WRI Publications

World Resources 2008: Roots of Resilience - Growing the Wealth of the Poor

Stephanie Hanson — Fri, 25 Jul 2008 18:08:14 -0400

World Resources Report 2008 continues the focus of the World Resources report series on poverty and the environment.

The reality of global poverty is that it is rural and it is persistent: three-quarters of the 2.6 billion people living on less than $2 per day—almost 2 billion—live in rural areas; that number is virtually unchanged in 20 years.

World Resources 2008 argues that successfully scaling up environmental income for the poor requires three elements:

Ownership–a foundation of good governance that both transfers to the poor real authority over local resources and elicits local demand for better management of these resources.
Capacity–making good on this demand requires building local capacity for development-in this case, the capacity of local communities to manage ecosystems competently, carry out ecosystem-based enterprises, and distribute the income from these enterprises fairly.
Networks–the third element is establishing adaptive networks that connect and nurture nature-based enterprises, giving them the ability to adapt, learn, connect to markets, and mature into businesses that can sustain themselves and enter the economic mainstream.

The result is communities with increased resilience: economic, social and environmental.

Such outcomes take on added import as it becomes increasingly clear that the impacts of climate change are likely to have their biggest effect on those areas where most of the world’s poor live: drylands, low-latitude geographies and high-stress watersheds.

Plants at the Pump: Reviewing Biofuels' Impacts and Policy Recommendations

Tim Herzog — Wed, 23 Jul 2008 17:07:40 -0400

As biofuels become a larger part of the social, economic, and environmental strategies of countries around the world, standards and regulations are needed to ensure that biofuels do in fact reduce greenhouse gas (GHG) emissions and promote sustainable development.

In a world of rapidly rising GHG emissions and growing unease about imported oil, the appeal of renewable fuels is growing apace. Biofuels — liquids produced from plant matter that can substitute for gasoline or diesel fuel—have become a hot topic from Capitol Hill to Silicon Valley. Despite their promise, however, recent research suggests that most of today’s biofuels increase GHG emissions compared to gasoline or diesel fuel. These increases in greenhouse gas emissions primarily result from land-use changes associated with growing crops for biofuels. The scale-up of biofuels to meet market demands for alternative fuels should therefore be examined further for its impacts on greenhouse gas emissions.

Greenhouse gas emissions concerns, coupled with rising global food prices, have called into question biofuels policies, and some of the “silver bullet” sheen has begun to wear off. Policy makers should understand that the term “biofuels” covers a range of products with varying potentials to achieve energy, climate, transportation, or agricultural policy aims. A key policy question, then, is how to ensure that biofuels do not cause greater harm than good. Policy makers should:

Use technology-neutral policies, as opposed to technology-specific policies such as biofuel subsidies, to drive fuel choices in relation to desired policy goals (e.g., greenhouse gas reductions, energy security, and other social and environmental priorities).
Design methodologies for calculating the sustainability benefits of fuel options and incorporate these calculations into energy, climate, agricultural, land use, and trade policy.
Design certification programs to avoid “exporting” negative impacts of biofuels production to other producing countries where regulation is not yet in place.
Recognize that biofuels alone will not provide low-carbon transportation solutions needed to address climate change. Policy support for other mobility options, such as increased efficiency in the immediate term, or electricity for vehicle propulsion accompanied by an aggressive rise in zero-carbon power generation, should be explored. Addressing emissions from transport will ultimately require rethinking how cities are designed and must include an aggressive push toward improved public transportation.

The Bottom Line Series: Carbon Taxes

Payson Schwin — Thu, 03 Jul 2008 14:45:02 -0400

What is a carbon tax?

A carbon tax is a fee imposed on fossil fuels, and other primary products (e.g., refrigerants), based on the amount of greenhouse gases (GHG) they emit. A carbon tax places a fee on coal, for example, based on the amount of carbon dioxide (CO2) that is released when coal is burned. The tax creates a cost for emitting GHGs into the atmosphere (for example, $25/metric ton of CO2-equivalent) and in doing so provides a financial incentive for reducing GHG emissions. A carbon tax policy may also include tax credits for activities that remove GHGs from the atmosphere.

