBG takes a country-by country approach to biofuels. The WDR 2008 points and its threat to food security? out that biofuels offer a potential source of renewable energy and could lead to large new markets for agricultural producers. However, there are economic, social, and environment costs and how well they can be managed depends on a county- specific context. National biofuel strategies need to be based on a thorough assessment of those opportunities and costs. The wBG is currently undertaking a study to review opportunities and challenges and inform the wBG's engagement in second generation biofuels. NATUR AL RESOURCE MANAGEMENT AND BIODIVERSIT y The wBG should revisit its development paradigm The strategic Framework stresses the importance of ecosystems services as well as and take a closer look at the interface between the need to develop indicators to track ecosystem health in relation to climate intact ecosystems, conservation of natural impacts (e.g., in terms of fisheries, coral reefs, forests, and other resources). resources, and climate change. Furthermore, wBG operations are subject to the wB's safeguard policies on environment, which aim to maximize benefits to ecosystems and livelihoods and minimize and/or compensate for their impacts. The wBG will continue its work on valuing ecosystem services, which is critical to preserving the benefits of intact ecosystems and is highlighted in the Framework. FORES TS AND INDIGENOUS PEOPLE The Bank needs to emphasize the need for Forest management offers many mitigation-adaptation synergies mainly under the synergies between mitigation and adaptation (i.e., REDD agenda-- contributing to biodiversity, livelihoods, flood protection, and reforestation) and multiple benefits (through other associated benefits. This is outlined in the strategic Framework and CDM and other mechanisms) to foster best addressed through the world Bank Forest strategy. support by a range of funds-- practices and share lessons learned. existing and emerging--will contribute to enhancing sustainable management approaches. A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 75 TABLE A3:1 CONTINUED Issues Responses FORES TS AND INDIGENOUS PEOPLE Indigenous peoples expressed several concerns with 60 million indigenous peoples totally dependent on forests, 350 million highly about REDD and mechanisms to compensate forest-dependent people, and 1.2 billion people dependent on agroforestry, countries for avoided deforestation. These mitigation and adaptation activities in the forest sector will need to demonstrate concerns centered around the question of clean that they can have positive spillover effects, improve local livelihoods, and land title and tenure of forest areas and contribute to rural economic development and poverty alleviation. The strategic mechanisms for ensuring that payments reach not Framework implementation will pay close attention to ensuring that benefits, e.g., just national governments but reach the from carbon finance, reach local communities and especially indigenous people. indigenous people and other forest dwellers who The FCPF conducted a series of consultations with stakeholders, including are active in preserving forests. indigenous people. Funds will be provided under the "readiness" mechanism to ensure that local communities, including indigenous people, will have the capacity to participate effectively in these programs. TECHNOLOGy How to promote private sector investments in Most estimates of the investments needed to mitigate climate change call for a greener technologies? How is the wB dealing significant role for the private sector. The IFC, the private sector arm of the wBG, with carbon capture and storage technology? is preparing a strategy for investing in clean technology CCs is currently only fully CCs is not fully successful in meeting any operational in three pilot installations in developed countries and is extremely high meaningful mitigation targets yet. cost. The wBG is exploring a possible role to facilitate the involvement of developing countries, with support of grant financing from developed countries, in the design, development, learning-by-doing, and commercial deployment of this technology so that it may be available for use in a developing-country context if that becomes a viable solution. The wB should identify which innovative The wBG is developing a number of new initiatives in the area of support to technologies it aspires to see developed and technology, and expanding analytical work in the area of climate friendly whether it will outline a principle regarding technologies. It will articulate its approach to supporting clean technology technology choice. However, the wB should focus innovation during fiscal year 2009. on client countries' own policies/strategies and not be unidirectional as many inventions come from developing countries. The strategy should refer to a clear technology The strategic Framework emphasizes the critical role of technology. However, it is roadmap for 2050 to achieve global targets for beyond the scope of this paper to provide such a roadmap. emissions reductions, especially in the sectors of infrastructure and manufacturing. PAR TNERSHIPS what are the details on the division of labor and To respond more effectively to climate change, the UN secretary General initiated analytical roles between the Bank, other MDBs, a UN system-wide coordinated effort to streamline and align efforts by different and GEF? New modes of collaboration are UN agencies in support of climate actions and the ongoing UNFCCC negotiations. needed to improve collaboration between the within this overall approach, the UNDP and wBG have a convening function for Bretton woods organizations and the UN. the Finance focal area. The Bank will continue to strengthen its partnership with the GEF and the Adaptation Fund Board in order to leverage significant financing to support developing countries in dealing with climate change. Country programming documents offer an important platform for taking coordinated steps among the UN organizations, the MDBs, and bilateral partners to--on a demand basis--support climate actions in the client-driven development process. The essential role of CsOs and NGOs in addressing climate change will expand over a wide range of activities, particularly at the local level. 