WDR 2010 - Frequently Asked Questions

GENERAL
Q. How has the WDR team reached out to constituencies outside the World Bank?
Q. How can I engage on this topic with the World Bank and the WDR team?
Q. How can I obtain a copy of the World Development Report 2010?
Q. Why was the topic of climate change chosen for the 2010 WDR?
Q: The release of the WDR comes just before a significant international negotiation - "Is the Bank pushing a certain agenda?"
Q. How does climate change fit into the current paradigm for development?

ENERGY ACCESS & LOW CARBON GROWTH
Q. What are the trade-offs between energy access in developing countries and the need to switch to lower-carbon growth options?
Q. What is the WBG’s role in providing access to energy in developing countries?
Q. What is the current energy portfolio of the World Bank Group?
Q. What does the WDR say about emissions in the low-income countries of Sub-Saharan Africa?
Q. The WDR is believed to be advocating a significant transformation of the energy sector over the next few decades to address climate change issues. How can this be achieved?
Q. How can the competing objectives of providing reliable and affordable energy services in poor countries be reconciled with worries about rising GHG emissions?
Q. What is the WDR’s position regarding high-carbon energy options for developing countries, particularly coal?
Q. What role does carbon capture and storage (CCS) technology play in reducing greenhouse gas emissions?
Q. What are the implications of building new coal-fired plants in developing countries now?
Q. What does the WDR say about nuclear power to meet the future energy challenge?

ECONOMICS AND FINANCE
Q. There are all these numbers out there on the costs of adaptation and mitigation - what does the WDR provide as an estimate of these costs?
Q. Why are these cost estimates so different? How can we know what the 'real' costs are?
Q. The WDR says that 'new resources' will make climate smart development happen. What happens if these financial resources don't materialize?

FOSSIL FUEL SUBSIDIES
Q. What is the WDR´s position regarding fossil-fuel subsidies in light of the G20´s recently agreed to "rationalize and phase out, over the medium term, inefficient fossil fuel subsidies?
Q. How big are fossil-fuel subsidies from the public sector globally?
Q. Will the removal of subsidies really lower demand for dirty fuel and reduce CO2 emissions? What´s the evidence?
Q. What can be done to cushion poor people from the pain of higher fuel prices?

Q. How has the WDR team reached out to constituencies outside the World Bank?
The team benefited greatly from a wide range of consultations and guidance from a panel of academic advisors and applied researchers on five continents. Meetings and regional workshops with a wide cross-section of cultural and professional backgrounds were held locally or through videoconferencing (using the World Bank’s Global Development Learning Network).

Q. How can I engage on this topic with the World Bank and the WDR team?
Everyone is welcome to engage via the WDR team’s Climate Change blog: http://blogs.worldbank.org/climatechange/

Q. How can I obtain a copy of the World Development Report 2010?
The WDR2010 was launched on September 15, 2009 in Washington and Nairobi. An advance copy of the Overview was made available in printed format to participants at launch events. Draft chapters are currently posted online and the final eBook will be available in mid-November 2009. The print version of the report can be ordered from here and can be shipped in November. The full report will be subsequently translated into Chinese, Spanish, French, Portuguese, Russian, Arabic, Vietnamese, and Bahasa.

Q. Why was the topic of climate change chosen for the 2010 WDR?
Given rising concern about the pace of climate change, there is a crucial need to strengthen our knowledge about adequate response strategies at local, regional, national and international levels and to translate such insights into informed decision-making. It is also important to transcend the tension between development and climate change, since the World Bank’s paramount mission of poverty reduction will grow more complicated in a more hostile climate. It was for these reasons that climate change and development was selected as the focus for this WDR.

Q: The release of the WDR comes just before a significant international negotiation - "Is the Bank pushing a certain agenda?"
Yes, the WDR has an agenda, which is to advocate in favor of development and the constraints and concerns of developing countries to be central to climate change negotiations. As to international negotiations on a new climate change regime, the WBG is neutral to country positions, but generates and communicates knowledge on the impact of climate change in developing countries; contributes to an equitable global solution, and urges developed countries to demonstrate leadership.

Q. How does climate change fit into the current paradigm for development?
The WDR argues that the challenges arising from climate change require climate-smart development. This includes actions and policies to rapidly and effectively decarbonize the global energy system, minimize the costs of climate impacts through adaptation, and harness new opportunities (e.g. solar power in developing countries). Sustainable development is not possible with unmitigated climate change. Tackling climate change without significant costs will require innovation. Indeed, innovation is crucial to growth and development more broadly and the natural progression of industrial upgrading can undoubtedly have a green component.