How is a carbon tax different from a cap-and-trade program?

A carbon tax and a cap-and-trade program are similar in that both policy approaches are market-based and create a carbon price that provides the financial incentive to reduce GHG emissions. The fundamental difference between the two approaches is how they establish this price and reduce emissions. A carbon tax imposes a direct fee (the carbon price) on fuels based on the amount of GHGs they emit, but does not set a limit on GHG emissions. A cap-and-trade program establishes a limit, or “cap,” on GHG emissions, but the price for emission allowances (the carbon price) is determined by the supply and demand for allowances in the emissions trading market.

Who has to pay a carbon tax?

Point of regulation for a carbon tax policy can vary, but a tax would likely be imposed on the sale of fuel from “upstream” producers, such as coal mines or natural gas and oil wells. Depending on the ability of the initial consumers (e.g., electric utilities, oil and gas refineries, and fuel transporters) to pass along costs to their own customers, the carbon tax raises prices that “downstream” consumers (i.e., businesses and households) ultimately pay for carbon-intensive goods and services.

How does a carbon tax impact other businesses and individuals?

Companies and individuals pay higher prices for GHG-intensive energy (and other goods and services) as the costs of a carbon tax are passed down to consumers. The extent to which these higher energy prices impact the overall income of companies and individuals depends on how the tax revenues are used. The overall impact on a company also depends on how much fossil fuel-based energy it uses, how higher energy prices affect their business, and a company’s ability to either minimize or avoid increasing costs (e.g., by using fuel more efficiently or using cleaner fuels) and/or pass along costs to its customers.

For example, a carbon tax policy might lessen overall economic impacts on consumers by including provisions to make the carbon tax “revenue neutral.” This involves returning the carbon tax revenues to businesses and individuals through rebates or changes in the tax code (e.g., reducing corporate or capital gains taxes). A carbon tax policy might also direct revenues to fund programs that provide longer-term benefits to consumers and businesses, such as research and development programs or transportation infrastructure.

How high does a carbon tax have to be to effectively reduce GHG emissions?

It is difficult to determine the exact impact a carbon tax is expected to have on GHG emissions. Achieving the necessary GHG emission reductions depends on whether a carbon tax raises prices to a point that significantly curbs consumer demand for fuels and products that emit GHGs and spurs development and deployment of low-GHG technologies. Market responses to higher prices, however, can vary for different goods and services. For example, a carbon tax may increase gasoline prices to a point where consumers choose to use less gasoline and/or switch to less GHG-intense fuels, but the consumer response (and therefore the associated GHG emissions) may be different for other goods and services (e.g., electricity). Overall GHG emission reductions with a carbon tax will also depend on the extent to which tax revenues are used to fund research or programs that achieve additional emission reductions.

How does a carbon tax impact lower-income consumers?

The overall impact of a carbon tax on lower-income consumers depends on how the tax revenues are handled. A basic carbon tax, like most consumption taxes, is regressive lower-income consumers pay a relatively higher percentage of their total income for goods and services affected by the tax. Some carbon tax programs seek to address this by “recycling” tax revenues to fund rebates or programs (e.g., Earned Income Tax Credits or energy efficiency upgrades), or allow reductions in other regressive taxes, such as state sales taxes or federal payroll taxes.

How does a carbon tax affect international competitiveness of U.S. industries?

Impacts to an industry largely depend on the level of the tax, how tax revenues are recycled, how much energy the industry uses, and the industry’s competitive position in domestic and international markets. The overall affect on competitiveness will therefore differ by sector, and by firm, as the tax could adversely affect some individual industries and have limited impacts on other sectors. Some argue a tax would disadvantage domestic manufacturers by creating a significant cost penalty for doing business in the United States, but others argue a carbon tax encourages new innovations and efficiencies that benefit long-term competitiveness.

Have other countries implemented a carbon tax?

