Multilateral Development Banks can play a leading role in promoting more sustainable energy options.
Governments around the world are struggling to mitigate dangerous climate change while securing the energy they need to sustain economic development. The need to direct future investment to meet the world’s energy needs away from polluting fossil fuels, and into more sustainable, low-carbon options has never been more urgent. Achieving this goal will require the right policies, regulations, and institutional capacities to be in place. It will also require leadership from governments, and from development institutions. The Multilateral Development Banks (MDBs), including the World Bank, Asian Development Bank, and Inter- American Development Bank have an important role to play in advancing more sustainable energy for several reasons.
MDBs can do much more to ensure that the issues of sustainability and governance are integrated into their policy advice and lending.
First, most future growth in energy demand, approximately 90% by 2030 according to the Interntional Energy Agency, will come from developing countries, where the MDBs have a long history of engagement with the electricity sector. Second, these international financial institutions are already channeling emergency assistance to developing countries to weather the economic storm, providing opportunities to guide the energy and infrastructure sectors on to a new low-carbon path. The World Bank alone has set aside US $55 billion over three years for infrastructure in vulnerable developing countries. Third, MDBs and in particular the World Bank are assuming a growing role in helping finance climate change solutions in developing countries.
Taken together, these circumstances provide a powerful rationale for MDBs to help countries reach a sustainable energy future that dramatically reduces greenhouse gas emissions while responding to the needs of the world’s poor. However, the MDBs can do much more to ensure that the issues of sustainability and governance vital to such a transition are integrated into their policy advice and lending.
Recent analysis from WRI suggests that MDB investments in electricity sector policy have often missed opportunities to address these issues of sustainability. In particular, issues of governance, such as the capacity of government, regulatory agencies, and utilities to oversee and implement sustainable energy solutions, are often overlooked.
MDBs could play a role in assisting developing countries to transition toward low-carbon sustainable development. But in order to be effective, their core electricity sector programs must more comprehensively reflect the important elements of environmental and social sustainability identified in this framework. In particular, these programs must consistently include support for institutional capacity, and improve governance.
The inter-related challenges of climate change and energy security are complex in nature and global in scale. But the solutions exist if the political will can be found. There is no room left for “business as usual” models, or business as usual financing, and the MDBs should be playing a leadership role.
David Runnalls is the CEO and President of the International Institute for Sustainable Development.