Substantial funds are needed for decarbonisation and climate action, while consumption of the most polluting fossil fuels must be cut. Although multi-billion-dollar pledges draw headlines, there is growing attention on how best to leverage and maximise the money available — a key focus for the World Bank.
"What is it that we need to be putting in place so that we can use multiplier effects and attract more and more investment?" Demetrios Papathanasiou, global director for the World Bank's Energy and Extractives Global Practice, told Argus in an interview. The key from the perspective of the World Bank is to leverage concessional climate financing to unlock private capital investment, he said.
"Every dollar of grant money… needs to leverage $10 of concessional climate finance, [which] can leverage $100 of the financing that the multilateral development banks can bring, [which] will then leverage $1,000 in private capital. It is only if we have this order of magnitude, growth on every type of financing, that we can reach the targets and the volumes that are needed," Papathanasiou said.
The World Bank in this context has two "strategic pillars". One is the achievement of SDG7 — the UN sustainable development goal that aims for universal access to "clean", reliable energy by 2030 — which the bank monitors and reports on an annual basis. "The second one is supporting the just clean energy transition," Papathanasiou said.
He emphasised "the importance of minerals and sustainable mining and the extractive industry to support the energy transition", including growing demand for base metals, as well as minerals and rare earths. The requirement for copper and aluminium volumes will be "unprecedented".
And he sees a strong opportunity for economic development in Africa, driven by global decarbonisation. "We can use the mining resources that are in Africa as a leverage to justify the economic investment in the infrastructure [such as transport, energy and water] that will help responsible mining to happen, but will also bring other economic opportunities." The market for minerals needed for the energy transition doubled over 2017-22 and is due for "continued rapid growth", the IEA says.
Eye on the coal
The continuing use of coal for power generation is "challenge number one that needs to be tackled with urgency" for global decarbonisation, Papathanasiou said. The world's remaining carbon budget is "very limited", he said. "If some fossil fuels are to continue to play a role in the world's energy mix, industry really has to accelerate and find solutions to do much more on carbon capture and storage" both in terms of scale and speed. But clean energy alternatives must be scaled up as soon as possible, he said.
The bank's primary choices are wind, solar and hydro power, and these typically provide electricity at significantly lower cost than fossil fuel-generated power. Papathanasiou cited a "milestone moment" from a solar project in the Maldives, which cut power costs by more than half. The project was private-sector financed and guaranteed by the World Bank.
The money intended for climate action and decarbonisation is there but "in the wrong places", the bank's senior managing director Axel von Trotsenburg said recently. Explicit subsidies for fossil fuels totalled $577bn in 2021, according to the World Bank.
But "if explicit subsidies are excessive, implicit subsidies are exorbitant", it added. It estimates that implicit subsidies for fossil fuels amount to $5.4 trillion/yr — more than 6pc of global GDP.