Beginning in the 1990s, Sweden, Finland, the Netherlands, and Norway implemented carbon taxes as part of efforts to reduce GHG emissions. Similar policies, focused on taxing energy use, are in place or under discussion in other European countries and Japan. Most recently, the Canadian Province of British Columbia established a tax on fossil fuels that starts at C$10 (approximately US$9.80) per metric ton of CO2-equivalent and increasing to C$30 (US$29.35) per metric ton by 2012. The tax is “revenue neutral” as revenues generated will be returned to consumers through tax credits, rebates, and lower corporate and personal income taxes.

For additional information on international experience with carbon taxes, see the Organization for Economic Co-operation and Development’s resources on Energy Prices and Taxes at www.oecd.org or search “Energy/carbon taxes” at www.epa.gov for a summary by the U.S. Environmental Protection Agency.

What are the political prospects for a carbon tax in the United States?

Proposals for a carbon tax, as with other proposals for new taxes, have been politically sensitive in the United States. However, there are limited examples of carbon tax policy approved at municipal levels, including a recent measure to impose a fee of $0.044 per metric ton of CO2 emitted by businesses in the San Francisco Bay Area. In terms of national policy, there have been various proposals over the past two decades to create a national carbon tax (or a similar tax program). The Clinton Administration was unsuccessful in its efforts to implement a “BTU tax” in 1993, which was not a carbon tax, but an energy tax based on the heat content of fuels (as measured in British thermal units or BTUs). More recently, in 2007, two carbon tax bills were proposed in the House of Representatives. None of these proposals have gained sufficient political support and legislative debate to date has focused primarily on cap-and-trade policy.

Additional References

Acknowledgments

WRI would like to thank our many internal and external reviewers for providing feedback on drafts of various issues in The Bottom Line series. WRI also wishes to thank the following foundations that support our climate and business engagement activities and help make this series possible:

Emily Hall Tremaine Foundation
Richard and Rhoda Goldman Fund
Robertson Foundation
UK Global Opportunities Fund
WestWind Foundation

The Bottom Line Series: Cap-and-Trade

Payson Schwin — Thu, 03 Jul 2008 14:28:34 -0400

What is a cap-and-trade program?

A cap-and-trade program sets a maximum limit, or a “cap,” on
greenhouse gas (GHG) emissions from those facilities and sectors
covered by the regulation. An emitter covered by the cap
has two primary obligations:

The emitter must measure, monitor, and report emissions.
At the end of each compliance period, the emitter must have enough allowances to cover its reported emissions (an allowance is a permit that allows the holder to emit a specified amount of greenhouse gas emissions).

The cap limits the total amount of allowances available. This scarcity creates a market price for the allowances based on supply and demand. Regulated emitters may buy and sell allowances, so companies that can cheaply or easily reduce emissions can sell allowances to other companies for which such reductions are more expensive or difficult. This flexibility lowers overall compliance costs by allowing companies to pursue the most cost-effective emission reduction options.

Who is regulated under a cap-and-trade program?

Cap-and-trade programs can have differing scopes of coverage. Some existing programs cover one sector, such as the electric power sector. Other programs and policy proposals cover multiple sectors. Different policy proposals also specify different points of regulation, focusing on “upstream” emission sources, “downstream” emission sources, or some combination of the two. A cap-and-trade program focused on upstream sources regulates energy producers, suppliers, and transporters, such as oil and gas companies, coal mining operations, petroleum refineries, and fuel shippers/importers. A cap-and trade program focused on downstream sources regulates emissions at the point of combustion or use (i.e., at the “smokestack” level). Because of the vast number of downstream sources and the associated administrative cost and complexity, regulated downstream sources are often limited to large-scale emitters, such as fossil fuel-fired power plants and energy-intensive industrial sources.

How does a cap-and-trade program impact companies that are not directly regulated?

Regardless of the point of regulation, a cap-and-trade program is designed to impact a wide range of businesses by creating a market driver for GHG reductions. A carbon price created by a cap on emission allowances results in higher costs for fossil fuel energy use and other GHG-emitting activities, which encourages greater use of cleaner energy or processes. The impact on a company depends on their energy demand, sensitivity to high energy prices, and ability to either minimize or avoid increasing costs (e.g., by using fuel more efficiently or using cleaner fuels) and/or pass along costs to consumers. These energy costs will likely also be reflected in increased prices for energy-intensive products and services, such as electricity and transportation. In general, a carbon price will result in competitive advantages for companies that minimize or avoid exposure to higher fossil fuel energy costs and take advantage of new markets for energy-efficient or low-GHG products and services.