Climate change is a problem created in the past that require efforts by current generations to adapt to the changes and limit the extent of the problem that will confront future generations - it is a tragedy-of-the-commons with a time lag. Climate change has been called the greatest market failure the world has ever faced. The current financial crisis has variously been called a failure of markets, policy or regulation. Either way, both are highlighting the limits of market and the need for better policy and regulation to cope with these limits.

ENERGY ACCESS & LOW CARBON GROWTH

Q. What are trade-offs between energy access in developing countries and the need to switch to lower-carbon growth options?
Energy is at the heart of the climate change debate. Climate change will directly impact the poor in developing countries. They will suffer first and most from phenomena they have not contributed to creating and are least prepared to deal with. The challenge is to meet the needs of developing countries while also meeting the global imperative for clean energy. There are trade-offs, but also win-wins, such as off-grid solar systems that provide electricity to remote areas. Many lower-carbon options not only provide energy access but also promote development, reduce pollution and provide energy security.

Access to energy is critical for economic growth and, therefore, poverty alleviation. No country in the world has developed its economy without abundant energy supplies. 1.6 billion people in developing countries have no access to electricity. Most live in Africa and South Asia. Without energy, they face very limited or no economic growth. The WDR acknowledges that an appropriate mix of energy supplies based on local opportunities and needs, and a modern and efficient policy and operating environment, are the only solutions to ensure a country’s energy security, economic growth, and climate friendly development.

Q. What is the WBG’s role in providing access to energy in developing countries?
Infrastructure development has been a major role of the World Bank since its founding more than 65 years ago. Helping countries provide their citizens with efficient, affordable, reliable, and clean energy is key to sustainable development and poverty reduction. It is, therefore, key to the mission of the Bank Group.

The challenge for the WBG and the international community is immense: to help developing countries obtain the energy they need without aggravating climate change, and without constraining efforts at growth and poverty reduction. There are no perfect solutions; every initiative involves trade-offs. The key is to put in place innovative international financing that supports low-carbon growth paths. This includes funding for technology transfer and adaptation. Financing and tech transfer will enable developing countries to acquire new, low-carbon energy technologies and improve access to energy without jeopardizing efforts at growth and poverty reduction. To trigger innovation and the diffusion of new cleaner technology, high-income countries need to adopt strong targets, and aggressively move towards reducing their own emissions.

The World Bank Group is a membership-driven organization, representing virtually all countries of the world, and its policies try to address the needs and concerns of all members. Developing countries have their specific sensitivities about possible constraints of a low-carbon strategy on their development. The key is to work with countries in both groups to discuss the trade-offs necessary between facilitating economic growth and poverty reduction, and limiting the impact of climate change.

Q. What is the current energy portfolio of the World Bank Group?
The World Bank Group (WBG) is responding to the global energy challenge – actively, globally, and alongside our client countries. The WBG is growing and transforming its energy operations. By all analyses, all forms of energy will be needed, adapted to individual country circumstances, to help citizens get the energy they need and want. The WBG energy portfolio is increasingly oriented toward renewable energies and energy efficiency (RE/EE). In the fiscal year 2009 (FY09) the WBG energy financing was $8.23 billion. Approximately 76% was for non-fossil fuels: 40% was for RE/EE (including all hydro); 36% was for transmission and distribution systems and services, and policy work/sector reform. The remaining 24% was for fossil fuels, the large majority being natural gas (production and thermal generation). In FY09, RE/EE financing rose to more than $3.3 billion, a record high. RE/EE financing rose 24% above the previous fiscal year. RE/EE was 40% of all energy financing – the highest proportion ever attained.

Q. What does the WDR say about emissions in the low-income countries of Sub-Saharan Africa?
Sub-Saharan Africa (excluding South Africa) contributes 1.5% of global annual energy-related CO2 emissions today, an amount projected to grow to only 2-3% by 2050. Providing basic modern energy services to the poor should be the top priority and will only slightly increase global GHG emissions. But a global clean energy revolution is relevant to low-income countries, which may be able to leapfrog to the next generation of technologies. Clean energy can play a large role in increasing access to energy, and pursuing energy efficiency is a cost-effective short term solution to power outages.

