WRI Stories Feed: International Financial Flows and the Environment (IFFE)

Following the Money in an International Climate Agreement

Maria Athena Ballesteros — Mon, 02 Nov 2009 10:18:35 -0500

Athena Ballesteros explains how international climate finance could make or break a deal in Copenhagen.

WRI has released a new paper on climate finance. What is climate finance and why is it important in climate negotiations?

In order to avoid the worst impacts of climate change, the world will have to act quickly and at scale. Developing countries have indicated their readiness to act, alongside the industrialized nations. But to do so, they will need significant financial support. Such assistance is necessary to help developing countries deal with climate change by: adapting to its destructive impacts, such as stronger storms, droughts, and sea level rises; reducing greenhouse gases by switching to cleaner fuels and energy sources; and building capacity so that they have the expertise and institutions to make the necessary changes.

This support will come in a range of forms – private investment and carbon markets, but also public finance. Though there is increasing agreement about the amount of finance required to satisfactorily tackle climate change, there is still no consensus on how this money will be actually be delivered.

Traditionally, aid has been managed by existing institutions like the World Bank, which in turn have been controlled by the developed, donor countries. The climate issue is different. It is not only about giving aid but also about jointly solving a common problem. Therefore, a new global agreement on climate finance is likely to significantly redistribute power, responsibility, and accountability between traditional donor and recipient countries. This is both long overdue and necessary.

Why is climate finance being described as a deal breaker in Copenhagen?

Climate finance is one of the most contentious issues in the ongoing negotiations among the 192 member countries of the UN Framework Convention on Climate Change (UNFCCC). Whichever finance mechanism they choose will mobilize and then allocate funds, prepare and approve projects, provide technical advice, set standards for performance, and then monitor projects to ensure that they are held accountable. It is a huge task, so it is no wonder that its design and governance has been a sticking point in the negotiations between developed and developing countries.

The key point of contention is whether this job should be done by existing institutions, which are traditionally dominated by developed countries, or by creating reformed or new institutions that would provide a greater voice for developing countries. There is also heated debate over whether money should be administered and distributed by one large, centralized institution, or through a decentralized approach, one that would incorporate international, regional, and national institutions.

How does a new publication from WRI inform the negotiations?

Power, Responsibility, and Accountability: Rethinking the Legitimacy of Institutions of Climate Finance is meant to draw lessons for negotiators. We reviewed the governance structures, operational procedures, and records of 11 international and national climate funds to see what has been most effective to date. This is the first publication to move beyond the issue of “which institution will we use?” and explore an equally important issue: “what will it take for these institutions to have legitimacy?”

What do you mean by “legitimacy?”

No matter what institutions are eventually charged with managing these new flows of climate finance, they will only be successful if both donor and recipient countries see them as legitimate. The key elements we identified as required for legitimacy are power, responsibility, and accountability.

Power: To be legitimate, the distribution of power within the governing body of the financial institution has to be balanced. We examined whether developed and developing countries have an equal say in how existing funds are managed and operated. Looking ahead, if existing institutions are to meet evolving standards of legitimacy, then their fundamental governance structures, operational procedures, and institutional capacities will need to be reformed.
Responsibility: Efforts to address climate change must be “country-driven” and reflect national priorities and circumstances in order to be successful, rather than being mandated by donor countries. Direct access to climate funds is important in enabling developing countries to take direct responsibility at the country level without having to rely on implementing agencies such as the World Bank or the UN Development Program (UNDP), or having to navigate layers of donor conditionality.
Accountability: Strong provisions for accountability are needed to ensure that money is managed well, to promote good governance, and to manage potential environmental and social impacts. If done well, the institutional re-designs that shift power and responsibility towards developing countries will also entail more accountability for how the money is spent.

Can existing institutions follow this framework for legitimacy?

Our research finds that relying on existing institutions could work if significant reforms are put in place. For example, if the World Bank wants to continue to play a role, it needs to demonstrate to both member countries and civil society that it is willing to embrace fundamental changes in its governance structures and operational procedures in order to give greater voice to developing countries. This would include (through the guidance and authority of the Parties to the UNFCCC) taking advice from civil society, technical experts, and the private sector.

To be viewed as legitimate, the Bank’s “business as usual” practices – including its support for fossil fuel projects in developing countries, and its minimal attention to climate change and low-carbon development strategies – will need to change.

What are some of the critical elements of a climate finance agreement in Copenhagen?

