The following recommendations suggest a series of decisions that the World Bank Group could take to further enhance performance in its CF support in future, including the potential to scale up mitigation.
Recommendation 1. The World Bank Group should further strengthen coordination among its different carbon finance initiatives and instruments to enhance complementarity, avoid fragmentation, and harmonize their results frameworks. The World Bank Group should strive for complementarity between the relevant instruments and emphasize development of fewer, more harmonized, and consolidated carbon vehicles with shared vision, common governance systems, simpler rules, and well-functioning and consistent results frameworks for enhanced accountability and learning. For IFC, it should deepen its coordination and complementarity where and when it engages in carbon finance (e.g. coordinate Forests Bonds with FCPF, BioCF ISFL), just as MIGA can strengthen complementarity of any relevant guarantees. Learning from the Kyoto experience, this may require donors and other stakeholders to support such harmonization and consolidation to avoid proliferation of carbon funds and facilities under the new framework of the Paris Agreement.
Recommendation 2. The World Bank Group should increase its use of carbon finance instruments to attract and mobilize finance that supports transformational activities and leverages private investments. The World Bank Group should identify new ways to use CF as catalytic funding for enabling transformational approaches (low-carbon technologies and policies) which may not otherwise be feasible or commercially viable under ‘business as usual’ conditions (for example, innovative low-carbon investments in technologies currently limited by bankability and other barriers). Through its selective and catalytic use of CF for climate mitigation to support such transformational interventions that meet the relevant ‘additionality’ criteria (under the Kyoto or Paris mechanisms), the World Bank Group should also continue to use CF to crowd-in or leverage private sector finance (for example, by packaging CF with climate finance to provide some upfront financing or mitigate risks), where possible, in line with Mobilizing Finance for Development objectives and the Cascade Approach, seeking private sector solutions and minimizing the use of scarce public finance resources. If and when IFC re-engages in carbon markets, it should build on its recent (e.g. Forests Bonds) and prior experience to leverage private finance and investments. MIGA should identify opportunities to enhance demand for its guarantees to support transformational projects.
Recommendation 3. The World Bank Group should strengthen the client country focus of its carbon finance activities, integrating them with country programs, in accordance with client demand and international agreements, enhancing their economic development benefits in client countries, and especially promoting poverty reduction co-benefits in Low Income Countries. This is consistent with both the continuing commitment of the Paris Agreement to development co-benefits and the World Bank Group’s own developmental goals. CF must be host country client-driven and increasingly streamlined into country programs and financing operations, with a vision towards bundling or packaging of all CF activities in host countries with other relevant World Bank Group operations. The design for integrating CF into country development programs and operations should be flexible, consider unique features of CF operations and associated legal commitments and risks, engage the private sector for scaling up successful pilots, and ensure delivery of development results, especially in LICs. Sustainable social and economic development co-benefits should be systematically targeted and promoted. Conditional on client demand, this would also apply to future IFC activities, if and when it re-engages in CF activities with the private sector in client countries, and MIGA guarantees, to strengthen support for climate mitigation and development efforts in client countries.
Recommendation 4. The World Bank Group should identify complementary and country-specific interventions that enhance the Global Greenhouse Gas emission reduction impact of carbon pricing solutions, consistent with countries’ Nationally Determined Contributions (NDCs). Many client countries are unlikely to implement carbon prices that will be high enough to provide strong price signals to bring significant changes in emissions soon. At the country level, low carbon prices mandate identification and structuring of complementary and synergistic programs, policy and institutional reforms and instruments (for example, removal of fossil fuel subsidies, energy efficiency standards, and so on.) closely aligned or synchronized with carbon pricing approaches (for example, carbon taxes, emission trading schemes). Initiatives to remove any binding constraints at the country, market, or sector level offers the potential to improve the efficiency and effectiveness of the carbon pricing approaches and create an enabling environment for private sector solutions. Where relevant and when they are active, IFC, through its engagement with the private sector under the WBG’s Carbon Pricing Leadership Coalition (CPLC), and MIGA should coordinate in the identification of constraints and complementary approaches to carbon pricing in client countries.
Recommendation 5. The World Bank Group should continue to pilot new market-based and scalable approaches for reducing Global Greenhouse Gas emissions, including those that focus on underutilized sectors and underserved countries. To do so the World Bank Group should further sharpen the focus of its capacity building, technical assistance and innovation on scalable approaches that contribute to raising the mitigation ambition. This includes piloting of new and scalable financial products as well as programmatic, sectoral and policy crediting approaches that are useful to support the transition to the new market mechanisms under the Paris framework. IFC and MIGA could also pilot scalable business models and de-risking instruments to support upscaled crediting approaches. The World Bank Group should identify and upscale innovative crediting approaches for carbon assets from forests, agriculture, and land use and transport, and urban building infrastructure.
Read More in Chapter 6: Conclusions and Recommendations