- 09.12.2021
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World Bank Development Policy Finance in Indonesia and Pakistan
Development Policy Finance (DPF) in Indonesia and Pakistan demonstrates the World Bank’s particular emphasis on accelerating the use of natural gas and how it supports fragile energy sectors that are heavily invested in coal.
A new report released by Recourse, Trend Asia and Alternative Law Collective demonstrates how DPF can influence investment decisions towards either carbon-intensive development, such as gas or coal, or low-carbon development. Worryingly, the World Bank’s 2021 Climate Action Plan still identifies gas as a transition or “bridging fuel” and is proactively promoting gas through its DPF lending instruments and advisory services.
The Indonesia case study examines a 2019 World Bank $500m Sustainable and Inclusive Energy Development Policy Loan (DPL) to Indonesia which specifically facilitated the expansion of natural gas in Indonesia through its prior actions (or reforms agreed with government).
Andri Prasetiyo of Trend Asia in Indonesia says: “Indonesian citizens currently need more access to clean energy that does not harm the environment and is affordable to all. This cannot be achieved by using gas which is destructive, costly, and dependent on subsidies. More importantly, emissions from any future gas extraction facilities in addition to the increase of gas consumption are an undeniable threat to the 1.5 C climate target”
In Pakistan, the case study shows how Development Policy Finance can have unintended consequences, even when ostensibly it is seeking to support a renewable energy transition.
According to Zain Moulvi of Alternative Law Collective, Pakistan: “The World Bank’s Development Policy Financing and technical assistance programs have historically dictated the long-term outlook of Pakistan’s energy landscape to detrimental effect on livelihoods, local ecologies, and national cohesion.”
The $400 million Pakistan Program for Affordable and Clean Energy (PACE) for 2021/22 focuses on measures to support the country’s transition to low-carbon energy. This loan was dependent on a prior action that required a commitment from the Pakistani government to transition to 66% renewable energy by 2030 through the adoption of a least cost generation plan (IGCEP)”
The World Bank sought to speed up the approval of this plan, which resulted in targets on renewable energy sources being slashed from 30- 33% of the energy mix to 17%.
The nature of today’s recovery efforts from the COVID-19 pandemic supported by the World Bank will influence countries’ development, their carbon emissions and their climate readiness far into the future.
These case studies demand a revised approach from the World Bank that ensures that all DPF is aligned with the Paris Agreement and that financing explicitly supports the global transition to sustainable renewable energy. It must no longer support the expansion of coal and gas. It is time for all fossil fuels to be added to the excluded expenditures list.
As the World Bank grapples with energy sector stabilisation in countries affected by crisis it must also urgently address how its DPF operations can stop supporting fossil fuels by default.