First, we need an agreement on a fund that can put money towards a range of urgent purposes, such as adaptation to the impacts of climate change, technology transfer, and greenhouse gas reduction measures, including reducing emissions from deforestation and forest degradation (REDD). In addition, a climate fund must be able to trigger new, additional and predictable climate funding from many other sources, including the private sector, carbon markets, and national public and private finance sources.

The fund must have a governing body that will oversee its operations under the guidance and authority of the Conference of the Parties (COP) to the UNFCCC, with equitable and balanced representation from both developed and developing countries, and with input from civil society and technical experts.

The international community must also de-link the source of finance from the power and influence traditionally exerted by donor countries, for example by adopting new levies such as those on Clean Development Mechanism (CDM) projects. Also essential is agreement to scale up existing climate financing. Yvo de Boer, UNFCCC chief, recently estimated that funding needed “both to curb emissions and help people adapt to changes such as droughts or floods could total $250 billion per year in 2020.” Whatever financing is agreed in Copenhagen should include immediate mobilization of at least 10 billion dollars. This ‘start-up’ fund is urgently needed to help the poorest countries to build capacity to design and implement adaptation and low carbon development plans.

Asian Development Bank Must Improve Climate, Energy Lending Policies

Paul Mackie — Fri, 12 Jun 2009 13:48:05 -0400

As the Asia Clean Energy Forum kicks off next week, the Asian Development Bank and other multilateral development banks should do more to integrate climate change and clean energy considerations as a core part of their development assistance.

“As a major development institution, the Asian Development Bank has a critical role to play in channeling support towards low-carbon development and increasing protection from climate-related disasters in developing Asian countries,” said Maria Athena Ballesteros, a senior associate at the World Resources Institute (WRI), who will speak on a panel June 18 entitled “Finance Solutions for Clean Energy.”

“WRI’s independent analyses show that more than 60 percent of all development-bank financing for the energy sector over the past five years has not considered climate change at all. This needs to vastly improve.”

“The Asia Pacific region is facing serious challenges with threats from global climate change, the worsening financial crisis, and soaring food and fuel prices,” Ballesteros added. “The ADB and other development banks are in a position - and have the economic and moral responsibilities - to improve energy security, public health, and climate resilience. This can be accomplished through implementing policies to deliver electricity through a safe, affordable, and reliable infrastructure.”

More than 700 attendees are expected for the forum, which runs through next Friday. The forum highlights best practices in policy and finance and seeks to inspire actions that respond to Asia’s climate, access, and energy-security challenges.

Darwin's Lessons for the Extractive Industry

Kirk Herbertson — Tue, 26 May 2009 09:04:31 -0400

Environmental and social performance is shaping a new breed of oil, gas, and mining companies.

This week, shareholders at Chevron’s annual meeting in California will vote on a resolution urging management to assess the company’s compliance with the environmental laws of every country in which it operates. The vote has been triggered by pension fund investors anxious over the oil giant’s liabilities in an environmental disaster dubbed the “Amazon Chernobyl.” (Update: Shareholders rejected the resolution on Wednesday, May 27. Read more here.)

Chevron inherited a lawsuit for ecological damages and human health impacts caused by massive oil spills in the species-rich rainforests of eastern Ecuador when it bought the company responsible, Texaco, in 2001. An Ecuadorean court judgment is due later this year, with Chevron facing damages that may dwarf the $3.9 billion paid by ExxonMobil for the infamous 1989 Alaskan oil spill.

The lesson in all this is one that is being learned not only by Chevron, but by the broader extractive industry: in our modern world of instant communications, Darwin’s theory of evolution applies not only to animals and plants, but also to companies.

A Survival Road Map for Extractive Industries

WRI’s 2009 report, Breaking Ground: Engaging Communities in Extractive and Infrastructure Projects recommends 7 principles to help companies adapt to the changing rules of natural resource extraction by more effectively involving communities in project decision-making:

Prepare communities before engaging.
Determine what level of engagement is needed.
Integrate community engagement into each phase of the project cycle.
Include traditionally excluded stakeholders.
Gain free, prior and informed consent.
Resolve community grievances through dialogue.
Promote participatory monitoring by local communities.

Read the full publication here.

Survival depends on being able to adapt to a changing environment. Oil, gas, and mineral reserves have been depleted, and the extractive industry increasingly competes for access to resources in remote corners of developing countries. In these new environments, companies face challenges that go well beyond engineering, including fragile ecosystems, impoverished communities, and weak local governance.

In earlier times, they might have been able to ignore such issues. But today, business-as-usual approaches will no longer suffice.

