World Bank to stop financing oil and gas projects

The World Bank has announced that it will stop funding upstream oil and gas projects after 2019. This decision was communicated to world leaders in December 2017 at the One Planet Summit in Paris. The head of the World Bank, Jim Yong Kim, along with industry leaders and government officials from different nations, including Britain, Japan and Mexico attended the summit that was hosted by French President, Emmanuel Macron. The summit was convened to mark the two-year anniversary of the 2015 Paris Agreement to limit global warming. 

The motivation behind the World Bank’s decision is to encourage nations to move away from industries extracting earth-warming fossil fuels and to meet their pledges to curb greenhouse gas emissions in terms of the Paris Agreement. The Bank indicated that it would consider financing oil and gas projects in the poorest countries in exceptional circumstances where there is a clear benefit, such as energy access for the poor. Assistance, however, will only be provided if the implicated project does not contradict the country’s obligations in terms of the Paris Agreement.

Since 2010, the Bank has not been funding the creation and maintenance of power stations. In spite hereof, it was still criticised by lobby groups for funding oil and gas projects in developing countries. The World Bank Group had invested just over $3 billion in extractive industries in 2016,[1] three times more than provided for in the 2015 budget for these industries. In 2017, oil and gas investments accounted for approximately 2% of the Bank’s $280 billion asset base.

The Bank confirmed at the 2017 Summit that, notwithstanding the Bank’s major involvement in the extractives industries, it is committed to the global economy’s shift away from fossil fuels to less polluting energy sources. It acknowledged that a rapidly changing world requires the Bank to change the way it operates.

An inhibiting factor in the global effort to limit global warming is a lack of money. Experts say that trillions of dollars must be invested in clean energy technology to meet the Paris Agreement’s goal of limiting average global warming to two degrees Celsius above the pre-industrialisation levels. Matters have been worsened by the US President Donald Trump’s decision to withdraw the US from the Paris Agreement and to cut the funding for climate projects.

The World Bank has indicated that it is on track to meet its target of directing 28% of its funds to climate action by 2020. Jim Yong Kim, the President of the World Bank, expressed his willingness to work with world leaders in creating policies that will accelerate action towards curbing climate change. According to Kim, creating policies to limit global warming is the only way that countries can meet the commitments they made in 2015, thereby making progress in the battle against climate change.

As of 2018, the World Bank will also be reporting on the greenhouse gas emissions of its investment projects in key emissions-producing sectors. More enterprising announcements surrounding the Bank’s contribution towards a greener future can be expected at the 24^th Conference of Parties, which will be held in Poland in 2018.

The announcement made at the One Planet Summit was welcomed by Greenpeace International with its climate campaigner, Gyorgy Dallos stating that “the end is clearly coming for the oil and gas industry as the pace of change accelerates”. He challenged global financial institutions to take note and to decide whether their financing is going to be part of the problem or solution.

The World Bank’s decision to cut funding for oil and gas projects is a step in the right direction towards curbing climate change. In exceptional circumstances, funding will be provided for oil and gas projects in the poorest countries of which many are in Africa, South America and Asia. How this exception will operate in practice remains to be seen. Furthermore, it is encouraging to see that despite US President’s withdrawal from the Paris Agreement, other states remain committed to working towards a greener future. Given that there are major financial constraints to projects limiting global warming, the World Bank’s commitment to direct 28% of its funds towards climate action by 2020 means that more can be done to combat climate change.