A single tree in the tropics may be home to a far greater number of species of insects as a similar habitat in temperate zones. Photo by Roger Hamilton–IDB.

New resources to protect ecosystems

IDB gains access to global environmental fund

By Roger Hamilton

An agreement that will enable the IDB to mobilize a significant new source of funding for environmental projects was signed in December.

According to the agreement, the Bank may apply directly to the Global Environment Facility (GEF) for grant funds to prepare projects in the areas of biodiversity protection, greenhouse gas reduction, ozone protection, and international waters.

The first IDB operation to receive GEF financing, a plan to strengthen environmental management of a coastal area in Jamaica (see sidebar), is set to begin in the coming months.

Until this year, access to GEF resources was limited to the fund's three "implementing agencies": the World Bank, the United Nations Development Programme, and the U.N. Environment Programme. Regional development banks, such as the IDB, could not directly apply for funds, although they could help prepare projects by working through an implementing agency in one of their member countries. But this option has proved cumbersome, and the IDB has been involved in only one GEF grant financing, for a wind power project in Costa Rica.

In recent years, GEF member countries urged the fund to work more closely with regional development banks in order to make use of their special expertise, increase the number of innovative project ideas, and leverage additional resources. The result was the adoption of a new policy last year that gave the regional banks direct access to grant money for project preparation, up to a maximum of $350,000.

The GEF was established in 1991 and restructured following the Earth Summit in Rio de Janeiro in 1992. During the second replenishment of the GEF, in 1998, 36 nations pledged a total of $2.75 billion to finance environmental projects. The next replenishment is set for 2002.

Major funding. The impact of the new funds will be greater than their amount would indicate. According to Gil Nolet, who has coordinated the IDB team that guided the agreement to its conclusion, GEF project preparation grants "have the potential to be a significant part of overall IDB financing for biodiversity, renewable energy and energy efficiency." He estimated that the Bank could access between 5 and 10 GEF grants annually, amounting to between $1.7 to $3.5 million. These would be used to prepare full-scale projects in which both the GEF and the IDB would participate. Nolet estimated that total GEF funding for IDB projects could eventually amount to some $30 million annually.

Moreover, IDB access to the GEF will be an incentive for countries to come to the Bank with proposals for environmental projects that address global issues. Poor countries, with many pressing needs, are often reluctant to request loans for projects that target such global concerns as biodiversity loss and global warming. "Now they know that they will have access to grant funds," said Nolet.

Another advantage of the GEF funding is that the grants will often complement IDB-funded projects. "The beauty of these new resources is that without the GEF, there might not be an IDB operation," said Nolet.

In addition to the Jamaica project, the IDB will be considering the use of GEF funding for a tourism and biodiversity project in Belize, a project to prevent marine contamination in the Gulf of Honduras, improvements in energy efficiency to reduce greenhouse gases in a transportation project in Brazil, establishment of a clean technology fund for the Southern Cone countries, and a protected areas project in Bolivia. The Gulf of Honduras project has already been approved by the GEF secretariat.

Since its founding, the GEF has provided a total of $2.7 billion in financing for 650 projects in 140 countries. By 2002, annual GEF approvals are expected to reach $600 million annually.

Date posted: January 2001