How are allowances and revenues distributed in a cap-and-trade program?

Allowances can be distributed directly to regulated facilities or sectors and/or non regulated parties (see Allocation definition in Issue #1 on Climate Policy Terminology). Depending on the policy design, some or all allowances may be distributed through an auction, which generates revenue for the government. This revenue stream can be used for a variety of purposes. For example, some policy proposals use revenues to fund research and development programs or minimize economic impacts on consumers through direct rebates or energy efficiency programs.

How do current legislative proposals compare to one another?

There have been several proposals to establish a cap-and-trade program for U.S. GHG emissions. A brief summary and analysis of GHG reduction targets in federal legislative proposals can be found here: http://www.wri.org/publication/usclimatetargets

Who would administer a national cap-and-trade program for U.S. GHG emissions?

Under most federal legislative proposals, the U.S. Environmental Protection Agency would be in charge of administering a cap-and-trade program for GHGs. It should be noted, however, that policy proposals can vary in terms of the regulatory authority granted to various federal agencies and the flexibility provided for program implementation.

How is a cap-and-trade program different from a carbon tax?

A cap-and-trade program and a carbon tax are similar in that both policy approaches are market-based and create a carbon price that provides a financial incentive to reduce GHG emissions. The fundamental difference between the two approaches is how they establish this price and reduce emissions. A cap-and-trade program establishes a limit, or “cap,” on GHG emissions, but the price for emission allowances (the carbon price) is determined by supply and demand for allowances in an emissions trading market. A carbon tax, conversely, imposes a direct fee (the carbon price) on fuels based on the amount of GHGs they emit, but does not set a limit on GHG emissions.

What are some examples of existing cap-and-trade programs?

There are several examples of cap-and-trade programs that seek to reduce harmful air emissions. The Clean Air Act Amendments of 1990 established a national cap-and-trade program for sulfur dioxide (SO2) emissions in the United States to reduce acid rain. In the Northeast United States, a regional cap-and-trade program was implemented to reduce nitrogen oxide (NOx) emissions. That program was later succeeded by a larger federal cap-and-trade program covering most of the eastern United States.

Cap-and-trade programs that cover GHG emissions include the European Union Emissions Trading Scheme (EU-ETS) which regulates carbon dioxide (CO2) emissions from 11,500 energy-intensive installations in 25 countries. In the United States, 10 states are participating in the Northeast Regional Greenhouse Gas Initiative (RGGI) to reduce CO2 emissions from the electric power sector. There are also other GHG cap-and-trade programs emerging at the state and regional level, including seven states (and three Canadian provinces) participating in the Western Climate Initiative, and six states (and one Canadian province) participating in the Midwest Regional GHG Reduction Accord. Future issues in WRI’s Bottom Line on Climate Policy series will review the lessons learned from other cap-and-trade programs.

What are the critical design issues for cap-and-trade programs?

Cap-and-trade programs consist of several different policy design choices that determine how the overall program operates. For example, the initial level of the emissions cap, and how it is adjusted over time, will influence the price of allowances. Similarly, the allocation of allowances, point of regulation, cost containment mechanisms, and provisions for offsets can all influence how a cap-and-trade program will function. Subsequent issues in WRI’s Bottom Line on Climate Policy series will review these and other design features.

Additional References

Acknowledgments

Emily Hall Tremaine Foundation
Richard and Rhoda Goldman Fund
Robertson Foundation
UK Global Opportunities Fund
WestWind Foundation

Paying for Environmental Performance: Potential Cost Savings Using a Reverse Auction in Program Signup

Tim Herzog — Thu, 03 Jul 2008 13:06:41 -0400

A reverse auction in the Conestoga watershed in Pennsylvania demonstrated that auctions are a more cost-effective way to allocate conservation funding than the traditional funding allocation process used in the U.S. Department of Agriculture’s Environmental Quality Incentives Program (EQIP). On average, the reverse auction resulted in a seven-fold increase in the reduction of phosphorus runoff per dollar spent compared to EQIP during the same period and in the same watershed.

