Financing the Energy Transition around the World, with Afsaneh Beschloss

Top Quotes

• Are multilateral development banks leading on climate?: “If you look at the numbers, you wouldn’t say that the MDBs have been the leaders. They’ve been going along at the same pace as commercial institutions. More recently, a lot of the MDBs have been making a lot more speeches and policies to increase allocations to renewables. But if you go back and purely concentrate on numbers, let’s say 2017 to 2019, the largest amounts were going into [liquefied natural gas] projects.” (14:11)
• Ensuring reforms don’t harm developing countries:“We have to be careful that policy, which has really good intentions, and guidelines that have the best of intentions, don’t lead to the more fragile economies and the lower-income countries having less choice than we do ourselves in the United States.” (20:00)
• Renewable energy projects in emerging economies can be smart investments: “As we speak, a lot of investors are stepping in to invest in the best projects. What they’re finding is some of these renewable projects in emerging markets and low-income countries are actually high-return projects. In the first year of COVID, some of the studies showed us that oil and gas projects started getting delayed, and it was the renewable projects that still did go ahead. We're seeing similar things as we speak.” (27:10)

Top of the Stack

• They Knew: The US Federal Government's Fifty-Year Role in Causing the Climate Crisis by James Gustave Speth

The Full Transcript

Daniel Raimi: Hello and welcome to Resources Radio, a weekly podcast from Resources for the Future. I'm your host, Daniel Raimi. Today we talk with Afsaneh Beschloss, founder and CEO of the RockCreek Group. Before founding RockCreek, Afsaneh worked with the World Bank and other financial institutions to develop energy projects around the world. As pressure mounts on banks to move away from fossil fuels, I'll ask her about the special role that multilateral development banks can play in the transition to clean energy. We'll also talk about recent guidance from the US Treasury Department that seeks to curb fossil fuel financing at these institutions and what it all means for the future. Stay with us.

Okay, Afsaneh Beschloss from the RockCreek Group, thank you so much for joining us today on Resources Radio.

Afsaneh Beschloss: It's wonderful to be with you.

Daniel Raimi: Afsaneh, we're going to talk today about multilateral development banks, or MDBs, and their connections with energy and climate change and the environment. But we always ask our guests how they got interested in working on environmental issues in the first place. So what led you into this world?

Afsaneh Beschloss: I'll try and not be too long-winded, but when I was in high school (I was born in Iran—obviously a country that is an oil and gas producer), I remember my teachers at school sent me to some laboratories, and I started looking at how labs looked at the various end products of oil at that stage. Fast forward, I ended up at Oxford as a student, and my professor had a lot of interest in energy. One of my professors, Robert Mabro, ended up starting something called the Oxford Energy Institute. Again, a lot in oil and gas at that time, but also already starting to look at energy efficiency. And Robert told me, "Afsaneh, a lot of men know all about oil. Why don't you learn about natural gas and differentiate yourself?"

We knew that natural gas was cleaner. It had fewer environmental issues, was plentiful in a lot of countries, and a lot were flaring it, so that was creating a bigger environmental problem, even at that point. So that's how I got interested.

And then fast forward, I went to work briefly at JPMorgan. Because of this work, actually, by total coincidence, somebody who'd been also in the masters doctoral program at Oxford ahead of me was in my JPMorgan program. He recruited me and I ended up working on energy again.

And then last but not least, I realized I really wanted to work in development. I applied to the World Bank and joined the World Bank as what they call a young professional. It used to be they only took 20 people or so, and you eventually get into the management of the World Bank. I said, “I want to work on energy,” and I got to work in the energy department on clean energy and energy policy and energy investments. That's sort of my history.

Daniel Raimi: Yeah, that's really fascinating. There's a million questions I want to ask you about each of those elements of your life, but let's stick to our main focus for today, which is going to be multilateral development banks such as the World Bank. So we're going to be using the term MDB, just to hammer that into everyone's heads: MDB is a multilateral development bank. Before we talk about the energy applications of MDBs, can you give us a little historical background about how the World Bank and other MDBs came into existence and what goals they were trying to accomplish?

Afsaneh Beschloss: Absolutely. The World Bank, as you said, and the whole group of multilateral development banks, are financial institutions. As described by the US Treasury, they provide financial aid and technical support to developing countries to support their economic management and to reduce poverty.

