The World Bank’s new concern for the climate crisis does not, predictably, include any interest in a socially just transition, which is what’s needed to achieve sustainability, argues John Clarke

Last year, the then head of the World Bank, David Malpass, struck a discordant note at a Climate Week event that was being hosted by the New York Times. He ‘was asked three times to respond to an accusation by Al Gore that he was a climate denier.’ He doggedly refused to tell the gathering whether ‘he accepted that greenhouse gas emissions from human activity have created a crisis that is leading to more extreme weather.’ Instead, he simply asserted that ‘I’m not a scientist.’

These days, such crude climate denial has gone out of fashion in the circles of the mainstream establishment. It is considered proper to acknowledge the accumulating impacts of climate change, even if effective measures in response to it are lacking. Accordingly, Malpass has been replaced by Ajay Banga, the former head of Mastercard International, who made sure that the Bank quickly developed a climate conscience. The brand of environmental ‘solutions’ that are being advanced, however, are very much in line with the World Bank’s role as an enforcer for global capitalism.

Within weeks of taking over, Banga has overseen the production of a bulky report, ‘Detox Development: Repurposing Environmentally Harmful Subsidies’ that concludes that vast resources are being used to prop up the fossil fuel, agriculture, and fisheries industries, in ways that are causing ‘environmental havoc.’

The role of subsidies

The report suggests that environmentally harmful subsidies ‘deepen inequality, diminish productivity, and drive the destruction of ecosystems’ and it concludes that ‘reform and repurposing of perverse and harmful subsidies offer an opportunity to promote greater sustainability, inclusion, and shared prosperity.’ The writers express particular concern over ‘the impacts of subsidies on the world’s stock of foundational natural capital—clean air, land, and oceans’ (p.xxi).

It is suggested that ‘agriculture is subsidized in ways that promote inefficiency, inequity, and unsustainability’ and the report concludes that ‘more than 34 percent of fisheries are overfished, and this situation is exacerbated by open-access regimes and capacity-increasing subsidies’ (p.xxi).

The report finds that the ‘magnitude of subsidies for fossil fuels, agriculture, and fisheries is vast and likely exceeds US$7 trillion per year in explicit and implicit subsidies—or approximately 8 percent of global GDP.’ Moreover, for ‘fossil fuels alone, explicit subsidies—that is, direct fiscal support—totaled US$577 billion in 2021’ (p.xxii).

The writers also find that ‘implicit’ subsidies, ‘the price difference between the “undistorted” (socially optimal) price and the actual price that emerges after the subsidy is paid,’ are the greater problem. They also consider the costs of environmental clean-up and healthcare that result from the destructive activity of polluting companies (p.xxii).

The report is quite correct in suggesting that subsidies may drive and perpetuate environmentally destructive and entirely unsustainable productive activity. However, as it acknowledges, the ‘evidence points to the limits of price-based measures to curb pollution, as energy consumption is often price inelastic’ (p.xxv). This points to an obvious and glaring problem in tackling the subsidy issue in the way the World Bank proposes.

Those who drew up this report approach the subsidy issue from the standpoint of capitalist market forces. They assume that, if they are cautiously removed, ‘with carefully phased, step-wise reductions’’ (p.xxxi), and prices are driven up, investment will move out of environmentally destructive practices and into sustainable approaches. Yet, the driving up of fuel costs can only have the most terrible implications for working-class populations, especially in poor countries.

It is suggested that ‘fossil fuel subsidy reforms are pro-poor. In nearly all countries, richer households consume significantly more energy than poorer ones, and thus lose more when subsidies are removed’ (p.xxii). Doubtless, the rich consume more fuel than the poor, but significant price increases would be a mere inconvenience for the former, while they would constitute a disaster for the latter.

The driving up of fuel costs and the removal of subsidies, often in the name of responsible environmental stewardship, has already produced desperation and unrest in some poor countries. ‘After Ecuador’s government announced the removal of fuel subsidies in late 2019, the country experienced a wave of protests that occasionally turned violent. The government ultimately reversed course. India, Indonesia, Yemen and Jordan have also been rocked by unrest tied to the rollback of fuel subsidies over the past 15 years.’ The gilet jaunes or ‘yellow vest’ movement, that emerged in France in 2018, was also sparked by ‘a new eco-tax on fuel’

Market solutions

If we are to address this question in a way that advances the struggle for climate justice, without accepting at face value the kind of market-based solutions that are acceptable to the World Bank, the first issue, as truthout explained in an article written in 2020, is ‘to recognize the difference between producer subsidies and consumer subsidies.’ The first, ‘may take the form of subsidized inputs, preferential tax treatment, and direct budget transfers—straight-up corporate welfare for fossil fuel companies.’

On the other hand, consumer subsidies, a prime target of bodies like the World Bank and the IMF, enable poor people across the planet to access fuel at prices that enable them to survive. There’s no doubt that the wheels of fossil-fuel profit making are greased at public expense on a vast scale but, to conflate the two forms of subsidy and press for their removal, as part of a move away from carbon based energy, makes a mockery of any concept of a ‘just transition.’

Put succinctly and clearly, the ‘problem is fossil-fuel dependency, not underpriced energy. Raising the price without alternative forms of low-carbon energy available for all will not produce the kind of emissions reductions the world needs.’

The World Bank’s dubious green turn is very much part of a response by those in power to an intensifying ecological catastrophe. The discarded Malpass had headed the Bank with the approval of Donald Trump and his more adroit replacement was nominated by Joe Biden. When the Bank’s Board of Governors approved this choice, the president declared that Banga would be ‘a transformative leader’ who would ‘help steer the institution as it evolves and expands to address global challenges that directly affect its core mission of poverty reduction—including climate change.’

This play for legitimacy for the World Bank is very much part of an effort to show that a transition to sustainability is possible under capitalism. Though empty promises abound, however, the needs of profit and massive fossil-fuel investments tie the hands of governments at every turn. Biden can deliver a solid talk on the dangers posed by global warming, but his administration has served oil and gas interests at every turn.

This latest World Bank report is one of a series of attempts to chart a sustainable course under capitalism and it fails like all the rest. Whether it is the dream of ‘tech fixes,’ like carbon capture, the destructive plan to produce millions of private electric vehicles or the present proposal to drive up the cost of fuel for the world’s poorest people, none of these approaches are viable.

Shortly after the World Bank released its proposals on subsidies, the climate finance summit unfolded in Paris. Ajay Banga was in attendance and he announced that ‘resilient debt clauses’ would be included in new World Bank loan agreements that would ‘allow countries to pause their loan repayments, and divert loan money already disbursed in order to help them rebuild in the event of a climate-related disaster.’

At the same time, $100 billion in ‘special drawing rights’, that would help poor countries deal with climate related disasters, was agreed to ‘in principle’(!). Even if they are actually implemented, these measures fall desperately short of what would be needed to address the needs of these countries. Pakistan alone, devastated by floods last year, will have to hand over $77.5 billion in loan payments in the next three years and the ‘external debt stocks of developing countries reached US$11.4 trillion in 2022, more than double that recorded a decade ago.’

It is in this global context that the World Bank’s proposals on removing subsidies must be evaluated. Financial support for oil and gas companies, as they continue to poison the planet, are to be condemned, but the notion that poor people who are barely able to survive should be held responsible for the climate crisis and hit with increases in the cost of fuel is a false and deeply reactionary approach that we should reject and defeat.