CARBON EXPO 2007 OPENING PANEL Wednesday, May 2, 2007, 11.45am Kristalina Georgieva Director, Strategy and Operations Sustainable Development This fourth Carbon Expo is taking place in a world vastly different from the one that saw our first Expo four years ago. Dealing with climate change is now firmly on the international, national and local agenda. The carbon market is functioning and has the potential of becoming an important instrument to help mitigate climate change. I am personally very happy to see how far we’ve come. The World Bank stepped up to the plate early in the history of the carbon market. In fact, carbon finance in the World Bank has expanded over a period of more than 10 years, from a pioneering role to an increasingly mainstream activity for supporting sustainable development. Having said that, we are now at a juncture where the carbon market is thriving, but has yet to make a real impact on mitigation or emission growth trajectories. We now must take on a more ambitious, challenging goal: moving towards low carbon growth, i.e., de-linking of economic and emission growth rates in all economies. Whereas the first ten years were about institution building, the next ten years must be about addressing the need to reduce emissions aggressively. It is one thing to trade tons of carbon, it is quite a different task to change global development pathways, to change technologies and behaviors that have existed and were successful for a century and more. Meeting this challenge will likely require scaling up and broadening the scope of carbon markets in order to phase out long-term emission-intensive investments and to phase in new, cleaner technologies with a view to ultimately “bend” the emission trajectories that many countries around the world would otherwise follow. As a development institution, the World Bank is directly concerned about climate change and how it affects the development prospects of our client countries. As we move forward, there are three key elements to take into account. - 1.6 billion people still lack access to electricity today. How the developing countries choose to electrify will determine the fate of the Earth.
- Unless the policy framework changes and appropriate instruments are in place to facilitate investments in new technologies, developing countries are expected to follow a carbon intensive development path, similar to that of industrialized nations.
- Almost one-third of the emission reductions that go into the atmosphere come from land use, for example deforestation, forest degradation and agriculture. In any post 2012 regulatory systems we can’t neglect action on deforestation and land use.
To address issues of this magnitude, everyone needs to be involved. Our role at the World Bank Group is to provide technical support to pilot innovative ideas, to work with countries to develop alternative strategies, and to listen and partner with the private sector which is going to provide much of the engine in innovation and financing. I would like to mention some specific areas of focus. First, we are helping developing countries to move to a lower carbon path by exploiting renewable energy resources, supporting energy conservation, and increasing efficiency. - The share of renewable energy and energy efficiency lending by the World Bank Group more than doubled between 1994 and last year, and our total energy lending is also growing. In the last 4 years it has increased from $1.5 billion to $2.5 billion per year.
- We are also working with the Plus-5 countries (Brazil, Mexico, South Africa, India and China) to develop low carbon country scenarios and identify investment options and financing plans.
- In addition, we are beginning to systematically evaluate the GHG emissions from our projects to assess how these emissions (or the carbon footprint if you like) can be reduced.
Another focus of effort needs to be on preventing deforestation. Together with a number of partners, we are developing a forest carbon facility that will explore the use of performance-based payment systems to help countries combat deforestation. Finally, adaptation. Developing countries and particularly the world’s poorest people would be the ones most harmed by changes of climate and extreme weather events such as floods, droughts, heat waves, and rising sea levels. As with other natural disasters, it is often the poor who are hit the hardest and can manage least. The World Bank was among the leaders in addressing adaptation to climate risk; the challenge now is to replicate the lessons we’ve learned more widely. The carbon market has the potential to be a powerful tool for helping the transition to low-carbon development pathways and face the challenges ahead. But there are still a number of hurdles that must be overcome to make that a reality. As I mentioned, there is a need for a longer term approach: - Recognizing that reaching an agreement for the post-2012 period will take time, the World Bank funds have for quite a while now purchased emission reductions beyond 2012.
- But more importantly, the Bank plans to expand its activities in the long-term market and, in cooperation with its client countries, explore how we can use the carbon market to permanently lower global emission trajectories in line with the Bank’s development and poverty alleviation mandate.
- Initial consultations with governments and private companies have indicated a definite appetite for opportunities to more systematically use carbon finance in support of long term investments beyond 2012.
There is also a clear need for scaling up: To move towards low-carbon economic growth requires a significant scaling up of financial flows to developing countries. This is the conclusion of the Investment Framework for Clean Energy and Development, authored by the World Bank and other development banks. This could be achieved partly through the CDM, or through similar instruments in a vibrant global carbon market, in which sector or program-based activities of climate change mitigation provide incentives to the private sector for broad-based emission reductions. And finally, there is need for a truly global market. In the past, the dialogue in the carbon market has been very much driven by developed countries. It is critical that developing countries be more engaged. Indeed, there is no doubt that developing economies and economies in transition have a critical part to play. The opportunities to limit and reduce greenhouse gas emission are huge. However, for these opportunities to be realized and become supply in a market the demand must also be there. Signals of that longer term demand are emerging: for instance the announcements recently made by the EU to reduce its greenhouse gas emissions by 20 percent by 2020 – and more if other countries participate, the nascent market and the many regulatory proposals in the US, the fast growing although still small voluntary market, and others. So, by any measure, the carbon market has been a great success so far – the first truly global, treaty-based attempt to create and employ a market to address a global challenge, an emergency, facing all of humanity and the Earth. The carbon market as it exists today is far from perfect, and far from sufficient. But it has proven to be a viable tool, a tool that has set free the creativity of markets, of inventor-entrepreneurs and large corporations that prefer to be part of the solution rather than the problem. I dare to predict that we have barely seen the beginning of what market forces can do to help solve the climate problem – and at surprisingly low costs -- provided that governments agree to the emission cuts that are necessary to prevent our climate from sliding out of balance. Ideally, a new climate regime should begin on the first of January of 2013 and offer incentives, the horizon of which is counted in decades rather than years. When the World Bank launched the operations of the PCF in 2000, very few would have dreamed that the carbon market would be where it is today. Of course we dreamt. Sometimes dreams do come true, and today, we dare to dream again.
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