World Bank Response to Oyu Tolgoi Power Source

The World Bank has decided to go ahead with funding the Oyu Tolgoi Project on February 28. Thanks to this tweet by CoverMongolia for the link.

The environmental and social impact assessment of the project was one step in the process of deciding on this issue. And the World Bank has published a document titled “International Finance Corporation Response to Civil Society Review of Oyu Tolgoi ESIA” (that last abbreviation means “environmental and social impact assessment”.

The good news in that assessment is found on its page 2:

Project Power Source

OT has publically stated it will not make a decision regarding future power supplies for one to two years. OT has agreed to make public a full ESIA including an independent alternatives analysis if it decides to build a dedicated power plant for the mine. Any such ESIA will be disclosed prior to the start of construction work.

That of course means that there is still a chance to stop a new coal plant at Oyu Tolgoi and build wind and solar capacity instead, or at least as an additional power source.

It would of course be a great success for the first phase of getting large scale renewable energy from the Gobi desert running to supply as much as possible to this project.

There is more on the Oyu Tolgoi power supply in this document released by the World Bank.

Again, this document says they will not decide on the future power source for one or two years, since they have a four-year contract for electricity from China. I am not sure if that actually works out, since it may take more than two years to build a coal plant. Even for wind power construction takes longer in the Mongolian desert for lack of infrastructure. Solar could of course always be rolled out in a matter of weeks or months.

The document says that the project has agreed voluntarily to comply with the “World Bank Group coal criteria“, published in 2010.

Especially Number 2 and Number 4 of these are of interest.

Number 2 says this:

Assistance is being provided to identify and prepare low carbon projects;

This is explained in more detail like this:

In the case low carbon studies and projects design and/or national strategies for promoting RE/EE and
other low carbon interventions have already been prepared:
• Support the financing of bankable projects in RE/EE and other low carbon interventions and/or implementation of policy recommendations as part of the scope of the project and/or to ensure that access to finance for these projects is available from other sources including countries’ own and/or donors [specify policy/regulation and year of implementation], [for projects: specific value by year if development decisions have been made] [for all: GHG emissions reduction estimates]. If the defined pipeline of bankable projects or a policy implementation action plan allows for parallel engagement of several donors, the Bank’s financing of RE/EE or other low carbon interventions needs to be incremental to the efforts of other donors and national governments. [specify incremental financing provided by the Bank in addition to the already available finance]

If I read that right, this would seem to mean that projects financed by the World Bank need to develop at least some renewable energy together with coal.

And here is Number 4:

After full consideration of viable alternatives to the least cost (including environmental externalities) options, and when the additional financing from donors for their incremental cost is not available;

The detailed explanation for this:

• Least cost analysis
• Quantify environmental externalities [specify variables] – see also criterion #6 below
• Project is least cost after full consideration of alternatives and after factoring in environmental externalities costs [yes, no]
• Assessment of incremental costs of alternative options (with and without environmental externalities)
[alternatives and associated costs]
• Evaluation of switching prices between the proposed project and alternative low carbon options [switching
price expressed in US$/ton CO2]

This requires the cost of CO2 emission (externalities) to be included in the analysis when comparing the price of coal to that of wind or solar. That gets rid of a very important hidden subsidy for fossil fuel that is normally not factored in. Very good news for anyone who would like to see solar and wind beat coal at this site.

It does not, however, factor in another important aspect. A coal plant will take several years to build, while solar is rolled out in a matter of weeks or months. So any comparison between solar and coal needs to assume solar prices as they will be in a couple of years (e.g., lower) for the very least, or better yet as they will be in twenty years (assuming a useful coal plant life of 40 years and averaging the cost of solar over those 40 years as those after 20).

 

Published by kflenz

Professor at Aoyama Gakuin University, Tokyo. Author of Lenz Blog (since 2003, lenzblog.com).

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