Fundamental reforms

Energy access The role of public-sector financial institutions should be to concentrate on providing clean energy to the poor, especially those without access to electricity. This can be accomplished through lending operations as well as policy advice.29 Energy investments and policy work should be dedicated to demonstrating the development and anti-poverty benefits of clean energy and efficiency, and to paving the way for private-sector investments in these sectors.

Analysis of costs and benefits The MDBs, along with their borrowers, must undertake rigorous assessments of the costs and benefits of alternative investments, based on full-cost accounting. Renewable energy and efficiency improvements can often be more cost-effective, quicker to build, less prone to cause corruption and conflict, while creating more local jobs and reducing social and environmental impacts.

These assessments must include greenhouse gas accounting and 'shadow pricing'. Because of the impacts upon the poor of global warming, all decisions on MDB operations, including financing as well as policy work, should be accompanied by an analysis of the greenhouse gas implications of alternative courses of action. This estimate can be part of the normal environmental and social assessment process, and must include both direct and indirect emissions, for the entire life of any project (without comprehensive greenhouse gas accounting of their operations, the MDBs and their boards have been able to ignore their long-term impacts to accelerate global warming).

'Shadow pricing' enables decision-makers to compare alternatives over time, using a reasonable estimate of future carbon prices to assess potential costs or revenues. The MDBs are in an excellent position to work with the GEF, the Clean Development Mechanism and other sources of grant funding to buy down any additional upfront costs of low-carbon alternatives before carbon pricing becomes routine.

Global warming screen Based on the greenhouse gas accounting, the MDBs should put a 'screen' on all energy-intensive investments, just as they now do with ozone-depleting chemicals production and child labour, to prohibit certain classes of projects and use extra care with others. In this way they can help their borrowers to reduce greenhouse gas emissions as they increase access to energy for the poor.

The MDBs can be especially influential by working with the financial intermediaries they support through on-lending operations to use similar greenhouse gas emissions screens.

Reduction targets Aggressive targets should be set for progressive reductions of the greenhouse gas emissions of the existing loan portfolios and projects in the pipeline. This includes both energy production and energy intensive industrial and agricultural development.

Above all, the boards of directors of the institutions, and especially the donor countries, must face up to their responsibility for approving loan portfolios that increase rather than decrease greenhouse gas emissions.

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