76 D E V E LO PM E N T A N D C L I M AT E C H A N G E 6,000 page views. Feedback was received from a range of GLOBAL CONsULTATIONs stakeholders, including developed- and developing-coun- PHAsE II try governments and institutions, civil society, the private sector, academia, think tanks, indigenous peoples, and development professionals. Individual comments can be Consultations on the draft Strategic Framework full viewed at www.worldbank.org/climateconsult. paper. The draft Strategic Framework paper was posted on the consultation Web site for comment from mid-August The overall feedback conveyed appreciation that the WBG to mid-September 2008. This Phase II of the consultation consulted widely and made an honest effort to respond to process was primarily Web-based, reaching out to both many issues raised and balance a wide range of diverse and general audiences as well as to targeted stakeholders, such often conflicting views. Table A.3:2 summarizes the key as IFC clients and participants to Phase I consultations. In issues raised during this round of consultations, along with addition to face-to-face consultations and dialogue events, the WBG responses. the dedicated consultations Web site registered more than TABLE A3:2 KEy ISSUES AND RESPONSES (PHASE II) Issues Responses ROLE OF THE WBG several stakeholders noted a noticeable we would like to thank the wide range of stakeholders who attended and provided improvement over the Concept and Issues paper feedback at the consultations and those who sent written comments on the draft and/or expressed satisfaction at the fact that the full paper. Responding to feedback from consultations on the Concept and Issues wBG had consulted widely on the draft paper, the full paper was strengthened and highlighted the role of the wBG in documents and listened to stakeholders, as addressing development in the reality and context of climate change and its role in promised. There was a wide consensus that working in partnership with others. The title of the paper was changed to better climate change is a development issue and that reflect the emphasis on the wBG's core mission to support sustainable the wBG has a key role to play together with development and poverty reduction. other institutions. some noted that the wBG's efforts to integrate The consultations reached out to a large range of stakeholders with diverse views feedback from a large variety of stakeholders with and interests. The draft paper reflects these diverse views. Discussions with a divergent views resulted in a document lacking range of stakeholders have been a process leading to greater awareness of various strong statements. One stakeholder called the views. The process has been in itself an important global outreach tool to increase document "too diplomatic." awareness of the needs of developing countries. The wBG must support governments to best The draft paper recognizes the need for building the capacity of government and cope with risks and uncertainties related to other stakeholders in analyzing the specific implications of climate change on the climate change impacts, and balance immediate development outcomes for their countries--including addressing risks, constraints, priorities with the long-term imperative of and opportunities. It particularly stresses the need for capacity to balance long- addressing climate change through their term and short-term priorities and trade-offs. The final paper will further development strategies. strengthen this point. GLOBAL OUTRE ACH AND COMMUNIC ATION The sense of urgency should not be lost. The The draft paper is explicitly addressing the wBG's potential to facilitate global wBG should be a strong voice in favor of action. we agree with the need for outreach with various actors, including civil developing countries and mediate between the society and vulnerable groups. This aspect will be reviewed and strengthened in rich and poor to promote an equitable global the final paper. solution, while maintaining neutrality to the UNFCCC process. It needs to promote change from the bottom up and also support political will for institutional and policy change, including through outreach and communications efforts. A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 77 TABLE A3:2 CONTINUED Issues Responses ROLE OF THE PRIVATE SEC TOR several stakeholders reiterated the importance of we agree with the comment. The draft paper takes into account the important role working with the private sector in the context of of the private sector, e.g., in accelerating the development and deployment of climate change. The wBG needs to promote more technology and providing finance. The paper emphasizes the need of the private stable regulatory environments and increase sector for stability and predictability. The paper stresses the importance of the predictability for private sector firms to invest in wBG experience