The interesting thing is that the oldest MDB is the World Bank, which was founded in 1944, along with the IMF at the Bretton Woods Conference. It was called the International Bank for Reconstruction and Development and was created to rebuild Europe and parts of Asia after the destruction of World War II. With the US-led Marshall Plan taking over much of Europe's reconstruction in the late 1940s, the World Bank shifted its focus to funding development projects in low-income countries, and eventually, to fighting poverty itself.

When I was running the finances of the World Bank, the Tokyo office of the World Bank reported to me. I remember everyone was just so nice. There was a picture of the famous bullet trains in Tokyo, and the World Bank had financed the first bullet train in Japan. So that's the sort of thing that the bank was doing in those days.

Today, the bank is part of a system, along with a dozen regional development banks. There are many, many more development banks, and they include the European Investment Bank, the Inter-American Development Bank, the African Development Bank, the Islamic Development Bank, and the youngest one is the New Development Bank, which was founded in 2014 by a group of countries that include the BRICs. It's a much bigger group of financial institutions today.

Daniel Raimi: Yeah, that's really interesting. And BRICs refers to Brazil, Russia, India, and China. Is that right?

Afsaneh Beschloss: Exactly. Thank you for defining that.

Daniel Raimi: Okay, great. You've already mentioned one example of a project that the World Bank might fund—the bullet train in Japan. Can you flush that out a little bit for us? What are the types of projects that the World Bank typically invests in around the world, and what role do energy projects specifically play in that portfolio?

Afsaneh Beschloss: As you know, the World Bank and the other multilaterals invest across the whole food chain: from energy to health to education, financial inclusion, and so on and so forth. When it comes to energy and infrastructure, which has always historically been a very large part of the activities of the World Bank Group, whether it's the bank group—which provides loans to middle-income countries, as well as the International Development Association, which helps support the most fragile and the 76 poorest countries—what ends up happening is two sorts of loans: loans that go into hard infrastructure, and loans that go into policy development, and making a better set of conditions so that countries can develop their infrastructure in a more productive way. It can go both into the hard as well as the soft part of energy, if you want to think about it that way.

Daniel Raimi: That's really helpful. And so I imagine when I think about hard energy infrastructure, I think about things like power plants, maybe import-export facilities, obviously transportation infrastructure, water and sewer infrastructure… Can you give us some examples of what the softer infrastructure investments might be when it comes to energy?

Afsaneh Beschloss: Oh, sure. Soft could be, what should be the pricing for energy? We're all interested in more efficient energy today. Is energy priced at market levels? A lot of poor countries subsidize energy. That can lead to wastage of energy, so that would be one example where the bank or other parts of the World Bank Group would work with countries to make sure the need for conservation is alongside reducing subsidies. It’s making sure the lowest-income users are provided some sort of subsidy, so that it makes up for the fact that they're paying more for energy. Ultimately, you're using energy efficiently and, at the same time, not hurting the lowest income people who may not be able to afford energy.

Daniel Raimi: Right. That's great. It's funny you mentioned subsidies. We just recently did an episode with Joe Aldy from the Harvard Kennedy School on energy subsidies in a US context, which are all primarily about supporting energy producers, but we also have subsidies in the United States for low-income energy consumers and they're very prominent around the world. Actually, we should do an episode on energy subsidies around the world sometime soon.

Afsaneh Beschloss: It's a topic because, often, people in all countries argue for energy prices being lower so that they can help people with the lowest income. But I remember being in Bangladesh and working on natural gas projects and, interestingly, the natural gas came into only urban areas. The rural poor had no access to it, and they had to still use wood.

The other thing was that natural gas was priced almost at zero. When we worked with the government, they said, "Well, we want to make sure low-income people are able to meet their energy needs." But it was in fact the middle-income people in the cities who were using the natural gas. Last but not least, what this pricing system led people to do: they were leaving their gas stoves on because they didn't want to buy matches.

Daniel Raimi: Oh, wow.

Afsaneh Beschloss: They were paying almost nothing for the natural gas coming into their houses. The poor farmer or the poor rural populations were paying much more for their wood and LPG, while the city folk were paying almost nothing and not turning their stoves off. That's why you need to make sure these things are done correctly.