Q. The WDR is believed to be advocating a significant transformation of the energy sector over the next few decades to address climate change issues. How can this be achieved?
To limit global temperatures from rising more than 2˚C, world emissions must come down by 50-80 percent in the coming decades. In the short term they can be drastically reduced by accelerating the deployment of existing technologies in high-emitting countries. But achieving the more ambitious medium-term emissions objectives will require breakthrough technologies. Four future key technology areas are at the core of a solution: energy efficiency, carbon capture and storage, next-generation renewables (including biomass, wind and solar), and possibly nuclear. All four areas need more research, development, and demonstration to determine whether they can be rapidly deployed in the marketplace without adverse consequences. Despite their great promise, both short term and medium term emission reduction strategies face major challenges linked to needed behavioral, institutional and technological changes.

Technological innovation and its associated institutional adjustments are key to managing climate change—at reasonable cost. And strengthening national innovation and technology capacity can become a powerful catalyst for development. High-income economies can replace their stock of high-carbon technologies with climate-smart alternatives while massively investing in tomorrow’s breakthrough innovations. Middle-income countries can ensure that their investments take them in the direction of low-carbon growth and that their firms reap the benefits of existing technologies to compete globally. Low-income countries can ensure that they have the technological capacity to adapt to climate change, by identifying, assessing, adopting and improving existing technologies with local knowledge and knowhow. This can be achieved by building engineering and organizational capabilities through enterprise development.

Q. How can the competing objectives of providing reliable and affordable energy services in poor countries be reconciled with worries about rising GHG emissions?
Energy policies have to balance four competing objectives – sustain economic growth, increase energy access for the world’s poor, enhance energy security and improve the environment – all very challenging. Developing countries need affordable energy that will reach the 1.6 billion people without electricity and the 2.6 billion without clean cooking fuels. Increasing access to electricity services and clean cooking fuels in many low-income developing countries, particularly in South Asia and Sub-Saharan Africa, would add less than 2 percent to global CO2 emissions. Abundant, reliable, and well priced energy is necessary for growth. While the WDR strongly advocates support for low-carbon energy choices, it acknowledges that coal, the most carbon-intensive fossil fuel, is abundant near many high-growth areas in the developing world and provides low-cost and secure energy supplies. Indeed, global coal consumption has grown faster than consumption of any other fuel since 2000, presenting a formidable dilemma for economic growth, energy security, and climate change.

Q. What is the WDR’s position regarding high-carbon energy options for developing countries, particularly coal?
The WDR is a strategic, forward-looking report – it highlights the reality that, until we wean the world from carbon, climate change will continue with dire consequences for all – and particularly so for poorer countries and individuals. It also highlights the fact that substantial resources need to be invested in policy and technological innovation. That is the only way to move the world away from high-carbon paths. This is especially important in developing countries with fast-growing populations where fueling rapid growth will require meeting substantial needs for energy, transport, agriculture and urban development. Given such requirements, innovation is the only way to sustainably achieve a low carbon trajectory compatible with rapid economic growth. Substantial technical and financial assistance will also be needed from high income countries. So the WDR asks the question of how to generate the resources and innovation needed to put the world on a low carbon path, while promoting sustainable development.

In some countries, under some circumstances, there may be no alternative to fossil fuel development. Some countries have few or no prospects for non-fossil fuel energy sources. Botswana, for example, does not have hydro potential or sufficient wind speed to harness those sources of energy. Solar technology is currently far too expensive to produce store, and insufficient for base load power. At the same time, the country sits atop large reserves of inexpensive coal, which it can exploit quickly and cheaply as it faces a short-term energy crisis. The WBG will support countries, on a case-by-case basis, in developing least-cost, lowest-carbon based energy sources – but under strict criteria. Given the impact of the financial crisis and the urgent need to use the most cost-effective means to generate energy to promote growth and reduce poverty, the WBG continues to support a limited number of coal projects in a few countries.

Q. What role does carbon capture and storage (CCS) technology play in reducing greenhouse gas emissions?
Global energy models show that fossil fuels will continue to represent a significant share of the global energy supply during this century. However, to meet future energy demand without warming to climate to dangerous levels, CCS technologies are essential to eventually eliminate carbon emissions from fossil fuel based energy production. Models generally assume that CCS technology will become available and cost-effective in near future, and by the end of the century virtually all the carbon emissions from fossil fuel combustion would be captured and stored underground. To make this a reality, massive investments in R&D are necessary. For CCS to achieve one fifths of the emission reductions needed to limit concentrations to 550ppm, the technology has to ramp up from 3.7 million tons of carbon stored today to more than 255 million tons by 2020 and at least 22 billion tons by 2100 (note that the WDR argues that 450ppm CO2 concentration would yield a 40-50% chance to limit the global temperature increase to 2˚C, and under this scenario CCS would have to be scaled up even faster).