and role in supporting client countries to promote an enabling developing countries. regulatory and policy environment for private investment. SOCIAL DIMENSIONS The wBG must put more emphasis on the social social dimensions of climate change are an important part of wBG work to dimensions of climate change and engage more understand climate-development linkages. This includes the potential for large- with affected communities themselves. There scale migration and conflict, as well as gender dimensions and social issues arising should be more specific mention of possible from increased resource scarcity. These issues will be addressed in more detail in migrations and internal displacements and the upcoming social Development strategy update. related planning. ECOS yS TEMS There is not enough emphasis in the paper on The paper recognizes the critical importance of protecting biodiversity and how the damage to ecosystems, including ecosystems integrity under climate constraints. This signals that this is an acidification of the oceans, will negatively impact important issue for the wBG. specific actions will be addressed during the livelihoods and poverty, especially for the most implementation of the Framework through regional business plans and strategies. vulnerable and marginal communities, and how the issue will be addressed through robust approaches, such as nature-based adaptation. MARKET MECHANISMS The wBG should ensure that market mechanisms we agree. In the final paper, we will strengthen the section on innovative market support renewable energy solutions and that the mechanisms, especially carbon markets, with a view to supporting liquidity, benefits from market mechanisms accrue to efficiency, effectiveness, and synergies among carbon markets and other Bank vulnerable communities worldwide, and are not financing instruments. The paper emphasizes the importance of ensuring that concentrated in countries with the largest emissions. market mechanisms, such as carbon markets and climate risk insurance products, benefit the poor. FINANCING There were concerns about the financing of The CIF is an interim instrument (expressed through the sunset clause); yet the CIF climate change actions. some suggested that the is only one instrument for financing climate action--both adaptation and document is contradictory to the Climate mitigation. Others include, e.g., carbon finance instruments, the wBG's continued Investment Funds sunset clause because the engagement with the GEF, other Trust Fund resources, etc. The Framework language used often implies that the Bank will outlines actions for the next three years with a view to revisiting the scope of wBG continue to be a major funder of climate change support based on the outcome of the UNFCCC negotiations. activities. References to financing issues linked to the Climate Investment Funds should be clear and consistent throughout the document, and should The Framework calls for climate change financing to be additional to the current adhere to the principles of the sunset clause and levels of ODA, recognizing that whether it is part of ODA or not (or both) will be neutrality to the UNFCCC negotiations. decided by the UNFCCC negotiating parties. One of the key principles of the Framework is that resources must not be diverted from achieving core The wBG's assertions that its climate change development outcomes, such as the MDGs. funding will be additional to ODA are not credible when the CIF donors have said that their funding is part of ODA. 78 D E V E LO PM E N T A N D C L I M AT E C H A N G E TABLE A3:2 CONTINUED Issues Responses TECHNOLOGy AND ENERGy SUPPLy The wBG will not be a credible advocate of A wide range of views has been heard on this issue, with developed- and climate change actions if it does not strengthen developing-country stakeholders often voicing diverging views. The wBG, its focus on clean technologies. NGOs feel however, provides assistance only to developing-country clients where energy strongly that the wBG should reduce access is key for development, especially in the poorest countries. Global progress substantially or stop altogether financing for on clean technology requires leadership by developed countries in order to bring fossil fuels. The wBG should also do full carbon about long-term change. NGOs--especially those with international reach and accounting of its portfolio and be more specific stature and a presence in developed countries--have an important role to play about how internal processes will change to through working with developed countries--both governments and the private achieve low-carbon lending. sector--to affect this type of leadership. This applies to both GHG accounting and demonstrating the feasibility and opportunities implied in pursuing a low-carbon- trajectory growth path. The wBG should not see large hydropower as a IEA projections point out that a range of energy sources will be important for silver bullet to increase support to renewable meeting global energy needs. Hydropower--small, medium, and, where energy, given the extremely negative social and appropriate, large--will be considered as possible options for energy supply in a environmental consequences. Also, more country-specific context. It is important to reemphasize that all wBG infrastructure analysis should be offered on the wBG stance on investments are subject to analysing alternatives (including a no-project nuclear energy. alternative) and environmental and social assessments. The forthcoming Energy strategy update will articulate the wBG approach to different forms of renewable and nonrenewable