In a reverse auction, multiple sellers compete to provide services (environmental outcomes) to a single buyer. In the context of conservation programs, sellers are typically land managers such as farmers or ranchers; the buyer is typically a governmental entity. The Conestoga Reverse Auction differed from traditional funding allocation strategies in three ways:

It quantitatively estimated the expected reduction in phosphorus runoff from proposed changes in management practices.
It allowed farmers and ranchers to compete for funding through unrestricted bidding.
It prioritized program payments based on how cost-effectively reductions in phosphorus runoff could be achieved. Cost-effectiveness was measured as the expected reduction in phosphorus runoff per program dollar spent.

Policy Implications

Government could improve the cost-effectiveness of their conservation funding by implementing reverse auctions or incorporating the principles of reverse auctions into their conservation program design. Specifically, policy-makers could improve the allocation of conservation funding in three ways:

Increase the use of quantitative measurements of performance (e.g., measuring the reduction in nutrient runoff for water quality improvement) to rank funding applicants.
Use measures of cost-effectiveness to rank funding applicants.
Allow competitive bidding between funding applicants.

Trees in the Greenhouse: Why Climate Change is Transforming the Forest Products Business

Payson Schwin — Wed, 25 Jun 2008 12:19:28 -0400

The world is entering an era when natural resource constraints, environmental policies, and shifting consumer values will create unprecedented demands on the private sector. Recent spikes in the prices of energy and food commodities illustrate the dynamic forces that are changing the world. In this new business context, the concept of “creative destruction”—a process by which innovation builds long-term value even as it destroys the value of the status quo—may extend beyond individual companies and apply to whole industries.

One example is the forest products business. What was once a simple business of turning trees into lumber and paper is now uniquely positioned—or exposed—to political and economic forces that are reshaping regulatory and market landscapes. Can this industry take a new position as a sustainable producer of fiber, energy, and materials to meet the world’s growing needs? And can the industry be a supplier of ecosystem services—the valuable benefits provided by nature—such as carbon storage?

The forest products industry has a unique opportunity to provide sustainable solutions to climate change, but clear, long-term climate policies are necessary to realize this opportunity. Nonetheless, the industry is fragmented and, in many cases, divided over what represents appropriate climate policies.

This report provides insights into the complex array of issues related to climate change. It will help companies, investors, and the sector as a whole to develop a more proactive and informed position on climate change policies and what constitutes an effective business response.

With the right regulatory frameworks in place, both internationally and nationally, the forest products industry could be a major solutions provider to climate change while seizing some of the greatest market opportunities of the 21st century.

A Comparison of Legislative Climate Change Targets in the 110th Congress

Wed, 18 Jun 2008 12:00:00 -0400

Comparison of Legislative Climate Change Targets in the 110th Congress

The World Resources Institute’s analysis of emissions targets and cumulative emissions budgets attempts to objectively, fairly and accurately compare GHG reductions from explicit carbon caps and complementary policies contained in climate proposals submitted in the 110th Congress. Emissions from capped sectors are calculated based on the text of the respective legislation. For sectors that are not covered by the legislation, emissions are estimated to continue uncontrolled in line with projections published by EPA. This analysis uses a single set of carefully selected data and methods to provide a consistent comparison across all climate proposals in the 110th Congress. This analysis is not a projection of actual future emissions under the various proposals nor is it an analysis of economic impacts resulting from the enactment of these policies.

“Comparison of Legislative Climate Change Targets in the 110th Congress” (Figure 1) compares targets for legislative proposals of mandatory cap and trade programs for greenhouse gas emissions. Specifically, each line reflects the mandatory caps plus the growth in uncovered emissions as well as a range of additional possible reductions that could occur through complementary policies. Appendix 1 contains a table that includes the underlying data and estimates of emission reductions for selected years. This chart is a revision of a similar analysis by World Resources Institute released during the 109th Congress and subsequently updated through June 4, 2008.