Q. What are the implications of building new coal-fired plants in developing countries now?
New additions of power plants over the next decade will lock in technology and largely determine emissions through 2050 and beyond. This is because the energy capital stock has a long life – it can take decades to turn over power plants. Building to current standards and then retrofitting existing capacity, whether power plants or buildings, would be far more costly than building new, efficient, and low-carbon infrastructure in the first place.

Most models project that fossil fuels would need to drop from 80% of energy supply today to 50-60% by 2050. The future use of fossil fuels (esp. coal) in a carbon-constrained world depends on widespread use of carbon capture and storage (CCS), which would have to be installed in 80-90% of coal plants by 2050. This requires that CCS technology becomes technically and economically feasible for large-scale applications in the next decade or two.

Q. What does the WDR say about nuclear power to meet the future energy challenge?
The WDR reports results of models that show nuclear power would play a significant role. Scenario analysis for a trajectory towards 2˚C warming above pre-industrial levels performed by different models would require 6-12% of emission reductions to come from nuclear energy (compared to a business as usual scenario that would result in warming greater than 5˚C). Without nuclear energy these emissions reduction would have to be offset by other carbon-neutral energy technologies.

Nuclear power is a viable and significant option for mitigating climate change, but it is limited by four problems: higher costs than coal-fired plants, risks of nuclear weapon proliferation, uncertainties about waste management, and public concerns about reactor safety. Current international safeguards are seen as inadequate to meet the security challenges of expanded nuclear deployment. Nuclear power has large requirements for capital and highly trained personnel, with long lead times before it comes on line, thus reducing its potential for reducing carbon emissions in the short term.

ECONOMICS AND FINANCE

Q. There are all these numbers out there on the costs of adaptation and mitigation - what does the WDR provide as an estimate of these costs?
For adaptation, the WDR focuses on the incremental costs incurred by developing countries in 2030, assuming that the world is on a trajectory to limit warming to about 2˚C above preindustrial levels. The WDR reports both peer-reviewed and institutional estimates from the UNFCCC and Economics of Adaptation to Climate Change (EACC, World Bank). For adaptation the median annual estimate in 2030 reported in the WDR is $70 billion (range $30 - $90 billion).

[Updated November 2009] For mitigation, medium-term estimates of costs in developing countries ranges between $140 billion and $175 billion annually by 2030. That is the annual net cost of developing-country mitigation measures to stay on a 2 °C trajectory. But financing needs will be higher as many of the savings from the lower operating costs associated with renewable energy and energy efficiency gains only materialize over time. McKinsey, for example, estimates that while the incremental cost in 2030 would be $175 billion, the upfront investments required would amount to $563 billion (over and above business-as-usual investment needs). McKinsey points out that this amounts to a roughly 3 percent increase in global business-as-usual investments, and as such is likely to be within the capacity of global financial markets (McKinsey 2009).

However, financing has historically been a constraint in developing countries, resulting in underinvestment in infrastructure as well as a bias towards energy choices with lower upfront capital costs. Often such choices ultimately incur higher overall costs. Setting up financing mechanisms for developing countries must therefore be a priority. Estimated annual financing requirements in 2030 range from $265 billion to $565 billion.

What about the longer term? Mitigation costs will increase over time in line with growing population and energy needs—but so will income. As a result, the present value of global mitigation costs to 2100 is expected to remain well below 1 percent of global GDP, with estimates ranging between 0.3 percent and 0.7 percent. Developing countries’ mitigation costs would represent a higher share of their GDP, however, ranging between 0.5 and 1.2 percent.

Note: The mitigation numbers described above are from the final WDR. In the advance version, we did not separate mitigation costs and financing requirements. It is appropriate to differentiate the incremental costs (which will require assistance from high-income countries) from the associated financing requirement (which requires developing financing instruments rather than net new resources).

Q. Why are these cost estimates so different? How can we know what the 'real' costs are?
To arrive at estimates of climate damages, adaptation costs and mitigation costs, analysts must simultaneously model GDP growth, mitigation effort, climate change, damages arising from climate change, and adaptation effort over several decades into the future. Some of the major differences in cost estimates in the literature are driven by different assumptions about climate sensitivity, climate damages, mitigation costs, time frames for analysis, and discount rates. The only way to narrow the range of estimates is to have better data and better models. But some key parameters, such as discount rates, are driven by ethical or normative concerns which are not inherently sensitive to better data or better models.