energy. PRESENTATION The document should be scoured to ensure that In finalizing the paper, we will clarify use of terms, definitions, and expressions to the language is consistent, clear and free of the the degree adequate for a guiding document for the wBG. Once finalized, the wBG jargon and is accessible for external paper will be translated into several languages. audiences of different backgrounds. A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 79 ANNEx 4 dEvELOPMENT ­ CLIMATE LINkAGES AT THE COuNTRy LEvEL While a specific program of assisting any interested emission reductions and, with the use of CDM and inno- country will be developed by the regional and country vative instruments such as the FCPF, generate additional teams through dialogue and the preparation of country revenues. Furthermore, forests themselves would suffer assistance or country partnership strategies, the following significantly from climate change, including impacts on generic parameters and considerations could provide natural habitat, biodiversity, ecosystems, and livelihoods, some guidance. particularly for forest dependent and indigenous commu- nities. This makes support to sustainable management of Exposure to climate risks. All countries will be affected forests--an important agenda on its own--even more by changing climate but the nature of the risks, the important in the context of climate change. degree of exposure, and the time horizon within which the impacts might become significant vary considerably Energy resource endowments play a key role in defining among countries and geographic regions within and a country's energy system. Helping developing countries across the countries. Small island states and low-lying with diverse energy resources optimize their use for coastal areas and will be affected dramatically by a sea meeting the vast and growing energy needs of their econ- level rise in the long term--and less dramatically, but in a omies and people in a sustainable manner--and taking much shorter timeframe, by storm surges that will account of existing and emerging climate financing-- require massive investments in coastal protection infra- will continue to be an important area for WBG engage- structure, not previously foreseen. For many water-scarce ment. For example, Africa's formidable energy resources economies, further temperature rise and rainfall changes remain largely untapped: less than 10 percent of potential may bring an additional urgency to the challenge of hydropower capacity has been exploited; the reserves to making economic adjustments, which are already neces- production ratio for natural gas and coal are 79 years and sary to cope with overexploitation of water resources. 192 years, respectively; and the energy dissipated via gas Damages from some risks, like occasional hurricanes, can flaring alone would be enough to meet half of the conti- be managed by catastrophic insurance schemes, but melt- nent's energy demand. In many countries, there are vast ing glaciers threatening to deprive subcontinents of major possibilities for developing hydropower and other renew- water sources may require re-thinking of the entire able energy, through both grid and distributed applica- regional development paradigm. WBG engagement will tions and by helping with commercialization of be based on its comparative advantages to deal with the technologies (commercially applied elsewhere) in the specific risks facing a country (or group of countries) and local markets. Countries rich with fossil fuel resources the agreed priorities with the country stakeholders. might be particularly interested in the dissemination of, and financing for, cleaner coal, oil, and gas technologies, Natural resource endowments. There are several dimen- including help with testing pre-commercial technologies sions to how countries' natural resources relate to climate like carbon capture and storage. change. In many developing countries, sustainable forest management, including afforestation, reforestation, and Structure of the economy and trade. The structure of the reduced deforestation, is a way to achieve tangible GHG economy mediates the impacts and social costs of exposure 80 D E V E LO PM E N T A N D C L I M AT E C H A N G E to climate risks. For example, agrarian societies are more (IDA-eligible) countries tend to be most vulnerable to vulnerable to droughts than economies with a small share climate risks because of higher exposure levels to climate of agriculture in GDP. Similarly, economies heavily risks (determined by geography)--and also because of dependent on nature-driven tourism might feel an impact high dependence on climate-sensitive economic activities of changing weather patterns even in a relatively short time and lowest capacity to cope with shocks and changes span. Economic diversification is a critical development (linked to the income level). This has implications for strategy for many countries in the context of climate prioritizing WBG support to adaptation. Generally, mid- change. While it is key for building greater resilience to dle-income countries also have stronger capacity--and a climate risks, economic diversification is also important for stronger domestic demand due to local pollution--to oil-exporting countries to manage the economic impacts of apply policies and avail themselves of financing facilities climate policies that promote a shift of the world economy that promote lower carbon performance. Second, energy toward a lower carbon path. access--a continued priority for the WBG growth and MDG agenda--correlates with income. Third, the It