How the World Bank can help avoid a wasted decade

Rohit Khanna worked at the United Nations and the World Bank from 1991 to 2021. He retired from the World Bank as Manager for Global Energy Programs, covering the Energy Sector Management Assistance Program (ESMAP) and Energy Climate Finance.

When it comes to responding to the climate crisis, the world seems to be repeating the mistakes of the 1930s, when world leaders either ignored or underestimated the risks despite several warning signals of the impending tragedy of war. Following a Climate Ambition Summit featuring only a handful of G20 countries - and looking to the annual meetings of the World Bank and International Monetary Fund in Morocco this week - one must ask where the necessary leadership will come from.

The warning signals for the “gathering storm” are flashing red. The global average temperature is now 1.2 degrees Celsius warmer than pre-industrial times – that is 80% of the way to the 1.5-degree goal set in the Paris Agreement. Heat waves, droughts, wildfires, floods and increasing human suffering give us a glimpse of the future.

To prevent the most catastrophic impacts of global warming, greenhouse gas emissions must already be decreasing and halved by 2030. Unfortunately, the international community’s response is beginning to look too little, too late, as the costs of inaction are mounting.

The need of the hour is for every emerging economy to do what the United States, Europe and China are doing: massive public investments to incentivize, accelerate and de-risk the energy transition. However, these economies generally have limited fiscal space, greater costs of capital, and do not have the same level of access to capital markets as high-income countries.

It does not help that developed countries have failed to mobilize the $100 billion a year they committed to support developing countries’ climate action. Such barriers to investments at the necessary scale by the Global South imperil us all because reducing greenhouse gas emissions is a global public good.

Norway, UAE to lead?

It is for this reason that a group of former World Bank senior staff, including me, argue for the establishment of a new international financial institution within the World Bank dedicated to the provision of global public goods - through investments in clean energy, transport and industry, as well as reversing deforestation and forest degradation. This is echoed in the recent report of the G20 Independent Experts Group on strengthening multilateral development banks.

Such a facility should be adequately funded for the multilateral development banks, working with other multilateral and bilateral channels, to increase access to capital and lower its cost for countries of the Global South in their efforts to reach net-zero emissions globally by 2050. This would require about $35 billion-$40 billion in annual financing and loan guarantees from the facility, mobilizing another $140 billion-$160 billion from other development banks and private capital – about a trillion dollars over five years.

While the proposed scale of the new facility would be ambitious, the amounts required to capitalize it are realistic. By adopting the uniquely efficient way in which the World Bank uses its balance sheet to leverage capital markets, the facility would require (over a five-year period) less than $25 billion in capital, alongside $40 billion in sovereign debt guarantees from the facility’s shareholders.

What is most promising is that unlike the 1930s, when only intervention by the great powers could have prevented World War II, the mobilization of scaled-up climate finance can be led by countries outside the G7 and G20. For example, Norway and the United Arab Emirates have the means and motivation to take a leadership role.

Both countries have significant surpluses from high oil and gas prices in the wake of the Ukraine war; UAE will chair the Climate Conference of Parties (COP28) later this year; and both have made significant domestic and international investments in the energy transition. In fact, a recent report by a Norwegian independent expert group recommended that Norway take a leadership role in assembling a coalition of countries to create a large fund for the energy transition in the Global South.

Geopolitical prevarication

In fact, one reason for proposing a new institution with the World Bank is the need for a governance structure that is fit-for-purpose. It should reflect the prominent role of the Global South in delivering global public goods and give due weight to the funding efforts of the new leaders by giving them more weight than current World Bank governance arrangements.

The original Bretton Woods conference lasted three weeks, and the International Bank for Reconstruction and Development came into existence 18 months later. Sixty-three years ago, the World Bank created the International Development Association, recognizing the need for more favorable financing options for poorer countries. Now, the World Bank should step forward again with a similarly bold idea to accelerate climate action. With the same resolve, the new World Bank facility could be operational by November 2025, the 10th anniversary of the Paris Agreement.

Winston Churchill, when referring to the inaction, indecision, miscalculations and missed opportunities of the 1930s, spoke of “the years that the locust hath eaten”. Then, as now, other domestic issues and geopolitical trade-offs took precedence. International institutions did not evolve to prevent the crisis. Only afterwards were the international instruments necessary for world peace created: the Marshall Plan, United Nations, and Bretton Woods institutions.

We can and must respond before the worst comes to pass due to climate change, or the 2020s could be our locust years.