China, India hit back at controversial US memo to World Bank to not fund coal-fired plants

The USA government is pressuring the World Bank not to fund coal-fired power plants in developing countries. "The Obama Administration believes that the Multilateral Development Banks (MDBs) have a potentially critical role to play in the future international framework for climate finance, and, in particular, to assist developing countries in mitigating greenhouse gas emissions and strengthening their economies' resilience to climate risks," United States Executive Director Whitney Debevoise said in a unilateral letter sent to the World Bank.

Referring to the guidelines as a product of "internal US government deliberations", Debevoise has advised MDBs to "remove barriers to and build demand for no or low carbon resources". Though the US Treasury Department is a statutary body and its recommendations are not binding on the World Bank, the move, the first-of-its-kind, Swati Mathur of Times of India reported, is believed to have created pressure on the bank.

While India, with its history of funding its own coal-fired power plants, does not stand to be affected immediately, representatives of developing countries like China, India and others in the World Bank have reacted sharply to this development. Nine of the World Bank's executive directors have objected to developing countries being cut off from financing for cheap coal while the USA still produces 26% of coal generated electricity worldwide.

Calling the guidelines "an unhealthy subservience of the decision-making processes in the Bank to the dictates of one member country", they have said that the US should instead raise these issues during discussions in the Board on the Bank's Energy Sector Strategy.

"The guidelines do not spell any immediate threat to the Indian power sector. However, the Indian states, looking out for World Bank funding will be hit," a well placed source in the Indian government told Mr Mathur.

Following Debevoise's controversial guidelines, the axe has reportedly already fallen on Pakistan's Thar Coal and Energy Project on the grounds that "the limited financing available from the Bank should be directed toward investments that address energy supply shortfalls in an environmentally sustainable manner." According to Mr Mathur's sources, the next coal-fired power project to be affected will be one from South Africa.

Public funding for coal-fired power plants has remained one of the most divisive issues for the World Bank. The institution has developed a new framework that calls for boosting renewable energy lending. Despite the mounting pressure, however, the World Bank has refused to rule out lending for coal altogether.