Abstract

At the recent UN climate change conference in Bali, UN Secretary General Ban Ki-moon called for a revolutionary change in the world's energy mix to minimize the risk of catastrophic global heating. This paper explores the implications for the World Bank and other donor institutions, employing proposed Bank financing of the Mmamabula coal-fired power project in Botswana as an illustrative case. Using the latest estimates of generating costs for coal-fired and low-carbon power options, I compute the CO2 accounting charges that would promote switching to the low-carbon options. In all cases, I find that that the switching charges are at the low end of the range that is compatible with safe atmospheric limits on carbon loading. Among the low-carbon options that I have considered for Botswana, solar thermal power seems to dominate carbon capture and storage.My results suggest that the World Bank and other donor institutions will adopt a transformational energy policy if they use appropriate accounting charges for carbon emissions. The Mmamabula example indicates that this approach will select low-carbon options in many cases, and grants from the Bank's Clean Technology Fund and other sources can finance the market-cost gap between clean and fossil-fired technologies. Clean energy projects should proliferate, as donors learn about the new approach and more funds are devoted to meeting the global emissions reduction mandate.