Daniel Raimi: Yeah. That's so interesting. And “LPG,” for the non–energy nerds out there, is liquified petroleum gases, such as profane. Let's turn now to an issue that has been in the news quite a bit over the last really several years, which is the need for greenhouse gas emissions to be deeply reduced, and the pressure that that is exerting on banks around the world, including MDBs, particularly when it comes to financing investments that are related to fossil fuels. Can you talk a little bit in general terms about how MDBs are experiencing those pressures, how they've responded, and then how those responses might differ from the ways that privately owned banks have responded around the world? I know that's a lot to ask. Please feel free to take that in any direction you want.

Afsaneh Beschloss: Sure. There's increasing pressure across the entire financial sector right now to play a larger role in reducing greenhouse gas emissions, as you said. We can see that with everything, from new climate and [Environmental, Social, and Governance]-focused funds to the growth in the carbon offset market. This is the new reality. We at RockCreek just hosted a climate summit this summer, and the chief investment officer for the largest public endowment in the United States told me that everyone is looking at climate as something that matters now. The last era was about hydrocarbons, whereas the era we're about to start is going to be all about renewables and sustainable sources. If you knew this person and if you had asked him the same question literally a year ago, he would have said something very different.

I think what is really important right now is that, even if you look at the numbers between 2017 and 2019, commercial and investment banks invested trillions in fossil fuels. That's just a couple of years ago. A number of those were Chinese banks, a number of them were European banks, and a number of them were US banks. You had all these banks still investing a lot in fossil fuels. I think the power of the MDBs has been the ability to put in resources. For every dollar that an MDB puts in, the smart thing would be to leverage it to get $10 or $20—if not more—from the private sector to go into renewable energy, so that we can tackle these gas emissions.

Last but not least, the largest growth in energy is happening in emerging markets, like China. If we're going to do anything about marginal increases that are happening right now, we need to tackle that at the same time as we increase efficiency on existing gas emissions across the globe.

Daniel Raimi: This might be a difficult question to answer, but do you have a sense of whether MDBs are moving away from fossil fuels faster than banks in the private sector, at the same rate, or slower? Is there a clear way to compare?

Afsaneh Beschloss: It is not the easiest thing, even though I've worked for a long time at the World Bank. I know the other MDBs incredibly well, have worked with them, and continue to cooperate with them because public investments are probably the most important kinds of investments we can talk about in clean energy.

I would love to have more transparency around the numbers. If you look at the numbers, you wouldn't say that the MDBs have been the leaders. They've been going along at the same pace as commercial institutions. More recently, though, a lot of the MDBs have been making a lot more speeches and policies to increase allocations to renewables. But if you go back and purely concentrate on numbers, let's say 2017 to 2019, the largest amounts were going into LNG [liquefied natural gas] projects, they were going into oil and gas, and even coal. That's only two years ago.

Now, a lot has changed since 2019, but we have to look at published numbers and actuals. We need a lot more push by the MDBs, even beyond what they're doing today, which is a lot, to increase this push even more. I think, hopefully, the Treasury Department's recent guidelines will be helpful in that direction.

Daniel Raimi: Yeah, that's great. Let's talk about those now. In mid-August, the US Treasury Department issued new guidance for MDBs on their support for fossil fuel–related energy projects. Can you give us an overview of what that guidance said, and to what extent does it actually bind or affect the decisions that MDBs ultimately make?

Afsaneh Beschloss: The Treasury Department's new guidelines talk about how to direct US votes on these new projects at the MDBs. In some of the MDBs, the United States has larger voting rights than in others, but specifically, the United States will oppose all new coal-based plants, as well as oil-based energy projects with some rare exceptions for oil, for example, in humanitarian crises or as backup generation for clean, off-grid energy systems. The United States will also oppose upstream natural gas projects and will support midstream and downstream natural gas projects if certain criteria are met.

It's interesting because, as you well know, some of the Chinese banks have been supporting coal projects. There are still coal projects getting built as we speak in emerging markets. I think what would be really helpful is not just for the United States to have this directive, but for all the countries across all MDBs to have the same directive with regard to coal, to start with, to put that aside as one thing that nobody's going to do because the power of coal in terms of making our environment worse is just huge. Going back to the United States, I think it's important to have its own voting direction but also to influence others who can stop investing in coal.

The other thing is, for example, the Asian Development Bank has just issued a new energy policy in 2021 that prohibits financing of any coal mining, oil and natural gas field exploration, drilling, and extraction activities. This policy leaves the door open also to LNG with some conditions. That is a good direction, but again, we would hope that the Asian Infrastructure Development Bank, which has said they will end coal financing in 2022, could maybe bring it forward. President Jin Liqun, who's very smart and one of the best development economists, could stop it even right now and not invest in any more.