The world has become a global fish bowl. Modern information and communication technologies, combined with increasingly sophisticated and networked NGOs and local activists, subject companies to a level of scrutiny and accountability unimaginable even a decade ago. The voices of communities in the remotest corners of the globe can reach the ears of politicians and journalists worldwide in just a few hours. Campaigns have also grown in sophistication. Some NGOs directly support communities impacted on the ground. Others, like the BankTrack network in the Netherlands, focus on extractive companies’ financiers, campaigning against banks to remove harmful project financing lifelines.

Banks, in turn, are requiring their clients to demonstrate stronger environmental and social commitments. The International Finance Corporation (IFC), the private financing arm of the World Bank, has developed a set of “Performance Standards” that clients must meet before receiving financing. Other banks, such as the private financial institutions who have signed up to the Equator Principles, voluntarily commit to apply the IFC’s Performance Standards to their investments. John Ruggie, the UN Special Rapporteur on business and human rights, has explicitly recognized this new playing field, emphasizing the importance of the “court of public opinion“— regardless of what a developing country’s laws require.

On the frontline of extractive development, communities are increasingly intolerant of mining companies that sacrifice the environment for short-term economic benefits. In addition to the Chevron case, communities from the Peruvian Amazon have brought a lawsuit in California against Occidental Petroleum (Oxy), alleging that the company discharged oil wastewater into communities’ water sources, and Shell is facing a lawsuit in New York for its alleged human rights abuses in Nigeria in the 1990s. Both Ecuador and Peru have also seen massive social protests in the past year against controversial mining policies.

While a company like Chevron or Shell may survive a multi-billion dollar judgment, the reputational damage of legal settlements is increasingly likely to result in governments, banks, and communities hesitating to do business with such companies in the future. President Correa of Ecuador, for example, took a public stance against Chevron, and the company will almost certainly not be able to operate in the country for several decades.

In true Darwinian fashion, the most successful extractive companies are adapting to these forces of change, investing in improvements to their environmental and social management systems. Thriving in this new competitive environment, however, is not simply about corporate charity or token consultations with communities. It entails making environmental and social management, and respect for human rights, central to companies’ business model. Communities must be engaged at all stages of operations, from exploration through to restoration, and must have the opportunity to participate in key decisions.

Community consent, and the reputational benefits in the wider world that it brings, will likely be the prize of those companies that manage to ground their operations in a longer-term development process that is sustainable beyond the life of a project. Skills in effective community development may soon be an extractive company’s most competitive trait.

It may even make the difference between extinction and survival.

Green Lending or Banking as Usual?

Emily Chessin — Tue, 28 Apr 2009 16:05:21 -0400

Emergency spending for developing countries provides an opportunity to deliver green investments.

Last Saturday, the World Bank group announced tens of billions of dollars in emergency funding for developing countries struggling with the economic crisis.

More than US $55 billion will be mobilized over the next three years for infrastructure projects worldwide, with a particular focus on Africa. Of this total, $45 billion will be lending by the World Bank through its new Infrastructure Recovery and Assets platform (INFRA), and $10 billion by the International Financial Corporation (IFC) through its new Infrastructure Crisis Facility (ICF).

According to the Bank, “the INFRA platform and the ICF will have particular focus on green investments and will support governments that want to use infrastructure investments to advance the green agenda and not lose the momentum on environmental achievements in developing countries.” However, this statement does not elaborate on the kinds of infrastructure projects that would qualify.

While the inclusion of green investments to INFRA and ICF is an improvement from previous World Bank infrastructure policies, it is essential that these investments advance low carbon development. In the past, these efforts have fallen short of initial ambition, resulting in minimal improvements over business as usual. The bank should use this significant opportunity to support low carbon, clean energy infrastructure and clean development projects rather then taking a “banking as usual” approach.

As the new financing is deployed, WRI will be closely monitoring and analyzing INFRA and ICF projects for green components and will hold the World Bank Group accountable for following through on the commitment to green infrastructure investments. We will also be monitoring the deployment of funding under these new financial instruments to ensure that the World Bank Group upholds the current application of environmental and social safeguard policies, including disclosure policies.

Over the weekend, the World Bank Group also announced several additional emergency financing initiatives to help the world’s poorest countries. These included a World Bank Vulnerability Financing Facility, which includes the existing Global Food Crisis Response Program and a new Rapid Social Response Program; and a new IFC Microfinance Enhancement Facility to help poor borrowers.

