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Monday, May 6, 2013

The World Bank Group Energy Sector Strategy

Richard K. Lattanzio
Analyst in Environmental Policy

One in five people worldwide lack access to electricity. This is among the many challenges that financial institutions face when providing assistance to lower-income countries in order to promote economic and social development. Access to modern energy sources has the potential to substantially increase worldwide economic growth, creating markets in the developing world for products from the developed world, and vice versa. Filling this need may also result in environmental problems that could threaten development, including an increase in pollution that damages fisheries, reduces farm fertility, poses health risks, and contributes to climate change. In response to these risks, the World Bank Group (WBG) has reported its intentions to revise its strategy for energy and infrastructure lending to better address energy poverty alleviation and environmentally sustainable development. After releasing an Approach Paper in October 2009, and consulting with government and civil society stakeholders from January 2010 to July 2010, a strategy document, Energizing Sustainable Development: Energy Sector Strategy of the World Bank Group (ESS), was presented to the WBG Committee on Development Effectiveness (CODE) on April 11, 2011, for consent and subsequent delivery to the WBG Board of Executive Directors for a vote during the summer of 2011. The ESS, however, stalled during debate in CODE. With the appointment of Jim Yong Kim as the 12th President of the World Bank Group on July 1, 2012, the ESS process was discontinued. Efforts to revise energy and infrastructure lending have since been incorporated into the broader initiatives of the new administration.

The impetus for the World Bank Group’s revision of its energy strategy rests on many factors. Over the past several decades, sustainable energy and environmental issues have gained an increasing level of attention in international humanitarian and development assistance, as countries have tried to integrate poverty reduction and economic growth initiatives with a shared concern for the global environment. Further, lack of access to modern energy resources, recurrent supply disruptions, and increased exposure to the risks of global climate change have hindered social and economic development in many lower-income countries. The ESS comprises an initiative to support energy poverty alleviation and environmentally sustainable development with provisions that include deemphasizing coal-fired power generation, developing large-scale hydropower where appropriate, establishing greenhouse gas emissions programs, increasing lending for clean energy projects, promoting energy efficiency initiatives, expanding access to modern energy services, improving household fuel and distributed energy programs, encouraging local community engagement and empowerment, and supporting innovative energy policy.

While some observers of the WBG have applauded provisions in the revised strategy, many claim that the history of the WBG’s energy and infrastructure lending undermines its credibility as an institution committed to combating the impacts of environmental degradation and climate change. The United States—through its role as financial contributor to the WBG and as member on the WBG governing boards—has influence on WBG policy. This influence manifests itself through Board votes, general advocacy, reporting requirements, and financial leverage. While the U.S. Administration oversees the day-to-day participation in WBG operations, the U.S. Congress— through its role in WBG appointments, appropriations, and legislative guidance—retains significant input. U.S. guidance to the WBG has focused on the institution’s lending practices as a means to induce greater environmental sustainability in multilateral development assistance. The ESS thus becomes another potential vehicle for the U.S. Congress and the U.S. Administration to further address concerns regarding energy and infrastructure lending in lower-income countries.

Date of Report: April 16, 2013
Number of Pages: 24
Order Number: R41912
Price: $29.95

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