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Climate funding

December 8, 2010

In an exclusive interview, the World Bank's Special Envoy for Climate Change tells Deutsche Welle about the problems climate funding is facing and why the World Bank wants to lend a helping hand.

Andrew Steer
The World Bank says climate funding does have its problemsImage: picture alliance/dpa

As the globe's largest poverty-fighting institution, the World Bank is already a major provider of loans to developing countries to help them tackle climate change and shift toward renewable energy technologies. They manage 6.3 billion dollars (4.8 billion euros) worth of Climate Investment Funds which are allocated to 43 countries. Deutsche Welle interviewed Andrew Steer, Special Envoy for Climate Change at the World Bank, to find out what role the World Bank wants to play in shaping future climate funding.

DW: What's working well in the system of climate funding and what are the current flaws in the system?

Andrew Steer: I think there's a lot that is working well, but it's not yet happening at the scale that is required.

We are the manager for example of the Climate Investment Funds that we implement together with the Regional Development Bank. The good thing about them is the leverage that they get. By putting in relatively modest amounts of grant money, one can change the behavior of private investors in quite a good way. So for example the biggest CIF is the Clean Technology Fund which is a 4 billion dollar fund. As a result of that, there will be a total of 40 billion dollars of investment in clean technology. So it's a sort of ten to one ratio.

Banners say "World Bank out"
Activists have protested against the World Bank in CancunImage: picture alliance/dpa

Unfortunately there will never be enough public grant money available to solve all the problems so the name of the game will be to make sure we get this degree of leverage where public funds, private funds and carbon market funds come together.

That's an example of a positive story. Now overall it is true that some countries are finding that there are too many sources of funding and it's all a bit complicated, so one of the things we did here in Cancun was to launch a website together with UNDP [United Nations Development Agency] that basically tries to untangle the spaghetti. It will cut out a lot of the transaction costs that are normally associated with financing.

The Clean Development Mechanism (CDM) which has played a very good role, is in need of overhaul. Delays are quite considerable, transaction costs are quite high, and predictability of the system is not what it needs to be. And also money tends to go to a small number of middle income countries. So we have been favoring reform of the CDM that would reduce costs, increase predictability and would extend the markets into low income countries.

DW: To what extent is the World Bank best placed to manage climate investment funds?

Andrew Steer: We are not seeking to fly our own flag. We are simply offering to be helpful. Our speciality is essentially delivering results at scale.

The world has lots of pilots and lots of wonderful experiments going on on a small scale and those are really good. But what the world really needs now is scale. We need to now get serious about the problem.

That requires an agency that can operate with large financial packages, engage with governments on monetary issues, bring together different types of finance and that has engagement across a range of sectors. And we are privileged to have expertise and experience in those areas. I think we can play a helpful role in bringing together the overall packages.

solar cells in Honduras
Steer says large-scale solar energy projects will generate revenue for developing countries.Image: AP

DW: You say you can play a helpful role. If that's the case, why are people in Cancun demonstrating today against the World Bank being in charge of climate assistance?

Andrew Steer: I'm not aware of them demonstrating against it. Views understandably differ. That's healthy.

We're not for one moment suggesting that the World Bank is uniquely qualified, but we do believe we have a very helpful role to play.

DW: A lot of this funding is actually loans. Tove Ryding, a representative from Greenpeace, has said that giving developing countries loans to help them deal with the consequences of climate change caused primarily by developed nations is "the same as if I take my car and I drive it into your car, and then I offer you a loan to repair the damage." What do you say to that?

Andrew Steer: This is for negotiators to decide. That's why we're here in Cancun. It's not the World Bank that decides to make it loans rather than grants.

The World Bank gives grants, but it also gives zero interest loans for some investments in renewable energy and some investments we give loans that have market based rates. Those decisions are made by the providers of funds and those are represented here by the parties.

I would make just one point and that is, the countries we are working in - and we are working in over 130 countries on climate change - are saying to us, 'We want to get on with it. We want to be part of a green industrial revolution. We want to make our economy grow rapidly in a climate resilient way and we want to have access to resources.'

It's very encouraging because we're seeing a lot of leadership in developing countries as they want to get on with things and if the choice is between a grant or a loan, you or I or anybody else would prefer a grant. But that depends on whether or not the countries that are providing the funds want to provide them as grants. If they don't, then it's very encouraging that, nonetheless, a lot of developing countries are getting on with it. They don't want to just talk about it. They want to actually do it.

We believe that Cancun really needs to deliver. It's possible, it could deliver something very important and we're really hoping that in the next few days we'll see that.

Interview: Natalia Dannenberg

Editor: Susan Houlton