A dispute is brewing at the World Bank that is likely to reveal the outlines of development assistance in the coming decade. That dispute is over the energy source that supplies much of the world’s power – coal. The World Bank is in the process of developing a new Energy Sector Strategy, which will establish lending priorities and project guidelines in its energy sector investments. As Lisa Frieman reports in a recent New York Times article, a discussion paper circulated for a World Bank meeting between country representatives recommended that financing for coal-based power be limited to the world’s poorest countries, leaving middle-income countries behind.
Representatives from some of the world’s fastest emerging economies, including China and Brazil, have objected vigorously. Similar to negotiations that have played out under the United Nations Framework Convention on Climate Change, representatives from these emerging economies argue that climate change is the legacy of industrialized countries, and that it is unfair to limit their growth when industrialized countries continue to have higher per capita emissions. While this larger dispute over the responsibility for addressing climate change is unlikely to be resolved anytime soon, decisions about the future of energy sector lending at the World Bank will.
Most World Bank observers maintain that the US and other industrialized countries exert substantial influence in steering lending to preferred countries and sectors. Under the Obama administration, the US has made it official policy to oppose coal-based power lending at the multilateral development banks. Despite this policy, lending for coal-based power projects at the World Bank has actually increased in recent years according to the AidData database, after falling sharply in the early-2000s, as displayed below. The highly-controversial $3.75 billion loan for the Medupi coal-fired power station in South Africa was also approved in 2010, the largest loan in the history of the World Bank.
The recent uptick in coal-based power lending might indicate that donor countries like the US no longer exert the influence at the World Bank that they once had. Instead, middle-income countries are increasingly making their voices heard and challenging the donor-driven model of development finance. If in the coming weeks they are able to successfully beat back restrictions on energy sector lending, we will have witnessed a fundamental power shift at the multilateral development banks.
Donor countries have driven improvements to environmental practices at the MDBs over the past two decades. Environmental NGOs have typically sought to influence environmental practices at the MDBs by getting donor countries to support their policy preferences. In the future, they may have to look more widely for support.