These initiatives are welcomed, but the World Bank Group must carefully manage them to ensure that countries that take advantage of them don’t sink deeper into debt. Many low-income countries are facing twin crises which threaten their development: economic disaster and the growing threat of climate change impacts on their vulnerable populations. In the months ahead, developed countries must not only follow through on their new financing commitments, but ensure that these provide both short term relief and a foundation for long-term sustainable development.

Greening the IDB's Lending Portfolio

Maria Athena Ballesteros — Mon, 30 Mar 2009 10:03:55 -0400

As the Inter-American Development Bank (IDB) celebrates its 50th anniversary, Latin America is struggling to address the financial crisis and climate change.

To address the financial crisis, the IDB has focused on reinforcing Latin American economies with policy advice and special financial instruments, such as a $6 billion emergency liquidity fund. In a recent interview, IDB President Luis Alberto Moreno pointed to investment in infrastructure projects as central to economic recovery and growth in the region:

These projects not only stimulate the economy but ensure future growth… It is important to have in mind that there is no proven alternative to trade and integration as a path to prosperity and poverty eradication.

However, the IDB is missing an opportunity to help countries adopt “green” development and stimulus policies, such as those being pushed by the US government. A recent report by the UN Economic Commission for Latin America and the Caribbean (ECLAC) found that of the 32 countries reviewed, only Brazil has implemented any “green” measure as part of its response to the crisis. Recovery programs such as those recently adopted in the US present promising new approaches to meeting infrastructure and economic needs more sustainably.

At a more basic level, there is a lot that the IDB can and should do to “green” its own lending portfolio, particularly with respect to consideration of climate change. For instance:

IDB Can Do More on Climate Change

IDB can play a more central role in financing low carbon and climate resilient development. In Latin America, IDB is active in sectors that are key to reducing greenhouse gas emissions, such as energy, transport, forestry and agriculture. While it has made efforts to mainstream climate change considerations into its lending including by launching the Sustainable Energy and Climate Change Initiative (SECCI), these programs remain at the margins of its core business. IDB can do more to scale up its efforts to integrate climate change into its operations.

Climate Change Must Be Integrated Into Energy Lending

In a review of IDB energy lending (PDF, 58 pages, 252 Kb) between 2000 and 2007, WRI found that 83% of the portfolio ignored climate change. During this time period, IDB was the worst performer as compared to its MDB counterparts, with 4 consecutive years (2002-2005) where none of its energy investments considered of climate change (see charts).

While the run-up to the launch of SECCI led to a small increase in 2006 energy lending that considered climate change, 2007 saw a decrease, with the majority (88%) ignoring it completely. In a forthcoming update to this analysis, WRI found improvements in 2008, where most of the projects in its energy sector portfolio mentioned SECCI. However, not all of them explained exactly how they would carry out their climate change related objectives.

Support Client Governments To Create Enabling Environments For Low Carbon and Clean Energy Development

It is critical that IDB supports the establishment of the right conditions to encourage low carbon and clean energy development. This includes support for policy, regulatory and governance reforms that address domestic barriers to investment in clean energy. These barriers may include energy pricing structures and conventional energy subsidies that reduce the viability of clean energy projects. They may also include a lack of capacity within regulatory institutions to address clean energy, or within electricity utilities to promote efficiency and renewables. IDB can help to address these significant challenges.

The IDB’s Electricity Sector Support Program for Nicaragua, financed in 2007 shows that IDB has the capacity to promote low carbon and renewable energy in its projects. This program is an electricity sector modernization and optimization program that is not specifically focused on clean energy projects, but integrates the concepts of renewable energy and energy efficiency into its design. Renewable sources are considered as part of the portfolio of resources: large-scale hydropower and thermal energy are mentioned.

Additionally, the program will aid the Government of Nicaragua in promoting energy efficiency on both the supply and demand side. The program will help the government foster a “culture of efficiency” among energy consumers and will improve the efficiency of utilities by modernizing grid management equipment and making use of software to optimize operations. These are the types of projects that need to be prioritized.

There are many missed opportunities, however. Paraguay’s National Electricity Administration (ANDE) received IDB financing in 2006 to help it reform and modernize. To take advantage of clean and renewable energy sources and to promote energy efficiency, ANDE needs to transform its regulatory policy and planning processes. But project documents show that these important issues were not sufficiently addressed.

Measure and Manage GHG Emissions, Help Client Governments Do the Same

To date, the IDB does not systematically measure the GHG emissions associated with its lending portfolio. This gap is highly problematic as IDB works to support governments to identify the potential climate benefits or drawbacks of particular development choices.

