The World Bank voted last week to approve a $3.75 billion loan to South Africa's public utility Eskom, the bulk of which would finance construction of what will be the world's seventh-largest coal plant. The U.S. abstained from the vote.
"Giving the go-ahead to the Medupi coal plant, which will release massive amounts of greenhouse gases for decades, without a clear South African plan to level off and then decrease emissions amounts to a step backward when the world is moving forward to a clean energy future," said Peter Goldmark, director of Environmental Defense Fund's climate and air program. "This was a missed opportunity for the U.S. and the World Bank to move away from a traditional focus on fossil-fueled growth and toward a new model of low-carbon economic development."
The vote comes less than four months after the U.S. Treasury proposed guidelines for multilateral development bank lending for coal-fired power generation. Those guidelines reflect a strong preference for low-carbon energy sources and a transition away from coal, and call for full consideration of alternatives before approval is given for a coal-fired plant. The Eskom loan does not appear to meet those tests.
"An abstention is a weak position for the U.S. to take in defense of its own proposal. Next time, the U.S. and others must vote no if we're really going to reverse the headlong stampede to build coal plants in the developing world," Goldmark said. "The coal lending guidelines are a good start--but now the Bank should adopt them and Treasury must show, at a minimum, that it is willing to act on them.
"The problem here is not giving South African citizens access to cheap energy--we all want that," Goldmark said. "The challenge is to do that within a framework that clearly puts South Africa, and the world, on a course where greenhouse gas emissions will peak and then decline."
South Africa has made a conditional commitment to reduce its emissions growth 34% from its "business as usual" (BAU) course by 2020, and by 42% by 2025, with emissions declining a decade after that.
"But BAU is a fuzzy concept and a plastic, moving target, and South Africa has not explained how the Medupi plant, or the successor coal plant right behind it, fits into a realistic program to level off and then decline the level of greenhouse gas emissions," Goldmark said.
In a larger sense, this decision highlights the challenge the World Bank is facing in adhering to its own Development and Climate Change Strategic Framework, which looks to "support sustainable development and poverty reduction at the national, regional, and local levels, as additional climate risks and climate-related economic opportunities arise." The vote also apparently conflicts with the leaders' statement from the September 2009 Pittsburgh meeting of the G-20, of which South Africa is a member. That statement commits all members to "phase out and rationalize over the medium term inefficient fossil fuel subsidies" that "encourage wasteful consumption."
Eskom is controlled by the South African government, and by its own representation, private financing for this project would be much more expensive than public financing, like that they're seeking from the World Bank. This loan would serve as a direct subsidy by the G-20 countries towards the continued use of carbon-intensive fossil fuels.
EDF's 2009 report "Foreclosing the Future: Coal, Climate and International Public Finance" urged multilateral development banks, including the World Bank, to hasten the shift to renewable energy by adopting recommendations like deploying public international finance in support of renewable energy, energy efficiency and other alternatives to coal.
As the World Bank, International Monetary Fund, and other multilateral financial institutions seek a capital increase from the U.S. Congress, they will be faced with a decision as to when cheap, dirty development will finally take a backseat to clean, sustainable alternatives.
"EDF strongly encourages the U.S. Congress and Treasury to help shift World Bank resources and strategy towards a fundamental rethinking of development priorities--both by providing sufficient funding for the Bank's dedicated Clean Investment Funds and by reorienting the Bank's overall lending portfolio toward low-carbon development," EDF said in a release.