- Multilateral Development Banks (MDBs), governments, and corporations across 160 countries consider or approve more than one investment per day in the energy sector.
- Despite commitments to tackle the climate crisis, many of these investments support the fossil fuel industry, while others invest in false clean energy solutions like hydropower which often cause harm to local communities.
- “To achieve a just energy transition, MDBs and governments must prioritize sustainable renewable energy models that empower communities and ensure inclusive energy access,” a new op-ed argues.
- This post is a commentary. The views expressed are those of the authors, not necessarily Mongabay.
The intensifying impact of the climate crisis on frontline communities in the Global South, record-breaking CO2 emissions, and global temperatures exceeding 1.5 degrees Celsius above average in 2023 are signs that we urgently need a just energy transition that reaches all levels of society. Through our work on the Energy Finance Tracker at the International Accountability Project, we know that between 2022 to 2023, there were 933 known investments in the energy sector, totaling at least $139.8 billion, involving 14 multilateral development banks (MDBs) and more than 600 companies across 160 countries. From this simple data, we can tell that MDBs considered or approved, on average, more than one investment per day in the energy sector, many of which continue to support the fossil fuel industry, invest in false climate solutions, and fund energy projects that may bring jeopardy and harm to local communities.
Governments and companies continue to rely on MDBs to support these investments in fossil fuels, specifically the oil and gas industry, despite their commitment to tackle the climate crisis. These continued investments in oil and gas, with their devastating climate impact, directly contradict the Paris Agreement and are taking us many steps behind where we need to be to achieve a just and clean energy transition.
Data from the Energy Finance Tracker reveals a concerning trend of energy colonialism. Between 2022 and 2023, 10 MDBs invested a combined $14.5 billion in 80 oil and gas projects across 18 countries, with 66.3% of these projects involving private companies. The US Development Finance Corporation (DFC), the International Finance Corporation (IFC), and the European Bank for Reconstruction and Development (EBRD) accounted for more than half of these investments.
These three institutions are all led by countries from the Global North, yet 40% of investments were located on the African continent. Mozambique takes the lead in terms of total investment, receiving $3 billion for its oil and gas sector. Separately, Addax Energy S.A. is involved in a proposed investment by the International Finance Corporation (IFC) aiming at financing petroleum product imports in West Africa. Outsourcing environmental and social harms seems to be a prerogative of the Global North when it comes to the fossil fuels industry.
Beyond direct investment, MDBs like the Asian Development Bank (ADB), World Bank, and Inter-American Development Bank (IADB) fund technical cooperation projects that support governments in designing and implementing national energy policies that strengthen the continued reliance on fossil fuels. For instance, in Indonesia, the ADB supports the government’s energy reforms under a plan prioritizing fossil fuel infrastructure over renewables. Meanwhile, in Argentina, the IADB is supporting the implementation of Argentina’s Nationally Determined Contribution Plan 2030, the second, updated version of which seeks to “increase the production of natural gas in absolute terms.”
Investment in false solutions
While the increase in investments that are less harmful to the environment and climate is generally a welcome trend, MDBs, governments, and companies continue to invest in false solutions in the name of renewable energy. Promoted as renewable energy and/or innovative solutions to tackle climate change, these solutions often have not been prioritized by the communities nearest to these investments, and may have hidden environmental and social costs that are neither adequately assessed nor disclosed.
We can take an example from the push for hydrogen. Despite the claim of being a clean energy solution, the production of hydrogen contributes to greenhouse gas emissions, which are the primary driver of climate change, and requires large infrastructure that adversely impacts local communities and the environment. However, there is a rise in investments towards ‘green’ hydrogen, with institutions like the IADB and the European Investment Bank (EIB) leading the way.
Of the 35 hydrogen-related investments tracked between 2022 and 2023, a significant portion has been targeted to the Latin America region due to IADB’s numerous investments in the sector, likely to be backed by the new European Union (EU) hydrogen strategy. Fossil fuel-linked companies headquartered in Europe, such as Engie SA and Iberdrola SA, also received funds to develop hydrogen research and infrastructure. This raises concerns about the actual environmental benefit of these investments.
Other examples of false solutions include biomass and waste-to-energy (WtE). Although biomass might seem like a renewable energy source because it’s derived from organic matter, large-scale reliance on it can lead to massive deforestation. In the past two years, EIB has been the primary financier of biomass projects. Similarly, WtE is often promoted as a ‘clean’ solution, despite emitting 300 times more greenhouse gases per unit of energy than coal plants and its facilities negatively impact communities and waste pickers. In the past two years, ADB and IFC have been the biggest financiers of WtE projects.