Good information on greenhouse gas emissions associated with particular development options is necessary, and stakeholders within developing countries in the LAC have demonstrated interest in improving their GHG inventory management capacity. Such practices can also enable countries to have better access to carbon markets to finance climate friendly development projects.

The Mexican and Brazilian governments have emerged as leaders on GHG management. Mexico’s environment agency, SEMARNAT, has been working with the World Resources Institute since 2004 on the GHG Protocol Mexico. The approximately 30 participating companies include Mexico’s entire cement, petroleum, and beer brewing sectors, as well as a significant portion of its steel sector. Participants make a voluntary commitment to conduct and publicly report a corporate GHG inventory, and the program is now expanding to include the accounting for GHG reduction projects.

In May 2008, Brazil’s Ministry of Environment began working with WRI on the first GHG accounting program and emissions registry in South America. It is a pilot program working with 20 large companies, including Petrobras, which will include training and capacity building programs to adapt globally credible GHG accounting tools to Brazil. The program, the GHG Protocol, is also active in China, Mexico, the Philippines, South Korea, and India.

Promising Efforts Must Be Taken to Scale, and Risks Must Be Analyzed and Managed

The efforts of SECCI must be scaled up. Through SECCI, energy efficiency programs have been integrated into several projects in energy intensive sectors. SECCI is also supporting specialized environment and climate change policy programs in Mexico and Colombia. Support in Colombia will include leveraging Climate Investment Funds (CIFs) to support climate change strategy implementation.

To address an internal need to evaluate the complexity of issues behind biofuels projects, SECCI, with IDB’s Structured and Corporate Finance Unit, developed the Biofuels Sustainability Scorecard. Initially developed as an internal project screening tool, the Scorecard uses sustainability criteria developed by the Roundtable on Sustainable Biofuels to screen and assess biofuels projects that request finance from the IDB. The results of the Scorecard are then used along with other project data, as projects are evaluated for financing. Multiple governments in Latin America are interested in adapting the SECCI tool for use at the national level.

The Scorecard is particularly interesting because it requires biofuel producers to obtain the free, prior, and informed consent of affected communities before proceeding with project development. Unfortunately, there is not yet any systematic monitoring of SECCI biofuels projects, to examine how the use of the Scorecard results in projects that are truly sustainable.

Latin American and Caribbean countries are looking to the IDB for financial support in this time of crisis. IDB can and should seize this unique opportunity to play a leadership role in linking economic recovery efforts to sustainability and charting a path to a low carbon, climate resilient future.

WRI Releases Guide to Help Extractive Companies Work with Local Communities

Paul Mackie — Thu, 05 Mar 2009 13:52:07 -0500

Natural-resources extractive companies are profiting financially and socially when they consult with affected communities before and during the construction of projects.

“Rio Tinto and De Beers, for example, have negotiated agreements with communities to avoid harm and provide benefits. In so doing, they have gained local support for projects, and communities have seized opportunities for development,” said Jonathan Lash, president of the World Resources Institute (WRI). “But more work needs to be done. Too often, the rhetoric in support of community engagement does not match the practice.”

The report, Breaking Ground: Engaging Communities in Extractive and Infrastructure Projects, takes an in-depth look at international community engagement standards and how they often fall short of providing guidance to companies and communities. The work follows WRI’s 2007 report, Development Without Conflict, and is designed as a user’s guide to help companies and local community liaisons implement successful standards on-the-ground.

“Many national laws and financial institutions’ policies require companies to implement some type of community engagement in extractive and infrastructure projects, but do not necessarily provide guidance on how to do so,” said Kirk Herbertson of WRI, lead author of the report. “When local communities participate in the design and implementation of a project, they are more likely to understand and support the changes brought about by the project.”

In one of the examples from the report, community engagement during the construction of a natural gas project in the Philippines saved a U.S. company millions by allowing the company to complete construction ahead of schedule. In another example, from Guatemala, a mining company helped rebuild its damaged reputation by inviting local communities to test and monitor water quality, as a way to provide credible assurances that a mine was not polluting their water source.

WRI’s accompanying video documentary on Thailand’s Mae Moh coal power project shows what happens when companies and governments refuse to engage the communities they develop. Hundreds of people filed a lawsuit against the government-controlled Electricity Generating Authority of Thailand (EGAT), alleging the coal mine and power plant poisoned them with toxic sulfur dioxide emissions and mine dust, and damaged their crops. On Tuesday of this week, which is officially the World Bank’s Extractive Industries Week, a Thai court ruled that EGAT must compensate each of the victims and restore the environmental damage of the coal mine.

