The UK must stop funding World Bank aid until the Bank stops financing unabated coal power stations in developing countries, says the Environment Audit Committee in a new report on the impact of UK overseas aid on environmental protection and climate change adaptation and mitigation.

Chair of the Environmental Audit Committee, Joan Walley slammed the World Bank, saying it "should not assume continued support from the UK unless it changes its ways".

She also had harsh words for the Department for International Development (DFID), arguing that it "needs to get tough and use its position as a major shareholder to vote down dirty coal powered energy projects and ensure that the World Bank’s portfolio isn’t making climate change worse".

Last year's Spending Review gave Overseas Development Assistance (ODA) an increase in expenditure, one of the very few budgets to get an increase, from £8.4 billion in 2010 to £12.0 billion in 2013. This is to honour a commitment to match the United Nations (UN) target of providing 0.7% of Gross National Income as aid by 2013.

This is not the first time that DFID's performance on the environment has been criticised. A 2006 report said its processes for environmental safeguarding of aid programmes were inadequate, and concluded that DFID's climate change policy lacked coherence, and was "directly and indirectly responsible for very significant emissions of carbon into the atmosphere".

This new report shows little has changed since then, a fact supported by a National Audit Office report from February of this year, Aid and the Environment, in which DFID claimed it is trying to become more “climate smart”, but was unable to provide any evidence that it had integrated environmental sustainability into development programmes.

The EAC also attacks the government's Export Credits Guarantee Department, saying its activities "are not in line with the government's wider sustainable development principles" and need immediate reform.

It recommends that "the ECGD should not support fossil fuel projects. It should develop and publish strategies for implementing the Coalition Agreement commitment to shift its support to low carbon and green technologies".

The MPs say also want to see environmental impact assessments conducted "on all the projects that the ECGD supports, irrespective of size or repayment terms".

Climate loans "dangerous and irresponsible"

The UK's relationship with the World Bank also came under attack this week from the World Development Movement.

In a report entitled "Climate loan sharks", it accuses the UK and World Bank of making developing countries pay twice for climate change measures because its help is in the form of loans which must be repaid with interest by already debt-burdened countries.

For example Grenada’s debt is already 90% of its GDP, yet it is to be lent a further $22 million, over 3% of its GDP. The WDM calls such lending "at best irresponsible and at worst wilfully dangerous".

How is this occurring? The UK is providing most of its climate finance for adaptation as capital that can only be dispersed as loans through the World Bank’s Pilot Program for Climate Resilience (PPCR). All but 3% of these loans' capital comes from the UK.

Eleven country proposals have been developed so far under this programme, and at least £704 million of their finance will be loans.

The WDM notes that the idea of climate loans was created by the UK Labour government "as an accountancy trick to make its balance sheet look better, a policy continued by the current coalition government".

In May, the Institute of Development Studies (IDS) also criticised the Pilot Programme for Climate Resilience (PPCR), saying the involvement of the World Bank in climate finance is more about keeping its own status than anything else and will "frustrate the ability of those most vulnerable to climate change impacts to shape future adaptation funding flows”.

The World Bank and the Green Climate Fund

The United Nations Framework Convention on Climate Change (UNFCCC) has given the World Bank a major role in the design and management of the new Green Climate Fund (GCF). This Fund is the mechanism which will channel all the climate finance promised by developed countries to help developing countries that was agreed at the annual global climate talks in Copenhagen and Cancun.

Developing countries and civil society groups heavily criticise the World Bank's role in this because of the Bank's record, summed up by Teguh Surya of NGO WALHI Indonesia, at a UNFCCC conference in Bangkok in April. He said, echoing the EAC's criticism, “we deplore the appointment of the World Bank as trustee for the Green Climate Fund. The World Bank does not have any credibility to be involved in climate financing given its long track record in promoting and funding fossil fuel projects that exacerbate climate change”.

At the first meeting of the transitional committee tasked with designing the GCF in Mexico City last April, three co-chairs were chosen in a behind-closed doors process, with no civil society observers admitted. All three were male, and former finance ministers, and one was criticised for a conflict of interest.

A raft of other criticisms of the bank's processes and outcomes have been highlighted by the Bretton Woods Project, set up to monitor the World Bank and IMF.

DFID's monitoring system

Currently, however, the EAC observes that DFID's power to affect the Bank's behaviour is limited by its lack of expertise and capability. According to the NAO and EAC, DFID has had relatively few indicators to assess performance in this area.

DFID's review of its aid programme has resulted in climate change becoming one of its six priorities in its business plan for 2011-15. Aid spending directly attributable to environmental protection and climate change by all departments has risen over the last five years from £102 million in 2005-06 to around £360 million in 2009-10.

Despite this, it remains a relatively small but growing part of the aid programme. In response to the 2009 Copenhagen Accord, the UK government pledged £1.5 billion in aid for climate change over the period 2010 to 2012. Some £500 million of this was funded from the Environmental Transformation Fund (ETF - jointly funded by DFID and DECC) in 2010-11. Most of the remainder is funded from the International Climate Fund.

The Environment Audit Committee believes that DFID needs to publish a clear strategy on its approach to environmental issues to ensure that it gives them sufficient priority in its programmes and expenditure.

It says that UK aid should be helping developing countries to leapfrog high-carbon development and avoid locking in carbon-intensive infrastructure.

Therefore DFID should set targets for increasing energy access and the proportion of renewable energy usage in developing countries, and report such performance in its Annual Report.

Our privileged levels of consumption here in the UK, relative to developing countries, increases demand on production in these countries, which inevitably leads to degradation of their natural resources.

The EAC exhorts the UK government to ensure that our economic activity does not cancel out, or even reverse, the positive impact that UK aid is having overseas.