We need innovative tools for a resilient recovery; luckily, we have them and know how to use them

The COVID-19 crisis continues to demand our immediate attention in healthcare and basic services, but planning the next phase of recovery is also underway to cushion the economic fallout and ensure climate change is central as we rebuild. The task is daunting, but we do not have to start from scratch. To construct a more resilient, sustainable, and prosperous future, the groundwork is already laid within countries’ national or sectoral masterplans, climate change adaptation plans, and Nationally Determined Contributions (NDCs) of the Paris Agreement. Countries’ climate ambitions can support a sustainable recovery from COVID-19, and the World Bank has climate finance tools to help make it happen.

Our toolbox is brimming with climate finance innovation and knowledge that we have collected over the last 30 years through our work with a vast array of climate-related trust funds. A recent World Bank report finds that the Bank’s strategic use of these trust funds, notably carbon funds and climate finance provided by the Global Environment Facility (GEF), has enabled the Bank to play an outsized role in catalyzing climate action worldwide.

Trust funds allow the Bank to be more innovative than it would otherwise be through regular country programming and investment. They can often bear more risk than financing from the Bank’s own balance sheet, enabling pioneering investments and leading to transformative outcomes. The lessons and catalytic power of the World Bank’s trust funds can help drive a climate-smart COVID-19 recovery. 

"The lessons and catalytic power of the World Bank’s trust funds can help drive a climate-smart COVID-19 recovery."

Leading carbon markets

The Bank has assumed multiple roles in the carbon finance arena since the Bank’s first carbon fund, the Prototype Carbon Fund (PCF), helped bring to life 20 years ago the carbon market mechanisms envisioned under the Kyoto Protocol. The Bank has developed carbon markets and carbon finance, built capacity, and exercised thought leadership and convening power. World Bank carbon funds have multiplied and delivered more than $2.4 billion in payments and have helped to reduce GHG emissions by an estimated 210 million tons worldwide.  

Most recently under the Forest Carbon Partnership Facility (FCPF) Carbon Fund, Chile signed an Emission Reductions Payment Agreement with the World Bank to reward efforts to increase carbon sequestration and reduce emissions from forests (REDD+). The Democratic Republic of Congo, Ghana and Mozambique have also signed agreements that, together with Chile’s, aim to reduce over 36 million tons of CO2 emissions and unlock performance-based payments of nearly $200 million.

Stimulating innovation

While carbon funds helped establish the Bank’s leadership on carbon finance, GEF funding provided early support for pioneering projects to test new technologies, business models, and policies in support of low carbon energy. GEF grant support laid the foundation for investments in renewable energy and energy efficiency that are now fully mainstreamed. 

Dating back to the late 1990s, GEF was an early supporter of concentrated solar power (CSP) in Morocco, helping to lower capital costs of constructing the country’s first 20-megawatt CSP plant and ushering in an era of solar power development that is projected to reach two gigawatts in 2020. In Mexico, pioneering GEF and FCPF projects in watershed protection and local community engagement helped pave the way for greater investment in Mexico’s forestry sector, including focus on community forestry management, payments for environmental services, and development of REDD+ carbon markets.

What next?

The World Bank’s trust funds continue to be an essential tool in accelerating climate action.  As we face the challenges of COVID-19, the report suggests the following way forward:

• Think big. Climate and carbon finance work best when the interventions consider a wider context beyond the scope of any single project. Programmatic approaches that target a jurisdiction, sector, or policy can achieve significant impacts—not just in catalyzing various individual projects, but in building enabling environments for broader market improvements, developing public and private sector capacity, and testing market approaches with potential to achieve scale. 
• Plan programs well. Effective programs will consider the entire life cycle of a carbon-reducing project, aiming to address gaps and barriers to large-scale identification, implementation, and, where appropriate, transfer of emission reductions.  
• Mix it up. Different countries and communities have different needs, so a mix of different instruments is best—from traditional development finance and technical assistance, to results-based finance to incentivize results, to financing to address liquidity needs more broadly. 
• Remain flexible and creative. Maintaining the innovative and flexible nature of climate and carbon trust funds will be necessary even as the World Bank implements reforms to continue to improve their scale, effectiveness, and efficiency.  
• Align goals to maximize impact. Better integration and alignment of larger trust funds with the broader strategies of the World Bank and its clients will help ensure that they achieve impacts in line with the ambition of the Paris Agreement.  

"The COVID-19 crisis has not pressed pause on the climate crisis, but neither is the World Bank slowing its work to tackle the impact of climate change on the world’s poorest countries."

The COVID-19 crisis has not pressed pause on the climate crisis, but neither is the World Bank slowing its work to tackle the impact of climate change on the world’s poorest countries.  We have made huge progress in the last 30 years through the development of climate trust funds, but are always looking to learn and improve from our experience so investments can have even greater impact.  

The World Bank continues to blaze trails with the next generation of carbon funds envisioned under Article 6 of the Paris Agreement. That includes the Transformative Carbon Asset Facility (TCAF), which aims to pilot activities for scaled-up crediting through sectoral or policy measures, such as the removal of fossil fuel subsidies. The World Bank’s Carbon Initiative for Development (Ci-Dev) is also readying its new Standardized Crediting Framework (SCF), a streamlined, country-owned emissions reduction crediting framework that improves transparency of national crediting decision-making, reduces transaction costs, and shortens the time it takes to generate those emissions reductions. We must use these and other climate-related trust funds to ensure the COVID-19 recovery has the innovation, know-how, and means to forge a resilient recovery.