should also be stressed that there are limitations to what WBG's own instruments, approaches, and comparative can be achieved through economic diversification at a advantages differ across these country pools. country level. Small countries may have limited opportu- nities for diversifying their economies, and diversification Socioeconomic profile. Within countries, climate risks would not help low-lying island states to cope with a sea and impacts vary across areas and population groups, with level rise. Furthermore, while the economic structure may poorer and marginalized groups often being most exposed also affect the national level and intensity of GHG emis- and vulnerable. In addition to identifying population sions, reducing a share of energy-intensive industries in groups at risk from the impacts of climate change, it is also one country while increasing investments in these sectors important to understand how mitigation action and eco- in other countries to meet the global or regional demand nomic adjustments can affect intra-country inequality. For will not address the climate problem. In these cases, example, energy use patterns within middle-income devel- regional cooperation and global (sector-based) approaches oping countries diverge greatly between the rural poor and gain in significance and call for WBG support. an increasingly affluent urban middle class. The food price crisis demonstrates how little "cushion" the poor have to Income level. The Bali Action Plan distinguishes only withstand some adjustments and how several factors, none between the developed and developing countries. For a of which seems critical by itself, can result in a combined WBG strategy, whether a country falls into IDA, IDA/ effect that requires an emergency humanitarian response. IBRD blend, or IBRD pools matters for several reasons. This creates additional considerations for planning WBG First, income is a reasonable proxy for institutional support to climate action programs that address broad- capacity to deal with climate challenges. The poorest based development needs. A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 81 ANNEx 5 REGIONAL PROFILES kEY IssUEs, IMPACTs, EMIssION sOURCEs, AND LENDING PROFILEs BY REGION37 Region Issues and Approaches Emission Sources; Lending Profiles AFR Key Issues/Impacts GHGs by Sector Africa's primary concern in the climate change context is related to climate adaptation and impact. The region's past Waste, 3% Electricity and present high vulnerability to extreme climate events is & Heat, 10% fundamental to the adaptation challenge in the region. Other Disaster risk reduction to address floods and droughts is 7% therefore key to the adaptation agenda in Africa. Impacts of Land-use climate change will be significant as livelihoods and economic Change & Agriculture activities are, to a large extent, based on natural resources. Forestry 13% Rainfed agriculture dominates, and production will be 59% Transportation impacted by shorter rains and thus a more contracted 4% growing season. Land use change is the largest source of Industry, 4% GHG emissions and is reflected in severe land degradation, which is predicted to worsen. Sustainable agriculture and land management, as well as sound forest management, can therefore provide additional opportunities for GHG emission IDA Lending by Sectors ($M, %), FY05­07 reductions. The resilience of Africa's infrastructure could be Agriculture severely impacted by increasing frequency and severity of 1,159.3, 8% Energy & floods. Furthermore, many of Africa's economic zones are Mining based in large coastal cities (many of which are delta cities) 1,593.1, 11% that are likely to be impacted by sea level rise. Industry & Trade Other 732.9, 5% Evolving Regional Approach 7,371.8, 52% The objective of the wBG's approach to climate change in Africa is to build a roadmap to address climate variability and Transportation change in ssA, with the aim of aiding client countries to 1,914.1, 14% achieve climate-resilient growth. The wBG's response strategy is based on four pillars of action: (a) make adaptation Water/san/f prot to climate variability a core component of development 1,352.1, 10% focusing on disaster risk management, agriculture and irrigation, water resource management, participatory rural IBRD Lending by Sectors ($M, %), FY05­07 development, urban development, coastal zone management and fisheries, energy (incl. energy access), transport, forestry Agriculture 11.25, 15% and biodiversity, health, and other social and human development dimensions; (b) focus on knowledge and Energy & capacity development, including cooperation with the private Mining, 3.75, 5% sector; (c) identify mitigation opportunities, including Other accessing carbon funds and promoting clean energy; and (d) 35.95, 47% treat financing as a cross-cutting issue. Industry & Trade 13.55, 17% Transportation Water/san/f prot 6.50, 8% 6.5, 8% 37 Data on key impacts are from regional climate change business strategies; data on emissions are from wRI 2007. 