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  Climate change is both a development and environmental issue. A global consensus is emerging that climate change is an issue that cannot wait and needs to be addressed sooner rather than later.
• Today there is a double challenge: how to reduce damaging carbon emissions and still meet the energy demands of the world’s poor. The World Bank focuses on the additional economic and social opportunities that a low carbon path creates.
• Countries trying to escape from poverty should not be penalized for the consequences of fossil fuel dependent growth patterns in the rich countries. Their development aspirations should be at the center.
• A global regulatory framework, which would provide the necessary financial flows to developing countries, is needed. This framework should match the long-term need for energy for development with the necessary technical innovation and financial incentives to move consistently towards a low carbon economy.

The Poor Are Disproportionately Affected

Developing countries are more vulnerable to climate change than rich countries, with poor people being the most at risk from the increased impacts of volatility in weather patterns (i.e., floods and droughts). Human-induced climate change is expected to negatively impact agricultural productivity throughout the tropics and sub-tropics, decrease water quantity and quality in most arid and semi-arid regions, increase the incidence of malaria, dengue and other vector borne diseases in the tropics and sub-tropics, and harm ecological systems and their biodiversity. In addition, the sea level rise associated with expected increases in temperature could displace tens of millions of people living in low-lying areas, such as the Ganges and the Nile deltas, and could threaten the very existence of small island states.

The Clean Energy Investment Framework (CEIF)

The G8 Gleneagles Summit in Scotland two years ago asked the World Bank to produce a roadmap for accelerating investments in clean energy for the developing world, in cooperation with the other international financial institutions.

The Clean Energy Investment Framework (CEIF) identifies the scale of investments needed to:

• increase access to energy, especially in Sub-Saharan Africa;
• accelerate transition to a low carbon economy; and
• adapt to climate variability and change.

According to the Framework, the power sector needs $165 billion in investments each year this decade. Only about half of that is financed. Tens of billions of US $ per year are also required to cover the incremental costs of transitioning to a low carbon economy. The added costs of climate proofing projects associated with aid and concessionary finance to developing countries will amount to a few billion a year, while the total costs born by developing country public and private sectors is likely to be some tens of billions per year.

A Clean Energy for Development Investment Framework: Making a Difference on Climate Change - Progress Report, which provides an update of work undertaken to date as well as actions planned by the World Bank Group in support of the CEIF, will be a background paper for discussion in the Development Committee at the World Bank - IMF Annual Meetings in October 2007.

Towards a Low Carbon Development Path

Moving to a low carbon path will require a long-term equitable global regulatory framework to reduce greenhouse emissions - a framework:

• in which rich countries show leadership by supporting developing countries in exchange for the global benefit of greener, smarter growth;
• that provides certainty to stimulate research and development in transformational technologies; and
• that allows carbon markets to thrive and bring financial flows to developing countries to the tune of $100 billion within a few decades.1 According to Yvo de Boer, Executive Secretary of the United Nations Framework Convention on Climate Change (UNFCCC), these financial flows could go a very long way towards addressing climate change in developing countries.2

The World Bank's Approach to Clean Energy & Climate Change

The World Bank Group is focusing its efforts on four fronts.

• Helping developing countries to move to a lower carbon path by exploiting renewable energy resources, supporting energy conservation, and increasing efficiency. The World Bank's energy commitments for fiscal years 2006-2008 are expected to exceed $10 billion over the three year period, an increase of about 40 percent as compared to the previous three year period. The Bank committed $668 million in fiscal year 2006 to new renewable energy and energy efficiency projects. This is an increase of 45 percent when compared to 2005 commitments.
• Promoting new technologies. Some of those, like carbon capture and storage (CCS), address the need to reduce the carbon impact of fossil fuels. They are essential in countries like India and China that still depend heavily on coal. As part of its broader work on bio-energy, the Bank is looking at the feasibility and economic viability of bio-fuel programs in developing countries.
• Preventing deforestation. Around 20 percent of greenhouse gas emissions result from poor land management, especially deforestation, which not only threatens the environment it also destroys wildlife and erodes the natural wealth of the poor. Together with its partners, the World Bank is developing a forest carbon partnership facility that will help countries combat deforestation and be rewarded with carbon finance credits.
• Adaptation to climate risks. Developing countries and particularly the world 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. The World Bank was among the leaders in addressing adaptation to climate risk through technical analysis of risk management and by pioneering insurance work in the Caribbean, in Latin America, and in South Asia. The challenge now is to replicate these lessons more widely, especially in Sub-Saharan Africa and the Pacific Islands.

Global Gas Flaring Reduction (GGFR)

Through the Global Gas Flaring Reduction (GGFR) partnership, the World Bank is helping oil producing countries and companies to increase the utilization of natural gas, which will otherwise be flared or burned and thus will harm the environment. The GGFR partnership estimates that about 150 billion cubic meters of gas is flared every year (equivalent to about 30 per cent of EU's annual consumption of gas and 25 per cent of US's consumption), releasing about 400 million tonnes of CO2. In today's context of sustainable development, gas flaring reduction efforts are thus not only relevant but also viable and desirable.

Carbon Finance at the World Bank

The World Bank was a pioneer in the carbon market. The Bank's operational engagement in carbon finance started with the establishment of the $180 million Prototype Carbon Fund (PCF) in 1999. This was rapidly followed by the establishment of other funds and facilities as the Kyoto Protocol was ratified. Today, the World Bank manages just over $2 billion across 10 carbon funds and facilities. Sixteen governments and 65 private companies from various sectors have made financial contributions to these funds.

The funds and facilities include the PCF; the Community Development Carbon Fund (CDCF), which extends carbon finance to small poorer countries and communities; the BioCarbon Fund (BioCF), which applies carbon finance to forestry and land use projects; the Netherlands (Clean Development Mechanism (CDM) and Joint Implementation (JI) (*) Facilities; the Italian Carbon Fund; The Spanish Carbon Fund; the Danish Carbon Fund; the Umbrella Carbon Facility; and the Carbon Fund for Europe, launched in March 2007.
While the Bank's initial role was to catalyze the global market for carbon emission reductions, carbon finance is now emerging into the mainstream of the Bank's lending program. In December 2005, the Executive Directors endorsed the Bank's approach for further engagement in carbon finance, focusing on three clear objectives - to:

• ensure that carbon finance contributes to sustainable development;
• assist in building, sustaining, and expanding the international market for carbon emission reductions; and
• further strengthen the capacity of developing countries to benefit from the emerging market for emission reduction credits.

Operationally, the carbon finance program essentially supports the objectives of the second pillar of the Investment Framework for Clean Energy and Development, by providing incentives for transitioning to a low-carbon economy in the Bank's client countries.

(*) The Clean Development Mechanism, (CDM) and Joint Implementation (JI) are flexible mechanisms under the Kyoto Protocol that allow OECD countries to fulfill some of their greenhouse gas emission-reduction commitments through projects in the developing world (CDM) and countries with economies in transition (JI) . .