CONFIDENTIAL EDS2006-1187 August 28, 2006 05:53:46 PM Statement by Messrs./Mme. Canuto, Scholar, Veglio, and Zou Date of Meeting: August 29, 2006 An Investment Framework for Clean Energy and Development: A Progress Report We would like to register our strongest support for the refined investment framework for clean energy and development proposed in the progress report. We appreciate the great efforts that the management and staff have made so far, to balance the three pillars of this agenda, and encourage them to further push the agenda, mobilize support, and set in motion a clean energy investment framework that will benefit generations to come. Urgent Need for Decision and Action We call for urgent and concrete efforts to translate the vision of Gleneagles Summit into action. We believe that the proposed framework is well grounded on a comprehensive analysis of the strength, weaknesses and gaps of existing IFIs instruments on energy access, climate change and adaptation. It has adequately addressed the concerns of the Development Committee, and should form a sound basis for decision in the near future. We would urge the Development Committee to push forward this framework, and encourage the discussion of it at the Second Ministerial Meeting of the Gleneagles Dialogue in October and at the next Development Committee meeting in Spring 2007. The urgency of arresting the global warming through reduction of greenhouse gases emissions as well as energy conservation and efficiency is beyond doubt. We don’t even have to foresee the devastating consequences, we have seen enough disasters. It would be a shame for us to wait until it is too late. We should not allow our vision to be distracted by the narrow minded perception that the clean energy investment framework will only benefit a few countries. In fact, the pressure for energy demand in developing countries results directly from economic globalization and redistribution of global production network. These countries have been chosen by global capital, mostly from developed countries, as manufacturing centers for industrial products that are energy intensive. The energy consumption pattern of these countries therefore reflects the pattern of the global production. We believe that developing countries must accelerate access to affordable and reliable modern energy to increase productivity, enhance competitiveness and thus improve their economic growth prospects. Given the huge global demand of primary energy between now and 2050 and its contribution to the increased emission of carbon dioxide, we call for 2 adequate and long term investment in clean energy, bridging the energy gap in developing countries and promoting low-carbon economy world wide. The overarching issue is to move to a cleaner overall global production pattern, and to compensate developing countries for the incremental cost of achieving this goal. By supporting the transition to low carbon global production process, the clean energy investment framework benefits all, not just a few. Energy for Development and Access for the Poor Regarding energy access for development, there is an estimated financing gap of US$80 billion per year in the power sector of developing countries. IFIs, donors and foreign direct investment can close the gap by providing roughly US$10 billion per year using existing instruments. Action is required on both sides: domestic policy reforms must be undertaken in order to attract more private sector financing; and donors must make better use of existing instruments, and to mobilize additional concessional resources (to USD 4 billion per year for Africa), through the Africa Energy Access Action Plan. We encourage the Bank to work collaboratively with African Development Bank and Africa Infrastructure Consortium on resource mobilization. Access for the poor will be achieved only through action on all five aspects of the plan. In the meantime, we should not underestimate the challenge on energy access in middle income countries, given the fact that a great proportion of the world’s poor without energy access reside in MICs. At current stage, an assistance strategy for MICs that focuses exclusively on clean energy development and disregard energy access agenda is not justified. We encourage the Bank to strike a proper balance between these two aspects, scale up financial support through existing instruments, and identify ways on how public sector and IFIs instruments can be most effectively combined and utilized to mobilize private investment. We also believe that increased support for energy conservation and efficiency is essential to meet growing demands in a sustainable manner. To this end, intelligent energy conservation, demand management, optimal generation planning, electricity trade across countries and joint investments in regional projects can significantly reduce the volume of incremental investment needs. Financing Instruments for Low Carbon Economy In confronting the challenge of moving to low carbon economy, the longer we wait, the greater the cost. The key to effective emission mitigation lies in agreement on a post 2012 international regulatory framework and additional financing resources that help developing countries cover the incremental cost. It is important that the proposed financing options are able to mobilize new and additional financing sufficient to relieve the burdens of the incremental cost for developing countries in achieving a low-carbon economy. We are very glad to see the Bank taking the lead in financing these new mechanisms. The This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without the consent of the Executive Director concerned. 3 Bank’s financial contribution from its own resources is critical to the success of the investment framework, as well as to the critical role of the Bank in this process. We encourage further consideration of using the Bank’s equity as a basis for generating further resources for this important issue. With a sound investment framework now in place, we urge all donor countries to match words with actions and back the Gleneagles Action Plan with real resources to the proposed financing mechanisms. And we encourage the Bank to continue to mobilize support from these donors. Regarding the design of these new financing mechanisms, there may be room to further improve the details. For example, with regard to CEFV, we are not sure whether developing countries will be sufficiently compensated for the incremental cost, given that they have to repay the loan and transfer credit to the CEFV at the same time. We also note that the CEFV relies on the carbon price, which is uncertain in the absence of international agreement on a future regulatory framework. We very much appreciate the fact the CEFV will focus on clean energy technologies, however, we could take a step further to highlight technology transfer and making technologies more accessible and affordable. In addition, the relation between the CEFV and CESF, including their potential complementarities and competition, will have to be clarified. We encourage the staff to further improve the design as we proceed. While looking forward to the creation of new instruments, we encourage the maximum use of existing instruments, leveraged with GEF, cabon finance, other MDB facilities and donor support, to demonstrate the potential of low-carbon technology. The development of an effective and sustainable carbon market requires a long-term stable and predictable global framework and a regulatory system, which respects the principle of common but differentiated responsibilities. This would provide the global capital markets the incentive to help finance low-carbon investments and generate private sector-led investments. We call on the World Bank to play the advocacy role for early agreement on a post 2012 international regulatory framework which continue to be based on the principle of common but differentiated responsibilities. We also believe that in parallel to a carbon market, efforts to promote research, development, and deployment through sound government-led incentives may be useful to promote private sector investments with longer time spans or higher levels of risk. Leapfrogging in infrastructure and in technology – by trying to make choices at the leading edge for the long term – is a challenging but also a huge opportunity for moving towards a lower carbon economy. Adaptation We support the policy recommendations regarding adaptation in this report. An appropriate framework for adaptation should be an inherent part of the poverty alleviation and development strategy. We therefore support a stronger role for the Bank in this area, and encourage the Bank to actively innovate and pioneer. To conclude, we strongly support the proposed investment framework for clean energy and development and urge for an early decision-making. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without the consent of the Executive Director concerned. 4 To be effective, the Bank must work even more collaboratively with other MDBs, UN agencies, the private sector, and the many energy and climate change partnerships (GEF, ESMAP, GVEP, REEEP, etc). More broadly, the Bank will also need to consider how it can respond more effectively to support global and regional public goods issues where shareholders ask the Bank to play a leading role. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without the consent of the Executive Director concerned.