82 D E V E LO PM E N T A N D C L I M AT E C H A N G E Region Issues and Approaches Emission Sources; Lending Profiles EAP Key Issues/Impacts GHGs by Sector In this region, China and Indonesia dominate the contribution of GHG emissions through energy use and through land use Waste, 3% Electricity change and deforestation, respectively. China is the world's & Heat, 19% Land-use second largest emitter of GHG and Indonesia the fifth. The Change & demand for energy will continue to increase following the Forestry economic development of all countries. Loss of forest in the 34% Transportation region as a whole is partly offset by high levels of reforestation 5% in China. The impacts of climate change will be dominated by threats to small Pacific islands and coastal settlements, including cities such as Bangkok and shanghai, and severely Industry, 16% decreasing availability of water for 270 million people in Agriculture western China. As in other regions, extreme events (floods and 14% Other droughts) are predicted to increase and natural habitats will be 9% threatened. Temperature increase will lead to changing patterns in pest and disease distribution. IDA Lending by Sectors ($M, %), FY05­07 Agriculture Evolving Regional Approach 201.3, 6% Energy & The Bank has launched a number of Analytical and Advisory Mining 471.1, 14% Activities focusing on vulnerability assessments for small Pacific islands. It has supported policy reforms related to Industry & Trade energy efficiency and clean energy. The Bank has provided 41.2, 1% Other technical assistance aimed at participation in carbon 1,598.1, markets, which the region now dominates by a wide margin, 48% Transportation and the development of large GEF portfolios focusing on 538.3, 16% energy efficiency and renewable energy. Future support will focus on the energy agenda, urban transport systems, land use change, and forestry, as well as on adaptation Water/san/f prot requirements of affected cities and regions. IFC is also 476.1, 15% working on strategies to link energy efficiency and GHG reduction to its mainstream investment strategy and IBRD Lending by Sectors ($M, %), FY05­07 priorities. Agriculture 648.54, 8% Energy & Mining, 389.66, 9% Industry & Trade 249.15, 3% Other 3,527.61 42% Transportation 1,975.32, 24% Water/san/f prot 1,488.47, 18% A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 83 Region Issues and Approaches Emission Sources; Lending Profiles ECA Key Issues/Impacts GHGs by Sector The ECA region has 10 percent of the world's energy demand, but 5 percent of global GDP and remains the most energy- Waste, 3% inefficient region in the world, in terms of both consumption Agriculture and production of energy. Energy and carbon intensity are 13% high, and electricity and heat production account for over 50 Other percent of the region's CO2 emissions. Five countries in the Electricity 24% & Heat, 40% region rank among the top 25 GHG emitters: Russia, Ukraine, Poland, Turkey, and kazakhstan. Energy demand is expected to rise in the period to 2030, and fossil fuels are expected to Land-use remain the most dominant source of energy. By 2030, nearly Change & 50 percent of generation capacity (as of 2005) is projected to Forestry, 2% be rehabilitated and 40 percent to be retired from service; Transportation Industry, 15% around 726 Gw of new generation capacity is projected, 8% mostly thermal (72 percent). Coal-fired and nuclear power generation are both projected to increase over the period IDA Lending by Sectors ($M, %), FY05­07 2006­30. Agriculture 138.7, 10% Projected climatic changes include an overall increase in the amount of precipitation in the northern parts of the ECA Energy & region and a decrease in the southern and eastern parts of Mining 189.6, 13% the region, particularly in the Mediterranean and southern Central Asia. Rainfall intensity is expected to increase across Other 805.988, 50% Industry & Trade ECA, exacerbating flooding risks. Temperatures are projected 142.0, 10% to increase everywhere, especially in southeastern parts of Europe and in the Russian Arctic and siberia, where Transportation permafrost melt could lead to substantial increases in GHG 50.1, 3% emissions. Increased heat waves will be detrimental to public Water/san/f prot health and problematic for agriculture. Accelerated glacial 113.4, 8% melting is being experienced in the Caucasus, Central Asia, and European Alps. severe water stress is anticipated as a IBRD Lending by Sectors ($M, %), FY05­07 result of these combined effects and is already being felt in Agriculture parts of southeastern Europe and Central Asia. At the same 139.68, 1% Energy & Mining time, higher temperatures and increased precipitation in 1,914.23, 18% northern and central parts are expected to result in longer growing seasons and potentially higher productivity in natural-resource-based economic activities. A negative trend Industry & Trade Other is projected for the southern and eastern parts in these 4,926.90 781.93, 8% sectors. 47% Evolving Regional Approach: Transportation The region's emerging business strategy focuses on: 1,636.88, 16% Water/san/f prot -- Mitigation--clean energy investments and technical 1,061.02, 10% assistance including for renewable energy, energy efficiency and clean technology; policy and regulatory dialogue to support the scale up of private investment; low-carbon development, international emissions trading, and project-based carbon finance. -- Adaptation--institutional capacity building; engagement with decision makers and stakeholders; review of existing climate forecasts and impacts; and support for subregional adaptation strategies. Initial efforts are focused on agriculture and water resources management in southeastern Europe and Central Asia. 84 D E V E LO PM E N T A N D C L I M AT E C H A N G E Region Issues and Approaches Emission Sources; Lending Profiles LAC Key Issues/Impacts GHGs by Sector The region's GHG emissions originate primarily from deforestation (Brazil) and from expansion of agricultural land. Waste, 3% Energy generation and transport are other major contributors, Transportation, 8% and the three sources together represent nearly 65 percent of Electricity & Heat, 7% all GHG