In an effort to align with pro-divestment advocates swirling around the One Planet Summit in Paris this week, the World Bank Group announced its intention to “no longer finance upstream oil and gas, after 2019.” Like many divestment announcements before it, the seemingly strong statement is little more than an empty gesture.
For starters, the World Bank provides a miniscule amount of funding for energy infrastructure today. Only 24 percent of World Bank investments in the oil and natural gas sector since 1987 were related to any kind of capacity development or infrastructure building. In 2016, the $562.9 million that the World Bank spent on upstream capacity investments made up a whopping 0.129 percent of the $434 billion in global spending on upstream oil and gas investments. In fact, the only project focused on new upstream appraisal activities mentioned in the 2016 report is a $10 million financing deal for exploration with an Argentinian company, while overall activity in the oil and natural gas industry was limited to only eight projects that year. As Axios put it:
“Not much money in play: These kinds of oil and gas projects only represent around 1% of the financing portfolio for the institutions in the World Bank Group. We’re talking about something in the neighborhood of $1 billion–$3 billion, while total worldwide industry upstream spending is several hundred billion annually. Simply put, it’s a very small part of the worldwide oil-and-gas financing picture.”
The vast majority of World Bank activity in the oil and natural gas sector is instead in the regulatory space, where it engages on governance management and environmental and social issues. Yet today’s announcement seemingly turns its back on the clear environmental benefits of natural gas, providing an abundant clean-burning energy resource for economies around the globe and a key reason the United States has been able to lead the world in emissions reductions over the last decade. Many countries have also adopted natural gas as an alternative to other energy resources with larger emission footprints and higher costs. Analysts responsible for the International Energy Agency’s (IEA) annual World Energy Outlook report note, “the role that natural gas can play in the future of global energy is inextricably linked to its ability to help address environmental problems.”
Perhaps these tangible benefits are exactly why the World Bank left a giant loophole for itself. From the announcement:
“In exceptional circumstances, consideration will be given to financing upstream gas in the poorest countries where there is a clear benefit in terms of energy access for the poor and the project fits within the countries’ Paris Agreement commitments.”
This loophole leaves a lot of investment opportunity on the table. Based on the World Bank’s own classification level of Low Income Countries, 19 of the 31 listed have received oil and gas infrastructure grants in the past 30 years, accounting for more than a quarter of all oil and gas infrastructure funding projects in that time. In 2001, for instance, the Songo Songo Gas Development and Power Generation Project was approved to develop Tanzania’s natural gas reserves in an effort “to produce least-cost power generation for domestic, and industrial use, in an environmentally sustainable manner.” The World Bank funded project focused on developing the Songo Songo natural gas field to provide power to the Ubungo Power Plant and the Twiga cement plant, resulting in improved access to energy and a dramatic reduction in the cost of electricity in the region.
Projects like these and the loophole the World Bank has left for itself underlines exactly why efforts by financial institutions to divest or exclude fossil fuel companies is an unproductive policy: the globe relies upon natural resources like oil and natural gas to power our economies, promote access to electricity, and support the environment all along the way. Access to energy is a key determinant of quality of life, health, and security for the world’s most vulnerable populations. According to the IEA, more than one billion people lack access to energy—most living in Sub-Saharan Africa, India and developing Asia. This lack of access impacts almost every aspect of daily life: hospitals need electricity to function and store vaccines; students need light in order to be able to read and write; cooking requires heat; businesses require energy to run.
Turning a blind eye to investments in the sector that powers our economies and our globe is counter-intuitive to the very tenants the World Bank is attempting to promote: “Helping create sustainable economic growth, the surest path out of poverty. Investing in people, through access to health care, education, water and sanitation, and energy.” Let’s hope this recent PR stunt won’t actually hinder the Bank’s ability to meet these objectives and support energy access around the globe.