In the past few years, the World Bank has redoubled its efforts to promote sustainable economic development by identifying two goals that can help measure progress towards this objective: to end extreme poverty by 2030 and promote shared prosperity. Importantly, the institution aims to achieve these goals through an emphasis on all three pillars of sustainability (economic, environment, and social), thereby securing the future of the planet and its resources, promoting social inclusion and limiting the economic burdens we pass on to future generations.
There is no doubt that growth is necessary to lift the 1.2 billion people who continue to live with hunger out of extreme poverty but it must be efficient in its use of natural resources, clean in minimizing environmental impacts and resilient in managing and reducing risks from natural hazards. Recognizing this imperative, in 2012, the World Bank released the report Inclusive Green Growth, which argued that current patterns are not only unsustainable but also simply inefficient.
One of the key messages to emerge from the report is that greening growth is necessary, efficient and affordable. It is critical to achieving sustainable development and mostly amounts to good growth policies. As countries grow and urbanize, there are significant opportunities to design energy, transportation and agricultural systems in a way that promotes prosperity while limiting environmental impacts. The way forward is to focus on actions that need to be taken in the next five to ten years that can generate immediate benefits while also avoiding irreversibility and locking in unsustainable paths. The science is unequivocal that previous growth trends have already committed us to significant climate change. The question is no longer whether we need to green our growth, but how.
In a new report, Decarbonizing Development: Three Steps to a Zero Carbon Future, the World Bank focuses on how to operationalize one of the key aspects of green growth (clean growth): achieving full decarbonization. As long as we emit more carbon dioxide (CO2) than we capture or offset through carbon sinks, the planet’s average temperature will continue to rise. Successfully stabilizing climate change at or near 2oC, as agreed by global leaders, will require reducing net emissions of CO2 to zero before the end of this century.
Bringing net emissions to zero will require efforts on four fronts: (i) decreasing the carbon intensity of global electricity production to zero by 2050, (ii) increasing the use of this low carbon electricity and switching away from fossil fuels – particularly in the transport, building and industry sectors, (iii) boosting energy efficiency and minimizing loss and waste, of food in particular, and (iv) preserving and increasing natural carbon sinks through reforestation or better soil management, for example. Improving energy efficiency and public transportation could increase global output by over $1.8 trillion per year all the while tackling climate change (Adding up the Benefits Report 2014). How countries move on these fronts will depend on their individual contexts and characteristics but there are three steps that all countries can take to ensure a successful transition to decarbonization.
What we do now depends on the end goal
First, all countries must plan ahead with an eye on the end goal of achieving carbon neutrality. The policy mix needed in the short term will vary depending on whether the final target is to reach a level of emission reduction in the short term or whether a given short term target is a step towards zero net emissions. A view for the long term will help countries prioritize the most urgent sectors and interventions and tackle more ambitious actions early on without being shortsighted so as to avoid carbon-intensive lock-ins and greater expense in the future.
All countries can take advantage of opportunities to act now and reap immediate co-benefits. A lot of the infrastructure in developing countries still remains to be built which provides opportunity to plan better infrastructure and develop with a mind on the carbon footprint. Developed countries have a comparative advantage in taking the lead to invest in new technologies.
The importance of monitoring progress cannot be stressed enough and the World Bank works closely with its client countries to ensure that country partnership frameworks and Bank operations incorporate climate and disaster risk considerations. In addition, the institution is working on developing measures of resilience at the national and project levels to provide clients with the tools to assess their carbon footprint.
Prices and more
Second, it is important to get prices rights and build complementary packages that are acceptable, credible and effective so as to enable the transition towards decarbonization. Getting energy prices right entails removing harmful fossil fuel subsidies – a whopping $548 billion in 2013 – and introducing a price on carbon starting at different levels dependent on countries’ contexts. Not only does pricing carbon provide environmental benefits, but it also allows for an efficient means to raise revenue – due to low tax evasion rates.
Policy packages are also essential to complement carbon prices and incentivize the right behaviors, spur innovation and harness the financing needed for green infrastructure and technology, or substitute for carbon pricing where it is not possible or simply ineffective. These complementary policies can ensure that the needed technologies are invented and deployed at scale through instruments like performance standards, fiscal instruments (feebates), mandates and trade policies that facilitate access. Unlocking financing potential for low carbon investment is particularly urgent given the significant financing gap many countries face, due not to high costs of action, but to a lack of adequate financial instruments.
The World Bank strives to address this gap through a number of innovative means. Working with partners, the institution has mobilized $8 billion in Climate Investment Funds to be provided in scaled up financing through multilateral development banks. Green financial products – such as green bonds – help mainstream low-carbon investments, connect project developers with potential investors and overcome behavioral bias towards conventional investments. With more than $36 billion in new issuances in 2014, the green bond market is growing rapidly and the World Bank Group is among the world’s largest issuers with over $8.2 billion issued by International Bank for Reconstruction and Development (IBRD) and $3.7 billion by the International Finance Corporation (IFC). In addition, as trustee to 15 carbon finance funds, the institution has supported over 145 projects in 70 client countries which have reduced an equivalent of 187 million tons of CO2 emissions since 2000.
Protecting the poor and avoiding the potential pitfalls of reform
Finally, the transition to a zero-carbon future must be managed to avoid concentrated losses and the pitfalls of reform and ensure that the poorest households benefit. Successfully stabilizing climate change will require ensuring that decarbonization measures contribute to economic development and sustainable poverty eradication. Strong safety nets, cash transfers, in-kind measures and targeted policies can ensure that low carbon growth policies benefit and protect the poor. Phased regulations and compensation schemes that are clear, transparent, flexible and as predictable as possible can help avoid concentrated losses and smooth the transition towards full decarbonization. Communication is key as the political acceptability of reforms relies not only on their impact but also on the perception of impact.
Decarbonizing development is a step forward in operationalizing green growth and achieving more sustainable development. With over 224 climate investment projects in over 77 countries during its 2014 fiscal year, the World Bank Group continues to advocate for, drive, and support global action towards full decarbonization. There will be no sustainable development if we are not successful in achieving full decarbonization and we simply cannot wait any longer. Countries must act now to clean their growth so as to progress towards a more efficient, resilient, greener growth.