emissions in the region. Climate change will result in major glacier retreat in the Andean mountain chain, resulting Industry, 7% in reduced capacity for hydropower generation and in disturbance of downstream water flow with negative impacts Other, 6% Land-use on agricultural production. Higher ocean temperatures and Change & sea level rise will result in severe coral reef retreat and Forestry, 49% salinization of coastal wetlands. More frequent and intense Agriculture, 20% hurricanes will impact in particular the Caribbean and Central America, resulting in major threats to infrastructure. In the southern part of the continent, the land area suitable for agricultural production will increase due to higher IDA Lending by Sectors ($M, %), FY05­07 temperatures and higher precipitation, similar to the effects predicted for temperate areas in the northern hemisphere. Agriculture 66.0, 9% Energy & Mining 25.7, 3% Evolving Regional Approach The region has since long addressed the climate change Industry & Trade 12.3, 2% agenda. The Bank is supporting countries in refining the global climate change models so as to make them more useful Other Transportation 422.8, 59% 105.7, 15% at country and more localized scale. Linked to this are assessments on the impacts of climate change on the overall economy, the health sector, the water cycle, and on major Water/san/f prot ecosystems including the possibility of major changes in the 85.3, 12% Amazon ecosystem. IFC is also working on linking an Amazon strategy with a climate change strategy and on capturing significant regional opportunities to incorporate cleaner production in its investment strategy. The consequences of IBRD Lending by Sectors ($M, %), FY05­07 glacier melt, as linked to power generation and the Agriculture agricultural sector, in particular, are being addressed by the 541.91, 4% Energy & Mining Bank in Bolivia, Peru, and Ecuador. The fastest-growing source 379.25, 3% of emissions in the region is the transport sector. Initiatives Industry & Trade are under way to mitigate GHG emissions in Mexico City and 993.04, 7% in Bogota. Other Transportation 9,284.95, 62% 2,459.94, 16% Water/san/f prot 1,252.68, 8% A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 85 Region Issues and Approaches Emission Sources; Lending Profiles MNA Key Issues/Impacts GHGs by Sector The region's emissions of GHGs per capita are relatively small, with 4.5 percent of the world's total in 2000. The growth of CO2 Agriculture, 5% Waste, 4% emissions from fuel combustion is, however, the third largest in the world and emissions grew more than three times faster than Other, 20% the world's average between 1990 and 2004. The bulk of emissions originate in the region's oil producing countries, Electricity & which account for 74 percent of the region's total. The Heat, 33% assessment is that climate change will reduce runoff by 20­30 percent in most of the region and that temperature will increase up to 2 degrees in the next 15­20 years and over 4 Land-use Change degrees by the end of the century. The combined effect of Industry, 21% & Forestry, 1% higher temperature and reduced precipitation will increase the Transportation, 16% occurrence of droughts from one event every 10 years, at the beginning of the 20th century, to five or six events every 10 years currently. Over three-quarters of the region's water IDA Lending by Sectors ($M, %), FY05­07 resources are already being withdrawn for human use, and climate change will require more severe adjustments of water Agriculture 24.7, 4% resource management than in any other region. sea level rise will have severe impacts on coastal infrastructure such as ports. Energy & Mining Other 203.5, 31% Evolving Regional Approach 236.3, 36% The Bank's strategic approach takes account of climate- change-generated challenges in several areas: Industry & Trade -- It is promoting policies and investments for improved water Water/san/f prot 3.0, 0% management, agricultural diversification, and for enhancing 63, 1% energy efficiency and power sector reform. Transportation 180.6, 28% -- It is developing new types of analytical services to better evaluate the magnitude and distribution of climate impact. IBRD Lending by Sectors ($M, %), FY05­07 -- It engages in lending in support of technologies for both Agriculture mitigation and adaptation and supports innovative 428.30, 13% mechanisms to spread climate risks through, for example, insurance. Energy & Mining 404.60, 12% Other In pursuing this agenda, the Bank will be selective and 1,502.47 Industry & Trade concentrate on interventions expected to have large pay-offs 47% 299.18, 9% and to achieve rapid institutional reform aimed at increasing the climate resilience of vulnerable sectors and on pilot Transportation 113.32. 4% projects with the potential of broad transferability or quick scale up. Mitigation efforts will focus on the energy sector as Water/san/f prot 85 percent of GHG emanates from this sector. 