Monday, May 4, 2009

WB, ADB financing model under fire

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Riyadi Suparno ,  The Jakarta Post ,  Nusa Dua, Bali   |  Mon, 05/04/2009 2:07 PM  |  Headlines

Why do the World Bank (WB) and the Asian Development Bank (ADB) finance coal-fired energy instead of geothermal and solar energy, and why do they finance the development of roads and not railway lines?

Emil Salim, a former minister for the environment during Soeharto's time, has the answer.

"The key is you pick up projects that are helpful in reducing *poverty and unemployment*, and you go away from investments that are climate resilient," Emil told officials from the ADB and the WB at a seminar on climate change on Sunday.

Emil suggested the ADB and the WB follow the path of Norway in selecting investment projects. Norway, Emil said, did not make investments in tobacco, sugar, salt and other industries that are unhealthy and even reduce the quality of life. "Can't the World Bank and ADB devise similar things: No investment in climate endangering activities? That's missing in the World Bank and ADB."

Salvano Briceno, director of the United Nations' International Strategy for Disaster Reduction, concurred, saying that no banks and even no governments have given priority to reducing risks and vulnerability to climate and disaster in their project financing.

The majority of money, he said, goes to projects with no risk reduction, which makes them prone to disasters. Worse, much of the money goes to responses after disasters happen, i.e. to projects to rebuild houses, bridges, roads and other destroyed infrastructure.

"The reason money goes to the response is because it gives great visibility to political leaders. It's what we call the CNN syndrome. No better time to advertise your works than when a disaster happens. And you have assured spots on TV. But you don't have it when you build schools, when you built hospitals."

He suggested that the World Bank and ADB start advising governments to incorporate environment, risk and vulnerability to disaster measures into their projects.

In response, ADB vice president for knowledge management and sustainable development Ursula Schaefer-Preuss said that the bank had addressed environment and climate change in its long-term strategic framework of development. The ADB, she added, had even established a special fund generated from its own income to finance CO2-reducing projects.

But she acknowledged the amount was very small.

J. Warren Evans, director of Environment Department at the World Bank, noted that if the bank incorporated the environment factor into all of its projects it would increase the cost of projects, and it's unclear who should pay the difference.

Most likely project owners and the governments of developing countries, would not be willing to absorb the added environmental costs, he said.

He suggested the issue be discussed and negotiated at an international level to help resolve the problems; at the upcoming climate change negotiation in Copenhagen, later this year, for instance.

The problem is, financing climate change adaptation is not yet on the table for Copenhagen. Financing for climate change mitigation, which is already incorporated in the Kyoto Protocol, is however.

Evans predicted it would be an uphill battle to simply include financing adaptation into the climate change conference agenda in Copenhagen. But, it's worth a try.