This update includes the following:

A preliminary analysis of HR.6186, the Investing in Climate Action and Protection Act sponsored by Representative Markey. In addition to estimates of GHG reductions under the proposed cap and trade program and auction revenue funding for GHG reductions in uncapped sectors, this analysis incorporates GHG reduction estimates from additional regulations on certain uncapped sources.
A table presenting historical emissions data and estimates of capped plus uncovered emissions and emissions reductions under each legislative proposal for selected future years.
Estimates of emissions coverage under S.2191 and S.3036 have been revised upwards by less than 1 percent, reflecting an attempt to harmonize WRI’s emissions coverage methodology with those employed previously by EPA.

Chart 1: Legislative Climate Change Targets in the 110th Congress

Click the chart for a high-resolution version

Chart 2: Cumulative Emissions Budgets under Legislative Climate Change Targets in the 110th Congress

Click the chart for a high-resolution version

“Comparison of Cumulative Emissions Budgets under Legislative Climate Change Targets in the 110th Congress” (Figure 2) offers a different perspective on the same data. This figure depicts the cumulative greenhouse gas emissions budgets for the proposals over two time periods. While the speed with which emissions reductions are implemented is an important determinant of the efficacy of climate change legislation, cumulative emissions reductions are also an essential indicator of the overall environmental stringency of a policy proposal. Time periods of 2010-2030 and 2010-2050 were chosen to evaluate how ambitious the proposals are in both the short and long term. In addition, for the Boxer-Lieberman-Warner, Bingaman-Specter and Markey proposals, optimistic and conservative scenarios are presented to account for changes in U.S. emissions that may result from conditional targets and complementary policies included in these bills. These estimates do not include changes to the targets or annual emissions levels that may result from the use of cost-containment provisions included in some proposals.

Coastal Capital: Economic Valuation of Coral Reefs in Tobago and St. Lucia

Payson Schwin — Fri, 13 Jun 2008 13:49:06 -0400

Coral reefs provide many benefits, sometimes called ecosystem goods and services, which are of high value and critical importance to local and national economies in the Caribbean.

These values are frequently overlooked or underappreciated in coastal investment, development and policy decisions, resulting in short-sighted decisions that do not maximize the long-term economic potential of coastal areas.

This project focuses on development of a valuation methodology that will be broadly applicable in countries across the Caribbean, supporting wise, long-term coastal policy and management.

This report provides a comprehensive summary of the valuation methodology as well as valuation results from implementation in two pilot sites in the Eastern Caribbean (St. Lucia and Tobago). Shorter, island-specific summaries of results, along with an Excel-based Valuation Tool for implementing the methodology are available from www.wri.org/project/valuation-caribbean-reefs.

Estimating the economic benefits of coral reefs to local economies is neither easy nor straightforward, due to the range of approaches available and frequent limitations of underlying data. Many valuation methods exist, and results are rarely comparable.

A priority for this project has been the development of a simple, broadly applicable methodology to value coral reef goods and services, based predominantly on commonly available data. Use of a consistent approach should lead to more comparable estimates of value for different places and time periods. An easily replicable methodology can also be applied while varying key assumptions in order to assess the impacts of different development and management options.

This methodology does not assess Total Economic Value (TEV), but rather focuses on three key goods and services: coral reef-associated tourism, fisheries, and shoreline protection services. These goods and services were chosen because of their importance to local economies and because data are available to support estimation of these values.

The method was developed based on literature review, feedback from local partners and examination of coral reef use and data availability in two pilot locations (St. Lucia and Tobago).

The results from the economic valuation of coral reefs in St. Lucia and Tobago—sites with very different coastal management and data richness situations—are presented in this paper. Even assessing only a subset of goods and services demonstrates that the benefits provided by coral reefs are economically significant, particularly with respect to island GDP. These estimates should be viewed as lower bound (partial) estimates of the economic contribution of coral reefs to the economy of these two islands.

The economic impact of coral reef-associated tourism and recreation and fisheries is evaluated using a financial analysis method—tracking the financial flows generated by these two industries, and their wider impact on the economy. Shoreline protection services are evaluated using a modified avoided damages approach, where the value of a reduction in wave-induced erosion and property damage due to coral reefs is estimated.