489.79, 15% 86 D E V E LO PM E N T A N D C L I M AT E C H A N G E Region Issues and Approaches Emission Sources; Lending Profiles SAR Key Issues/Impacts GHGs by Sector The south Asia region's contribution to global GHG emission is relatively small. Reflecting its size, India represents 87 Waste, 7% percent of the region's GHG emissions. Pakistan is the second Land-use Change largest contributor with 9 percent. The impact of climate & Forestry, 7% Electricity & change in the region varies among the countries but the Heat, 29% ongoing glacier melt in the Himalayas will have a high impact on all countries (except the Maldives), as will temperature increase. The Maldives and Bangladesh are most vulnerable to Agriculture sea level rise and flooding. Climate change will exacerbate 26% Transportation, 6% existing vulnerabilities in many rural areas where resilience to climate risks is low due to high population density, poverty, Other, 10% Industry, 15% and dependence on rainfed agricultural systems. Evolving Regional Approach The Bank's response strategy is based on five pillars: IDA Lending by Sectors ($M, %), FY05­07 -- support to client-led mitigation actions will be consistent Agriculture, 650.7, 7% Energy & Mining with national development goals; 395.3, 4% -- The focus will be on the poor, the most vulnerable and Industry & Trade 1,031.3, 11% affected by climate change, and on the assets most at risk, Other such as infrastructure; 6,349.0 Transportation 66% 723.5, 8% -- It will be a no-regrets strategy building resilience to current Water/san/f prot climate variability; 346.0, 4% -- Remedial measures will be taken to restore and protect ecosystem services; and -- The strategy will recognize that one country alone cannot IBRD Lending by Sectors ($M, %), FY05­07 resolve its adaptation needs; but that regional cooperation is required. Agriculture 1,392.57, 28% Other The IFC response: 1,245.14, 25% The increasing importance for involving the private sector in climate change mitigation and adaptation is a priority in IFC's regional approach. Water/san/ f prot, 282.89, 6% Energy & Mining 415.00, 8% Industry & Trade Transportation 53.34, 1% 1,537.48, 32% A S T R AT EG I C FR A M E WO R K F O R T H E WO R L D BA N K G R O U P : T EC H N I C A L R E P O R T 87 ANNEx 6 ANALyTICAL TOOLS ANd INSTRuMENTS uSEd By THE WBG Level Instrument Possible application Inter- Regional strategies Identify key socioeconomic vulnerabilities to climate risk and opportunities for mitigation country/ Regional sector strategies region Country Country Assistance In dialogue with interested client countries, prioritize and integrate climate considerations into strategy Bank and IFC TA and lending programs Country Economic CEMs provide economic and analytical underpinning for inclusion of climate actions in country Memorandum programs; in countries where confronting climate change already is identified as key to devel- opment and achievements in MDGs (e.g., in PRsPs and other country development plans), the CEM can provide additional analysis of climate change impacts and action needs within the larger country development context. Public Expenditure and Analysis of public expenditures, including Institutional Reviews -- review of pro-poor development spending to vulnerable locations, sectors, and social groups (including climate risks) -- review of spending on, e.g., energy and transport to include best use of mitigation options Poverty Assessment Analysis of climate impacts on poverty and vulnerability Country Environmental Discuss climate change issues within sectoral or thematic context and identify mitigation and Analysis adaptation options and their cost and benefits Country social Analysis Analysis of which social groups are likely to be affected most and how using a range of climate change scenarios; consider migration and conflict dynamics Disaster Risk Reduction Integrate climate risk into an analysis of major disaster risks relevant to a particular country ­ Common Country Risk Assessment sectors Poverty and social Impact Analysis of distributional impacts of different adaptation and mitigation policy reform options Analysis strategic Environmental Identify significant climate change risks affecting PPPs, but also potential climate effects on Assessments PPPs, underlying causes rooted in existing systems or circumstances and mitigation options water CAss Identify the role of water in the national economy and impacts on climate shocks (e.g., flood, droughts, cyclones) and long-term change by water-dependent sector 88 D E V E LO PM E N T A N D C L I M AT E C H A N G E ANNEx 6 (CONTINUED) Level Instrument Possible application Project Environmental Review project design with respect to how environmental externalities have been taken into Assessments account and soundness of project design in view of expected climate changes social Assessments In projects that address climate risk related actions, social assessments may aid to (a) assess project design with regard to the social costs and benefits of a range of suggested adaptation options to all main social groups in the project or project-affected areas; (b) identify existing local knowledge and adaptation options that could be scaled up and/or transferred to other areas; (c) ensure participation of local stakeholder groups and discuss their perception of cli- mate risk and action needs; and (d) assure that suggested adaptation and mitigation options are locally acceptable and identify likely barriers to adoption Climate Risk screening several tools are available (e.g. ADAPT, MiRisk, Hazuz) and can be used to screen project area Tools for the likelihood of increasing climate variability and long-term change, preferably at Project Concept Note (PCN) stage. They can be combined with the Disaster Risk Reduction (DRR) tools to assess disaster risk and expected/actual hazard- related damage, as has been already done in some wB studies. Current Carbon/GHG Many GEF projects, all Carbon Finance projects and some other projects, especially those Analysis supporting renewable energy, include estimates of carbon emissions and their reductions due to the project. The World Bank Group 1818 H Street, NW Washington, D.C. 20433 USA Tel: 202-473-1000 Fax: 202-477-6391 Internet: www.worldbank.org/climatechange