Also, their influence on commercial institutions will be very important. That's not so much in this Treasury release on guidelines, but it's really specifically about what the United States will vote for and not vote for. Since I worked a lot on renewable energy, on solar wind for many, many years, I mean, just like in the United States, right, we can't go 100 percent to renewables as much as I'm trying to. At work, in RockCreek, we are trying to go to zero emissions. At home, I'm trying to do that wherever I have any influence. In our investments, we're trying to do that. And if each of us does that, I think that will be a first step, but more important is that none of us can do it 100 percent today as much as we try. If we're getting on a plane, planes are using oil products.

The point is, how do we get from point A to B as fast as possible? That takes me to natural gas, where this guidance is just not 100 percent clear. If I'm a small emerging market with local gas—not to build LNG to sell, but just for my own use of natural gas—and I have to develop it so I can have local power at the same time as I'm doing solar and wind. For me, that ends up being cheaper should we not let that country do that, and instead get them to do a coal power plant because some bank finances the coal power plant.

We have to be careful so that policy, which has really good intentions and guidelines that have the best of intentions, don't lead to the more fragile economies and the lower-income countries having less choice than we do ourselves in the United States.

Daniel Raimi: Yeah. That's exactly the next question that I wanted to ask you about. And before we do that, we've mentioned “LNG” a couple times, and not to be confused with “LPG.” “LNG” is liquefied natural gas, which is methane that's supercooled, and then transported across the ocean.

Afsaneh Beschloss: Exactly. Exactly. So the gas gets produced, it gets liquified, it gets into a tanker, it goes all over the world across the ocean and sold, let's say in Japan or somewhere else where they don't produce energy themselves. Exactly right. And again, that's very different than, let's say, Bangladesh, producing natural gas to create power for its own use in terms of the A to Z of wastage and efficiency, while they're pushing for increasing solar and wind. And of course, island economies, which is shocking; if you look at most island economies, you find they're importing 90 percent diesel. Right here in the United States in Hawaii, 90 percent of energy is diesel. If you look at their plans to get out of diesel, into renewable energy, in a place that has so much sun, it may not be in our lifetime.

Daniel Raimi: Yeah, it's challenging. Actually, we're trying to set up an episode on Hawaii right now.

Afsaneh Beschloss: Oh, that'll be so interesting. I can't wait to listen.

Daniel Raimi: One thing that listeners might be thinking as we're talking about these investment guidelines from the Treasury Department is whether or not there might be an element of hypocrisy here. Here in the United States, we're still drilling lots of new oil and gas wells, we're still mining a lot of coal and burning it. The administration is trying to move us away from that, but it can't happen overnight, as you said. Can you talk a little bit about the trade-offs and the tensions that we're seeing here between the need to reduce emissions, but also the need to support economic development? And also trying to do it in a way that's not colonial, or neocolonial, or has echoes of that troubled past.

Afsaneh Beschloss: The more these MDBs are partners to the countries that they're lending to, instead of directing them and ordering them what they can do and what they can't do, the better. I think the next phase for these development agencies and the multilaterals is to be partnering with the poorest countries to—since we do know that solar, we do know that wind, we do know that other forms of energy-efficient products are more economic today—just work on those. Instead of directing them, “You cannot do X, or you cannot do Y,” positively working with them to develop solar and wind. Going back to the data I was referring to, that's what I find shocking: that solar and wind are such a small part of what the MDBs have done in the past. Again, you can do these things directly.

The same point you made, I find that whether it is the World Bank telling a country, “You cannot develop your own oil or gas,” or an investor in the United States being given “you cannot do X or Y,” we should instead give people options. Show them what's economic. The World Bank that I joined was doing that. It would work on education and know-how sharing so that if you are a small fragile country, you would see, and you would get the help and the technical assistance to develop the cheapest energy for you, that's appropriate for you. And then you wouldn't have what you referred to as potential hypocrisy or having two rules for different countries, or for myself and for you, having two different rules.

Daniel Raimi: Right. Totally. And that role of soft investment as you termed it earlier seems particularly important here when we're thinking about integrating renewables and developing markets where they can effectively compete, and developing the capacity to maintain an electricity grid that can manage these high levels of renewables. Are those types of projects becoming more common?

