Cut the Engine: Why should MDBs phase out support for internal combustion engines?

This November, at the UNFCCC COP26, the World Bank, Inter-American Development Bank (IDB), and other multilateral development banks (MDBs) are being asked to commit to end investments in the internal combustion engine (ICE), or fossil fuel-dependent vehicles, by 2025. By doing so, the MDBs have the potential to create a world in which everyone regardless of their country relies on transport infrastructure that is both climate-resilient and climate-friendly.

Globally, more than 25 percent of the energy-driven carbon emissions can be attributed to transport, and this is expected to increase dramatically in the next 25 years without strong mitigation efforts. A strategy of decarbonizing transportation includes better urban planning, such as infrastructure designed to encourage safe cycling and walking as well as mass transit. Public investment must also focus on zero emissions vehicles (ZEVs), including buses, and the electric charging infrastructure. 

BIC’s research has uncovered that since the 2015 Paris Climate Agreement became effective, the majority of World Bank and IDB transport projects have continued to favor fossil fuel-dependent vehicles. Our research on World Bank (IBRD/IDA) projects considers only transport sector projects, whereas the research on the International Finance Corporation (IFC), the private sector arm of the World Bank, considers all projects that we could ascertain based on public information were relevant to vehicle use. All projects assessed were proposed between January 2017 through September 2021. 

We found: 

• Of the project financing in the transport category from the public sector arm of the World Bank, 68 percent is for projects that include support for ICE vehicles and infrastructure, such as refineries and petrol stations; and only two percent of financing is for projects that support ZEVs and infrastructure, such as electric buses and charging stations. 
• Put another way, of 216 transport-category projects approved from 2017 until present, $77 billion was for projects that involved ICE vehicles and infrastructure. Less than $1 billion was for ZEVs. This is backwards. 
• More than 28 percent of all IFC project financing went to projects that likely included support for ICE vehicle procurement, use, maintenance, or manufacture, whereas only 1 percent went to projects supporting ZEVs.
• For projects related to the transport sector from the public sector arm of IDB, 97 percent of funds were dedicated to projects that invested in the use of ICE vehicles or supporting infrastructure. Only 0.1 percent of project funding involved support for ZEVs.
• The IDB makes significant investments in fossil fuel-dependent vehicles, over electric vehicles. About 10 percent of funds from the IDB Invest, the private sector arm of the IDB, went to projects that directly supported ICE vehicles or infrastructure. In addition 34 percent of funding that went toward projects that likely supported fossil fuel-dependent vehicles. Only 0.5 percent of IDB Invest funds supported projects involving zero emissions vehicles.

The World Bank is aware of the role it should play in decarbonizing the transport sector, and in the last few years has started programs to kickstart this conversation. This includes Sum4All, the World Bank’s sustainable mobility campaign launched in 2017, which brings together public and private partners to provide the data and policy tools needed to decarbonize global transport, including the Global Roadmap of Action Toward Sustainable Mobility. Earlier in 2021, the Bank also launched the Global Facility to Decarbonize Transport, a multi-donor trust fund specifically focused on transport decarbonization. Both the Bank’s awareness and initial efforts are welcome, but it needs to do more, in particular by phasing out support for ICE vehicles across its public and private sector lending. 

Countries around the world are already making time-bound commitments to phase out the sale, production and use of ICE vehicles and fossil fuel infrastructure. 

• Norway has already set a national goal that all cars sold should be zero emission by 2025. This builds upon Norway’s progress to date - battery electric vehicles represented more than half the market share of cars in Norway in 2020. Norway shows how quickly progress can be made using the right policies and economic incentives for purchasers. 
• The United Kingdom has indicated that it will announce a phase out of the sales of diesel and petrol-fueled cars by 2035. Eight additional European countries, Singapore, Canada, Cape Verde and the states of California and New York have similar phase out plans for fossil fuel-dependent vehicles. 
• Costa Rica has been future-focused creating the first country-wide electric charging grid in the region to ease the transition to zero emissions vehicles. This is just part of Costa Rica’s larger plan to decarbonize its economy by 2050. 

Sustainable transport is a global equity issue. Zero emission vehicles and infrastructure must be available in every country. Zero emissions vehicles should not be reserved for wealthy countries or highly developed cities. The pollution from fossil fuel-dependent vehicles directly harms the people where these vehicles are used, while also contributing to global climate change. 

Essential to a strategic, systematic, and coordinated approach to decarbonizing transport will be a bank-wide policy that redirects financing away from fossil fuel-dependent vehicles to zero emissions vehicles. This must include sustainable and equitable minerals extraction and reuse for batteries as well as clean power generation to support charging infrastructure for electric cars, buses and trucks. The World Bank and the IDB can lead the way for all international financial institutions by making a commitment at COP26 in Glasgow to phase out support for the internal combustion engine by 2025. This commitment would be a key plank in the World Bank Climate Change Action Plan to bring 100 percent of its portfolio in line with the aims of the Paris Climate Agreement.