Extractive industry experts said at the World Bank conference that they continue to recognize the importance of engaging communities in mining projects, despite the ongoing economic crisis.

Engage Communities, Avoid Conflict

Kirk Herbertson — Mon, 02 Mar 2009 09:47:54 -0500

As the World Bank hosts Extractive Industries Week, the story of the Mae Moh coal plant in Thailand shows why early community engagement is critical.

The Mae Moh Coal Power Project

The Mae Moh coal-fired power plant sits in the hills of Lampang in northern Thailand. The plant is an enormous complex consisting of 13 power generating stations. Until 2008, the project was the largest of its kind in Southeast Asia.

Near the power plant lies its fuel source—a lignite coal mine, where open-air pits cut a 135 square kilometer slice out of the surrounding farmland. The government predicts there is enough coal in the area to meet a large percentage of Thailand’s energy needs through 2035 (it currently provides 12% of Thailand’s electricity), and recently approved plans to expand the mine to access 187 million tonnes of additional, proven coal reserves.

Impacts on Local Communities

Sixteen communities live near the power plant and mine. As the project has expanded over time, the mine has grown closer to their lands (only 800 meters away from one village). The power plant has expanded from one unit of 75 Megawatts in 1978 to 13 units of 2,625 Megawatts in 1996, and now consumes over 40,000 tonnes of lignite each day.

Fifteen years ago, the size of the project reached a tipping point. Thousands of communities began to complain of respiratory illnesses and severe damage to their crops. The communities alleged that wind blew coal mine dust into their homes and farmlands and that the smokestacks of the power plant did not contain appropriate filters, allowing the release of sulfur dioxide, mercury, and other toxic chemicals into the air.

In 1992, the plant activated all 11 of its generating units (now expanded to 13), and within a few days thousands of people in the area began noticing breathing difficulties, nausea, and inflammation of their eyes and throats. Communities estimated that within 2 months, 50% of rice fields were damaged by sulfur dioxide emissions. In 1998, mobile inspection clinics organized by the government diagnosed 8,214 patients, and found that an estimated 3,463 suffered from respiratory illnesses. Communities alleged that the project was connected to several deaths, including six Mae Moh villagers who died from blood poisoning.

Communities also complained that chemicals from the plant leaked downhill into water supplies, where uninformed people fished from the water. In October 2003, the State Natural Resources and Environmental Policy and Planning Office found high levels of arsenic, chromium, and manganese in most water sources near the plant.

WRI’s Report on Community Engagement

WRI’s report, Breaking Ground: Engaging Communities in Extractive and Infrastructure Projects, provides a framework to help prevent harmful projects. Companies and governments can use this report to more effectively involve communities in the design of projects. Likewise, communities can use this report to demand better governance of these types of projects.

WRI’s Principles for Effective Community Engagement:

Prepare communities before engaging.
Determine what level of engagement is needed.
Integrate community engagement into each phase of the project cycle.
Include traditionally excluded stakeholders.
Gain free, prior and informed consent.
Resolve community grievances through dialogue.
Promote participatory monitoring by local communities.

The Government’s Response

The communities claimed that the government continued to grant permits and licenses to expand the project despite these impacts, and that the government failed to inform stakeholders about the project’s environmental and health risks. As people experienced harm to their health and crops, they complained to the government, but felt the government was not responsive. Communities described how public relations officials made promises to address their concerns, but then failed to follow through.

Communities also complained to financiers of the project, including the Asian Development Bank, Export Development Canada, and the U.S. Export-Import Bank. In 2001, ADB financed an evaluation of the project’s environmental and health impacts, which brought sulfur dioxide emission levels into compliance with national standards. As a result, fewer people now suffer from respiratory illnesses.

While this was an important first step, the government’s and financiers’ responses did not address communities’ other concerns such as compensation for crop damages, resettlement to safer areas, and payment for medical treatment. As a result, the communities resorted to lawsuits for redress. In 2002, local activist Maliwan Najwirot created the Occupational Patients Rights Network, which has filed several lawsuits against the government. In May 2004, a court ruling awarded approximately US$142,500 to villagers for crop damages caused by the power plant. Several lawsuits are pending to cover medical treatment for hundreds of people and to stop further expansion of the project.

The struggle between communities and the project continues today. In 2008, 47 families obtained a loan from commercial banks to resettle to a new plot of land farther from the power project. Construction on homes and farms of the resettlement site began in January 2009. The government has promised to repay the communities for the costs of the resettlement, but has yet to do so. While community leaders are optimistic about the opportunities the new site will bring, many community members remain unable to afford their medical treatment.

