Last time I blogged, I wrote about how coal-based power projects are not as cheap as they seem. This is because coal projects have a number of hidden social and environmental costs or externalities that are either under-valued or excluded from the typical economic costs calculus. Today, I’d like to highlight a recent case that illustrates this exact point: the famous Eskom loan.
Last year, the World Bank approved a 3.75 billion dollar loan to Eskom Holdings (a large energy provider in South Africa) through the South African Government. The bulk of that loan, 3.04 billion of it to be exact, is allocated to fund a 4,800 MW coal plant (Medupi) in Lephalale, South Africa. Once completed, Medupi will tie for the largest coal plant in South Africa (the other coal plant is Kusile, also a near-completed Eskom venture). Because of the many negative consequences the Medupi plant could have, local communities filed a complaint last year with the Bank’s accountability mechanism, the Inspection Panel. They requested that the Inspection Panel review the proposed Eskom loan on a number of grounds, including that numerous environmental and health issues were not fully considered. As yet, no decision has been made by the Inspection Panel.
In a report CIEL is releasing today, “Fossilized Thinking: The World Bank, Eskom, and the Real Cost of Coal,” we analyze the treatment of social and environmental costs in the Bank’s Economic Analysis. As I said last time, the Bank is required to conduct a cost-benefit analysis of investment projects that takes into account externalities when determining costs or benefits. This involves not only identifying the impacts but evaluating and quantifying them (noting of course that quantification is not always possible). In the case of Medupi, there are many concerns related to water scarcity, water quality, air quality, climate change, the related health impacts, and the potential for transboundary harm because of Medupi’s proximity to the international border between South Africa and Botswana. Unfortunately, the costs associated with these impacts were not adequately evaluated, and if Medupi becomes operational, impacted communities will have to pay the price.
I also mentioned the Energy Strategy Review in my last post, and rumour has it a public draft will be coming out soon. Even though the Inspection Panel’s decision on Eskom may not be made by then, the Eskom loan provides a good example of why funding large coal plants is not a good idea. Not just that, but of the dangers of under-valuing social and environmental costs in any funding decision, whether it be coal plants, oil & gas, large hydro, or nuclear power plants. We no longer live in a world where one can claim ignorance of these costs; scientific inquiry has brought us a long way from that. It is time to step up and for the World Bank to commit to better, more socially and environmentally responsible, energy lending. And they can start with phasing out fossil fuel-based energy.
Originally posted on March 21, 2011.