Alongside hydrogen, biomass, and WtE, carbon credits are gaining popularity amongst MDBs with World Bank President, Ajay Banga recently announcing plans to launch a mechanism for certifying forest carbon credits. However, rather than focusing on directly reducing their emissions at the source, carbon credits can potentially create a false sense of security and encourage polluters to continue emitting greenhouse gases as long as they can offset them with credits. This can delay urgent action needed to address climate change. Between 2022 to 2024, 10 projects supported the development of carbon markets, mainly financed by the World Bank and the ADB. The geographical focus is very broad, with projects located in Indonesia, Uzbekistan, India, and Ecuador, among others.
Potential jeopardy for local communities
Many of the MDBs are increasingly working on projects and schemes on energy transition. While doing so, they are seen to provide continued support to fossil fuel-led infrastructure and remain unaccountable for harms faced by communities and workers. Recently, some MDBs like the Asian Development Bank have been taking steps to support governments in Asia in implementing energy transition programs to replace coal-fired power plants, a major source of greenhouse gas emissions. However, the details about the replacement energy sources often remain unclear. For instance, in Southeast Asia, a technical assistance project by ADB supporting the Indonesian State Electricity Corporation aims “to shift the power system from fossil fuel to low-carbon electricity supply,” but it has not been clarified if they will be fully replacing fossil fuels with renewables.
In some cases, MDBs continue to rely on broad terms when describing energy transition projects such as ‘clean energy,’ ‘low-carbon,’ or ‘cleaner technologies’ even when coal is being replaced with natural gas, which some MDBs, including ADB, IADB, and EBRD, still consider a ‘clean’ energy source. We believe that this lack of transparency jeopardizes communities’ access to information, making it difficult for local communities and civil society organizations to understand the potential impacts of these projects in the future.
A significant amount of energy investments by MDBs are also being directed toward large-scale energy projects that can potentially harm the land and resources of communities. In Dzongu Valley in Sikkim, India, we have seen how large hydropower projects, which are falsely categorized by some as renewable energy, can cause immense destruction to rivers and ecosystems, and displace communities from their lands.
In October 2023, a glacial lake outburst flood led to the breaking of multiple dams which caused massive flash floods on the Teesta River in Sikkim, India. Despite the immense destruction caused by hydropower projects built on the ecologically fragile topography in the north-eastern Indian state, ADB proposed an investment in December 2023 for support to the power sector in Sikkim which may further lead to an increase in the development of the large hydropower industry.
Another example can be seen in Malawi. Although solar infrastructure has the potential to address the lack of energy access in the African continent – and therefore it is often well-received by communities – land rights must be safeguarded and benefits equally redistributed among the affected population. In the absence of community input into the decision-making process, many in the Salima community lost their source of livelihood due to the involuntary resettlement caused by the construction of a solar power plant funded by the Dutch Entrepreneurial Development Bank (FMO) with a guarantee from the Multilateral Investment Guarantee Agency (MIGA) and developed and operated by JCM Power Corporation, a Canadian private company.
A community-led and just energy transition
To achieve a just energy transition, MDBs and governments must prioritize sustainable renewable energy models that empower communities and ensure inclusive energy access. This requires a shift away from projects that threaten local livelihoods and cultural resources.
The shift of policies and operations towards better practices in the energy sector needs to begin with complete divestment from fossil fuel operations including coal, oil, and gas, and the screening of intermediated investments to ensure their sub-projects are not associated with fossil fuel infrastructure and destructive energy projects. MDBs, governments, and companies should also stop promoting false solutions that are implemented without consulting affected communities, cause damage to the environment, and result in further grabbing of communities’ lands and resources.
Rather, direct financial support through grants for communities in the Global South can foster decentralized, community-led renewable energy solutions. A prime example is the community-based renewable energy project in Parsibang, Nepal. This initiative, led by the local community in Khairang Village with the support of the Community Empowerment and Social Justice Network (CEMSOJ), provides electricity for Indigenous Tamang and Chepang communities.
Community-led renewable energy offers a powerful alternative to large-scale projects. It fosters local ownership, empowers communities with direct energy access, and minimizes environmental risks and social disruptions. This approach ensures the benefits reach those who need them most.
Alessandro Ramazzotti is a researcher for the International Accountability Project (IAP), while Vaishnavi Varadarajan is IAP’s community organizer for South Asia and Anggita Indari acts as their communications coordinator.
Related audio from Mongabay’s podcast: A discussion of two popularly proposed solutions to the climate crisis that also have negative environmental consequences, listen here:
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