Findings

But there is no significant trade- off between climate change mitigation and energy access for the poorest. Basic electricity services for the world's unconnected households, under the most unfavorable assumptions, would add only a third of a percent to global GHG emissions, and much less if renewable energy and efficient light bulbs can be deployed. The welfare benefits of electricity access are on the order of $0.50 to $1 per kilowatt-hour, while a stringent valuation of the corresponding carbon damages, in a worst-case scenario, is a few cents per kilowatt-hour.

Country policies can shape a low-carbon growth path. Although there is a strong link between per capita income and energy-related GHG emissions, there is a sevenfold variation between the most and least emissions-intensive countries at a given income level. Reliance on hydropower is part of the story behind these differences, but fuel pricing is another. High subsidizers-those whose diesel prices are less than half the world market rate-emit about twice as much per capita as other countries with similar income levels. And countries with long-standing fuel taxes, such as the United Kingdom, have evolved more energy-efficient transport and land use.

Energy subsidies are large, burdensome, regressive, and damage the climate. The International Energy Agency's 2005 estimate of a quarter-trillion dollars in subsidies each year outside the Organisation for Economic C-operation and Development (OECD) may understate the current situation. While poor people receive some of these benefits, overall the benefits are skewed to wealthier groups and often dwarf more progressive public expenditure. Fuel subsidies alone are 2 to 7.5 times as large as public spending on health in Bangladesh, Ecuador, Egypt, India, Indonesia, Morocco, Pakistan, Turkmenistan, Venezuela, and Yemen. At the same time, subsidies encourage inefficient, carbon-intensive use of energy and build constituencies for this inefficiency.

The Bank has supported more than 250 operations for energy pricing reform. Success has been achieved in the transition countries-in Romania and Ukraine, for example, where energy prices were adjusted toward market levels, and the intensity of carbon dioxide emissions dropped substantially. Subsidy removal can threaten the poor, however. Recent efforts to assess poverty and welfare impacts systematically appear to have informed the design and implementation of price reform efforts, though not necessarily with direct Bank involvement. Examples include Ghana and Indonesia, where compensatory measures were deployed in connection with fuel price rises.

The Bank has rarely coordinated efficiency improvements with subsidy reductions to lighten the immediate adjustment burden on energy users. An exception is the China Heat Reform and Building Efficiency Project, which links improved insulation with heat pricing. A growing number of projects sponsor nationwide distribution of compact fluorescent light bulbs, but this has been done in response to power shortages (Rwanda, Uganda) or to stanch utility losses (Argentina, Vietnam), rather than to facilitate subsidy reduction.

Despite emphasis on energy efficiency in Bank statements and in Country Assistance Strategies (CASs), the volume and policy orientation of IBRD/IDA efficiency lending has been modest. Although the IFC has recently increased its investments in energy-efficiency projects, World Bank commitments for efficiency have been about 5 percent by value of energy finance over 1991-2007. This includes investments in demand-side efficiency and district heating, and may also include some supply-side efficiency investments. By this definition, about one in ten projects by number involve energy efficiency. Including a broader range of projects identified by management as supporting supply-side energy efficiency would boost the proportion above 20% by number over the period of 1998-2007. Globally only about 34 projects undertaken over the 1996-2007 period had components oriented to demand-side energy-efficiency policy. Among these, many attempts to promote efficiency have had limited success because the Bank has engaged with utilities, which have limited incentives to restrict electricity sales.

There are several reasons why end-user energy efficiency projects, and especially policy-oriented projects, appear to be under-emphasized in the Bank's portfolio. The Bank has carried out some successful and innovative efficiency projects. But internal Bank incentives work against these projects because they are often small in scale, demanding of staff time and preparation funds, and may require persistent client engagement over a period of years. There is a general tendency to prefer investments in power generation, which are visible and easily understood, to investments in efficiency, which are less visible, involve human behavior rather than electrical engineering, and whose efficacy is harder to measure. A general neglect of rigorous monitoring and evaluation reinforces the negative view of efficiency.

The Bank-hosted Global Gas Flaring Reduction Partnership (GGFR) has fostered dialogue on gas flaring, but it is difficult to assess its impact on flaring activity to date. Associated gas (a by-product of oil production) is often wastefully vented or flared, adding more than 400 million tons of carbon dioxide equivalent to the atmosphere annually, or about 1 percent of global emissions. A modestly funded public-private partnership, the GGFR has succeeded in highlighting the issue, promoting dialogue, securing agreement on a voluntary standard for flaring reduction, and sponsoring useful diagnostic studies. But only four member countries have adopted the standard. The GGFR has emphasized carbon finance as a remedy for flaring, but the use of project-level carbon finance is a mere bandage for policy ailments that require a more fundamental cure.