On adaptation cost estimates specifically, there are at least two other critical issues on which current estimates may differ. First, it is important to decide whether the ‘under-adaptation’ to current climate variability suffered by most developing countries (the so-called adaptation deficit) should be included as part of the cost of climate adaptation – the forthcoming EACC study excludes these costs. Second, the role that economic development plays in determining climate sensitivity, and therefore the need for climate finance, is crucial. Human capital, quality of building and infrastructure stocks, enforcement of zoning and building standards and, more generally, quality of institutions can all play a huge role in reducing the needs for incremental adaptation investments, and all of these tend to be correlated with economic development.

Can these amounts of climate finance be achieved? Yes, but only if there is the political will to deal with the climate problem. This in turn means that there must be broad and deep public support for climate action. Support for climate action is not the same as support for financial transfers to developing countries, however, and it may be that other means of ensuring global action, such as access to technology and capacity building, will also be required.

Q. The WDR says that 'new resources' will make climate smart development happen. What happens if these financial resources don't materialize?
While the WDR doesn’t present a blueprint for the climate financing architecture, it notes that close to $50 billion can be raised through new schemes such as taxing international air and marine fuels, a global carbon tax, and auctioning a portion of Assigned Amount Units (the Kyoto emission caps given to developed countries). A reformed Clean Development Mechanism (CDM) could generate further tens of billions a year. So there is still a major financing gap which needs to be filled – either through fiscal transfers from high income to developing countries, or through a generous allocation of AAUs to developing countries in any future climate agreement where all countries have emission caps.

FOSSIL FUEL SUBSIDIES

Q. What is the WDR´s position regarding fossil-fuel subsidies in light of the G20´s recently agreed to "rationalize and phase out, over the medium term, inefficient fossil fuel subsidies?
The WDR is strongly in favor of reforming fossil-fuel subsidies and welcomes the G20´s new commitment to phase out those that are particularly inefficient. The WDR says subsidy reforms could reduce energy demand, encourage the supply of clean energy and in some cases lower CO2 emissions. However blanket subsidy removal isn´t always advisable – for example, it would be unwise to remove targeted natural gas subsidies if it risked forcing people to rely more heavily on coal.

Falling energy prices in the wake of the financial crisis provide a unique opportunity to implement programs to rationalize fossil-fuel subsidies in emerging economies and adopt fuel taxes in advanced economies in ways that are politically and socially acceptable. See below for a discussion of how the removal of fossil fuel subsidies can be compatible with improving energy access and affordability for the poor.

Q. How big are fossil-fuel subsidies from the public sector globally?
Many countries channel public subsidies, implicit and explicit, to fossil fuels, distorting investment decisions for clean energy. In the 20 highest-subsidizing non-OECD countries, subsidies to petroleum products add up to some $150 billion annually; energy subsidies to around $310 billion a year –representing about 0.7 percent of world GDP in 2007. The lion´s share of the subsidies is used to lower the prices of fossil fuels, providing disincentives to save energy and making clean energy less attractive financially.

Q. Will the removal of subsidies really lower demand for dirty fuel and reduce CO2 emissions? What´s the evidence?
Yes. Higher energy prices induce substantially lower demand and removing fossil fuel subsidies in power and industry could reduce global CO2 emissions by as much as 6 percent a year and add to global GDP. Research suggests that if Europe had followed the U.S. policy of low fuel taxes, its fuel consumption would be twice as large as it is now.

European countries used the 1974 oil crisis to introduce high fuel taxes. As a result, fuel demand is about half what it likely would have been had prices been close to those in the United States. Similarly, electricity prices are twice as high in Europe as they are in the United States and electricity consumption per capita is half. Prices help explain why European emissions per capita (10 tons of CO2e) are less than half those in the United States (23 tons).

Q. What can be done to cushion poor people from the pain of higher fuel prices?
Fuel subsidies are often justified as protecting poor people, even though, all too often, most of the subsidies go to better-off consumers.

Effective social protection targeted at low- income groups, in conjunction with the phased removal of fossil- fuel subsidies, can make reform politically viable and socially acceptable. It is also important to increase transparency in the energy sector by requiring service companies to share key information, so that the governments and other stakeholders can make better- informed decisions and assessments about removing subsidies.

For example, Colombia and Turkey have recently used safety nets to facilitate the removal of fossil-fuel subsidies. Cash transfer payments following the removal of subsidies must be carefully targeted to ensure that the poor are reasonably compensated. Careful planning, detailed options analysis, and design of the cash transfer program are critical for success.

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