The methodology, as well as the Valuation Tool, uses a tiered approach, allowing results to be calculated at different levels of detail depending upon the data available.

Protected Areas and Property Rights: Democratizing Eminent Domain in East Africa

Peter Veit — Wed, 11 Jun 2008 19:35:38 -0400

Protected areas are a traditional means for pursuing wildlife management and have become increasingly central to conservation strategies in Kenya, Uganda and Tanzania. In East Africa, the future of biodiversity rests largely on the security and sustainability of the protected estate. Government degazettement (the transfer of land out of the protected estate into other public uses or into the private domain) and private challenges to the public exercise of eminent domain are growing threats to protected areas in East Africa.

Considerable attention has focused on whether or not to degazette protected areas. Less attention has focused on the procedures by which land is acquired and protected areas are established. When governments acquire private property in a compulsory manner, transfer land from the private to the public domain, and place public land into protected areas they must balance the public good of park conservation with the public good of secure property rights. This report argues that protected areas will be secure when codified procedures for acquiring land and establishing parks are implemented and enforced. Further, the public will accept these designations as legitimate when they have been established through democratic (i.e., transparent, inclusive, accountable) processes.

Correcting the World's Greatest Market Failure: Climate Change and the Multilateral Development Banks

Smita Nakhooda — Tue, 10 Jun 2008 11:47:00 -0400

Correcting the World’s Greatest Market Failure: Climate Change at the Multilateral Development Banks is a new analysis by the World Resources Institute that examines the challenges of mainstreaming climate change at the Multilateral Development Banks (MDBs).

In the lead up to the 2005 G8 Gleneagles Summit, WRI analysis (PDF, 111 Kb) found that climate change had been considered in less than 20 percent of the World Bank’s lending for the energy sector. Three years later, Correcting the World’s Greatest Market Failure: Climate Change at the Multilateral Development Banks, reviews the Country Strategies and project documentation for the energy sector portfolios of the World Bank Group, the Asia Development Bank, and the Inter-American Development Bank.

Operationally, opportunities to mitigate emissions and reduce climate risk are still not systematically incorporated into MDB strategies and project development. More than 60 percent of financing in the energy sector across these institutions does not consider climate change at all. The MDBs need to support transformative changes in key sectors to steer investment towards low carbon, environmentally sustainable development choices; this will be difficult to achieve when they remain invested in many “business as usual” projects and policies. To help correct the “world’s greatest market failure,” MDBs must do more to internalize the environmental and social costs of climate change into their decision-making including:

Measure and manage the GHG emissions associated with investments in all relevant sectors.
Work with developing country clients to identify low carbon approaches to development.
Revise guidelines for country and sector strategies to explicitly integrate climate change considerations, particularly vulnerability to climate variability and change.
Maintain high environmental and social standards to manage climate risk.
Invest in the capacity of governments to practice good governance in order to respond to the realities of climate change.
Significantly increase support for low carbon technologies, particularly in rapidly growing emerging economies.
Build capacity and create new incentives for MDB staff to consider climate change in their interventions.

WRI Publications

World Resources 2008: Roots of Resilience - Growing the Wealth of the Poor

Plants at the Pump: Reviewing Biofuels' Impacts and Policy Recommendations

The Bottom Line Series: Carbon Taxes

Additional References

Acknowledgments

The Bottom Line Series: Cap-and-Trade

Additional References

Acknowledgments

Paying for Environmental Performance: Potential Cost Savings Using a Reverse Auction in Program Signup

Policy Implications

Trees in the Greenhouse: Why Climate Change is Transforming the Forest Products Business

A Comparison of Legislative Climate Change Targets in the 110th Congress

Comparison of Legislative Climate Change Targets in the 110th Congress

Chart 1: Legislative Climate Change Targets in the 110th Congress

Chart 2: Cumulative Emissions Budgets under Legislative Climate Change Targets in the 110th Congress

Related Links

Coastal Capital: Economic Valuation of Coral Reefs in Tobago and St. Lucia

Protected Areas and Property Rights: Democratizing Eminent Domain in East Africa

Correcting the World's Greatest Market Failure: Climate Change and the Multilateral Development Banks