Update: On March 4, 2009, a Thai court ordered the government (the Electricity Generating Authority of Thailand) to pay $6,800 plus interest to each plaintiff in a lawsuit brought 5 years ago by several hundred villagers whose health was harmed from living near the project. The court also ordered the government to move affected people to new land at least five kilometers from the project, to rehabilitate the environment at the coal mine, and to replace a controversial golf course with trees. This landmark decision provides a much-needed turning point, so that Mae Moh communities can finally begin to restore and rebuild their lives.

WRI’s Electricity Governance Initiative

Public participation and access to information are also important before a project even moves forward, when the government makes its overarching energy policy choices. The WRI-Prayas Electricity Governance Initiative is working with civil society groups in Thailand to improved transparency, public participation and accountability in energy regulation, policy and planning, so that the concerns of people affected by projects like Mae Moh are considered at the onset of the planning process.

Lessons Learned

Despite the unresolved issues, Mae Moh communities have turned this into an important learning experience for others. Representatives of other Thai communities frequently visit Ms. Najwirot and the site to learn how to organize themselves, and how to address the tensions that development projects can create between those community members who benefit from jobs and electricity, and those who are harmed.

Mae Moh also provides important lessons for companies, governments, and financiers. Companies and governments should engage communities early and throughout the life of the project so they can better identify and mitigate risks, and build trust to resolve problems that do emerge. This in turn helps to prevent costs from disaster cleanup, lawsuits, and tarnished reputations. Finally, the project demonstrates the importance of transparency and public participation in the review and approval of permits and licenses that entail potentially harmful activities. In Mae Moh’s case, engagement with communities could have provided an earlier indication that construction or expansion of the project was not worth the environmental and health risks.

Counting the Carbon in Overseas Investments

Kirk Herbertson — Fri, 13 Feb 2009 08:32:10 -0500

In a landmark settlement, two U.S. government agencies are now required to consider the climate change impacts of overseas financing.

The environmental NGOs Friends of the Earth and Greenpeace, along with the city of Boulder, Colorado, originally brought the suit to court in 2002. They alleged that the Export-Import Bank and the Overseas Private Investment Corporation (OPIC) provided more than $32 billion in public financing for overseas projects that—between 1990 and 2003—cumulatively produced CO2 emissions, equivalent to over 7% of the world’s annual emissions in 2003. Three California cities—Arcata, Santa Monica, and Oakland—later joined the suit, arguing that the climate change caused by these overseas projects would harm them.

The federal judge ordered the parties to negotiate an agreement. As part of the final settlement announced on February 6, 2009, the U.S. Export-Import Bank agreed to take CO2 emissions into account when evaluating fossil fuel projects, and agreed to develop an organization-wide carbon policy in consultation with a group of environmental NGOs (that includes WRI). The Bank must also provide its Board of Directors with information about CO2 emissions before the Board considers whether to approve transactions related to fossil fuel projects.

OPIC agreed to establish a goal of reducing its emissions by 20% over the next 10 years. A full environmental impact assessment is required for projects that emit significant amounts of CO2, and OPIC must publicly report its emissions from these projects annually.

The recent settlement will require drastic changes in both agencies’ operations. In FY 2006, for example, Ex-Im Bank financed $1.8 billion in traditional fossil fuel projects, but only $9.8 million in renewable energy projects. Under the agreement, Ex-Im Bank must now set aside $250 million in financing for renewable energy.

“The settlement,” said Ron Shems, the lead council for the plaintiffs, “will help ensure that the federal government takes a close look at its contributions to climate change and that the courts are available if the government fails in this critical obligation.”

This landmark case sends a signal to the investment community that an effective climate policy is a necessary part of risk management in fossil fuel projects. A credible climate policy requires that government agencies, banks, and companies adopt greenhouse gas accounting standards, internal policies, and staff incentives in order to measure and reduce their emissions.

WRI’s Role in Moving OPIC and the Ex-Im Bank

For several years, the World Resources Institute has actively engaged both the Export-Import Bank and OPIC on methodologies for integrating environmental and social considerations into their public financing activities.

In 2007, WRI contributed to OPIC’s announcement of a Greenhouse Gas / Clean Energy Initiative. This initiative established several voluntary goals, which the settlement effectively converts into mandatory commitments:

A 20% reduction in emissions over 10 years in OPIC’s overall lending portfolio.
Increased investment in renewable energy and energy efficiency projects.
“Enhanced” accounting and reporting on emissions.

