The Clean Technology Fund (CTF) provides finance for low carbon energy projects or energy technologies that reduce emissions.  It is intended to be “technology neutral”. This means it will not limit the types of technologies eligible for financing to new renewables (like solar, wind, low-impact dams) where public financing is desperately needed, but instead keeps the door open to support for “clean coal” and large hydroelectric dams.  According to the Bank “clean coal” represents “highly cost effective opportunities for significant GHG emissions reductions and/or there is potential for developing readiness for carbon capture and storage.”  This highlights the second problem with the CTF: it supports technologies that reduce the carbon intensity of development, but not necessarily overall GHG emissions. In other words, while GHG emissions per unit of output may decline when output increases, overall GHG emissions may still increase. While investing in more efficient coal-fired power generation is a small step forward, public money should be invested in renewables as a strategy to reduce emissions. Otherwise, critics argue, the CTF supports a “business-as-usual” approach, rather than a real transition, to energy development.

The Strategic Climate Fund (SCF) will be broader and more flexible and will support a variety of programs that tackle climate change. The primary program of the SCF is the Pilot Program for Climate Resilience (PPCR – which replaces the previously proposed Adaptation Pilot Fund). The PPCR is intended to provide national level support to 5-10 pilot countries to help make their development planning more climate-resilient. The SCF will also include a Forest Investment Program (now in the design stages with an expected launch by the end of 2008) focused on reducing deforestation and improving sustainable forestry management. There are also plans to add a third program focused on increasing access to “green” energy in low-income countries.

Financing from the CIFs is expected to be a mix of grants and concessionary loans. Each fund is governed by a Trust Fund Committee made up of an equal number of donor and recipient countries that will approve new programming and projects . UN agencies and other “relevant” organizations will be given observer status. Civil society and indigenous peoples organizations will not be represented in the trust fund committees, even as observers. Discussions on further details related to the Funds will be done at annual Partnership Forums, the first of which was in mid-October 2008. The first CIF-funded projects are expected to be approved in early 2009.

1. Process

• There has been a lack of transparency and democratic process in the development and operation of the funds. The CIF proposal was developed relatively quickly, with little space for input from developing countries and civil society, and is proceeding rapidly despite strong external criticisms.  While the Bank has responded to early criticisms with a few superficial changes to the CIFs (like adding a sunset clause, referencing the UNFCCC process and including recipient countries on the committees to oversee the funds), those changes do not go far enough. For example, while the Trust Fund Committees will now be composed of both donor and recipient countries, no decision-making framework has yet been determined. This leaves no guarantee that developing countries will actually have any decision-making power within the committees.  In contrast, the UNFCCC provides a democratic negotiating framework for global action on climate change.
• The World Bank’s Climate Investment Funds are external to the UNFCCC process. Ironically, while the Bank was originally asked to act as a “global mediator on climate change” and bridge the differences between developed and emerging economies,  it is now actively undermining discussions. Having a sizeable investment fund operating outside of the UNFCCC undermines ongoing UN negotiations on financing mechanisms. It also draws financial support away from already established funding mechanisms within the UNFCCC, like the Adaptation Fund set up in Bali in December 2007. Developing countries under the G77 (the largest intergovernmental organization of developing countries in the UN) and China have criticized the Bank for superseding this democratic process, and insisted that financing channelled outside the UN process would not count toward existing industrial country obligations to provide new and additional support for mitigation and adaptation. 

• The World Bank continues to finance resource extraction. A report by the Bank Information Centre shows that Bank lending for fossil fuels saw almost a three-fold increase (282 per cent) from FY05 to FY08 to over US$4 billion.  Although the Bank states that 40% of its FY07 financing for energy projects is for low-carbon projects, these include larger hydro projects (that have demonstrated negative social and environmental effects and contribute to GHG emissions ) and high-efficiency coal plants.  The Bank’s ongoing funding of oil and coal also runs counter to the Extractive Industries Review (EIR). In 2004, the World Bank-commissioned EIR recommended immediately phasing out Bank lending for the coal sector and for the oil sector by 2008.
• The Bank’s support for carbon trading is in its own self-interest. The Bank supports carbon trading as a way of tackling climate change. The Bank currently manages 12 carbon trading funds through its Carbon Finance Unit (CFU), worth approximately $2 billion in contributions. However, a recent report from the Institute of Policy Studies showed that under the scheme the Bank collects, on average, a 13% “overhead” on financing projects to reduce GHG emissions.  So beyond investing in projects that increase GHG emissions, the Bank also earns an income from other projects meant to minimize GHG increases through carbon trading. Furthermore, there is no evidence that carbon trading is even an effective means for reducing GHG emissions.

• Definitions of energy-related terms in the CIFs remain unclear or weak. Terms used by the Bank in describing the goals of the CTF such as “transformational” and “low carbon” remain undefined, resulting in a lack of clarity about the true goals of the CIFs. As noted above, the Bank’s definition of “clean technology” could mean business as usual.
• Funding for adaptation through the Bank’s CIFs will come as loans rather than grants. The UNFCCC is based on the principle of common but differentiated responsibilities, meaning that developed countries, as the primary historical contributors to climate change, are expected to take the lead in reducing their own emissions and to support developing countries in reducing theirs. Asking already indebted countries to borrow money to address a problem created by the North violates UNFCCC principles.
• The Bank’s increased role in climate change financing may increase conditionality. The Bank has stated that funds dispersed through the CIFs will be contingent on recipient countries meeting the conditions set out by the Trust Fund Committees. Eligible countries will be required to submit country investment strategies for review and approval by the Committees prior to receiving CIF funding. Financing “will follow the Bank’s operational policies and procedures for investment lending regardless of whether there is IBRD or IDA co-financing”.  This may lead to more conditions being imposed on developing countries through the CIF, without considering the impacts on development or poverty reduction.