Finally, WRI served as a key resource as legislators in the U.S. Congress drafted two important pieces of legislation: the Export-Import Bank Reauthorization Act of 2006, which required the Export-Import Bank to promote renewable energy projects, and the Consolidated Appropriations Act of 2008. The latter bill requires at least 10% of the Bank’s portfolio to be used for renewable energy and environmentally beneficial products and services.

Global Stimulus, Human Rights and the Environment

Maria Athena Ballesteros — Tue, 06 Jan 2009 12:34:32 -0500

International project financing primarily intended to generate jobs and growth should not ignore social and environmental safeguards in the name of economic stimulus.

One case in point: the International Finance Corporation (IFC), the World Bank’s private sector arm, is launching four new facilities for bank recapitalization, infrastructure financing, trade facilitation, and refocused advisory services. Combined with financing mobilized from others, these new facilities could provide more than US$30 billion over the next three years. The Bank’s Multilateral Investment Guarantee Agency (MIGA) will also provide much needed risk mitigation for flows of private finance to developing countries. These new facilities are meant to attract developing member client countries which may be facing difficulties moving forward with large-scale capital-intensive infrastructure projects such as roads, highways, power stations and industrial zones.

Earlier project experiences and evaluations indicate that environmental safeguards are indeed necessary to prevent widespread environmental damage associated with unregulated economic growth.

Many public financial institutions, such as the World Bank Group, require their clients to meet these “safeguards” as a condition of financing. But civil society organizations and community groups have argued that safeguards have weakened recently. Some financial institutions are adopting broadly worded policies that are unenforceable and unmeasurable, while others are applying the safeguard to only a small portion of their activities.

The Asian Development Bank (ADB) is currently in the process of reviewing and adopting its safeguards policy. We ask all international financial institutions to guard against dilution of environmental and social guidelines, particularly in proposed large-scale infrastructure and energy projects. Instead, the ADB should double its efforts to strengthen these guidelines and ensure full compliance with internationally accepted environmental and human rights standards.

In particular we are asking the ADB to:

Incorporate the UN Declaration on the Rights of Indigenous Peoples into the ADB Safeguard Policy Statement.
Require free, prior and informed consent for all projects potentially affecting indigenous peoples.
Provide further policy criteria for the establishment of project-level grievance mechanisms.
Strengthen the role of the ADB Accountability Mechanism in the safeguard system.
Improve the process for adopting Country Safeguard Systems into ADB operations.

WRI believes attention to ecological, social and health impacts of development projects, particularly to affected communities ultimately minimizes risks and boosts the projects’ chances at being successful and sustainable.

To read the full text of WRI’s submission to the ADB, please click here.

To learn more about the issue, read WRI’s report, Development Without Conflict: The Business Case for Community Consent.

How the World Bank Group Gauges "Broad Community Support"

Isabel Munilla — Fri, 21 Nov 2008 16:01:37 -0500

On October 9th, the World Resources Institute’s International Financial Flows and Environment (IFFE) team co-sponsored a panel discussion with Oxfam America and Center for International Environmental Law on How the World Bank Group Gauges ‘Broad Community Support’ for Projects. The discussion came during the Civil Society Policy Forum of the 2008 Fall Annual Meetings of the World Bank and the International Monetary Fund (IMF) in Washington, D.C. Read the summary report (PDF, 19 pages, 416 Kb).

The World Bank and International Financial Corporation (IFC) require clients to obtain “broad community support” before beginning high impact projects. WRI believes that the broad community support standard is increasingly relevant, given the significant growth of World Bank investments in sectors—especially in extractive industries—that can have significant impacts on local communities. In 2004, IFC’s Extractive Industries Review recommended that “broad community support” be included in the Bank’s suite of standards. Since then, it has been incorporated into the WBG’s Operational Policy on Indigenous People’s, as well as IFC’s policy on Social and Environmental Sustainability. As of August 2008, IFC has applied free, prior and informed consultation and broad community support to 18 projects.

However, increased instances of conflict around natural resources, and/or fundamental weaknesses in sector governance in areas where extractive projects are underway or envisioned highlight need for closer examination of the BCS standard and its application.

The panel examined and discussed practical experiences and challenges of implementing the broad community support standard in a selection of World Bank Group projects. Based on experiences to date, the session participants identified several key challenges and concerns related to BCS standard implementation.

This conference report (PDF, 19 pages, 416 Kb) provides a summary of the panel presentation, the challenges and concerns identified by the panel participants, and proposes next steps to continue this important discussion.