Afsaneh Beschloss: Oh, absolutely. On the one hand, you have the hard part of solar and wind. In fact, if you go to a country like Morocco, they have been leaders in developing solar power, and you can see that with your own eyes. If you go to a lot of Latin American countries, hydro was a big area, but now, more and more, wind is getting to be very important in these countries.

But then the soft part of it that you refer to is also really, really important. Going back to the MDBs, the MDBs can really play a big role in saying, "We're learning this in this country, and this is very appropriate. What we're learning, this experience for this island economy is very appropriate to you, another island economy.” Again, this know-how sharing was a very classic part of the World Bank job.

And then with a loan, coming up with, not just conditionality in a very directive way, but advice and, “This is the best state-of-the-art way to do a solar plant in this kind of environment. This is the cheapest way to access what you're trying to do in renewable energy.” And pure economic analysis: “If you were to use this coal power plant that was offered to you, or this oil or gas, this is the cost and this is the emissions,” so that countries can make those decisions for themselves.

Daniel Raimi: Right. Yeah, that's so interesting.

Afsaneh, one more question before we go to our Top of the Stack segment, which you've already referred to a little bit, but I'd love to just hear a little bit more of your thoughts. To what extent do you think other banks or other nations might step in and fill the gap that's left behind by the World Bank not investing in, let's say a coal-fired power plant or a new oil field in a developing nation? To what extent do you think these efforts are going to really matter on the ground, and to what extent do you think other banks might step in to fill the void?

Afsaneh Beschloss: As we speak, a lot of investors are stepping in to invest in the best projects. What they're finding is some of these renewable projects in emerging markets and in some of these low-income countries are actually high-return projects. The first year of COVID—last year—some of the studies showed us that, in fact, oil and gas projects started getting delayed, and it was the renewable projects that still did go ahead. And we're seeing similar things as we speak.

The other thing is that in the private sector, there's huge pressure today from the youth, from other stakeholders, putting pressure on companies—as you saw with Exxon, with Engine No. 1—to get out of oil and gas and to increase their share of renewable energy. So you're having that pressure, which is really hopefully going to correct things. I think Engine 1 is looking for some other company to work on, and these things will take time. An oil and gas company that's sitting on huge reserves of oil and gas, or a coal company that's sitting on huge coal reserves, is not going to change its behavior, but then the banks will follow. The other financial institutions will follow because if pension plans, sovereign oil funds, and university endowments insist on investing in clean energy, that's where the banks will go. It would be good if the MDBs become bigger leaders in this.

Daniel Raimi: Yeah. Well, let's certainly hope that that's the case.

Afsaneh Beschloss: Exactly.

Daniel Raimi: Let's move on now to our last question, which we ask all of our guests, which is to recommend something that they've read or watched or heard. It could be related to the environment, or even not that closely related to the environment, but just something you've been enjoying watching, or reading or listening that you would recommend to our listeners. So Afsaneh, what's at the top of your stack?

Afsaneh Beschloss: There's a new book from MIT Press called They Knew: The US Federal Government's Fifty-Year Role in Causing the Climate Crisis. I'm not saying I agree with it, but I'm certainly very curious to read about it. It was written by Gus Speth, who I'm sure you know. It covers the period from LBJ through President Trump, documenting what governments knew when they knew about climate change and how they played the leading role in the climate crisis. So I'm just curious. I was just looking for the exact title to share with you, but I just got it. It's my plan to read it and see whether I agree with it, or I don't agree with it, but it’s certainly very provocative.

The reason I find it provocative is that I was involved when the first IPCC report came out. I remember at that time, there were a lot of people who were not investing in infrastructure or climate-related areas, who really had a lot of doubts about it. You may remember the controversies around those reports, and it's only 20 years ago. So, I find that there's a lot more that is coming out from the universities and from academics and others on the topic, but it's interesting that the report this time became much more of a household name. Hopefully we will have more of that.

Daniel Raimi: Yeah, absolutely. I share your curiosity in this book and maybe a little bit of skepticism, but—

Afsaneh Beschloss: Yes, exactly. Very provocative.

Daniel Raimi: I think I found the title. It's They Knew: The US Federal Government's Fifty-Year Role in Causing the Climate Crisis. Just came out. I guess it sounds like a really interesting read again, whether you agree with it or not.

Once again, Afsaneh Beschloss from the RockCreek Group, thank you so much for joining us today on Resources Radio. It's been a fascinating discussion.

Afsaneh Beschlo. Thank you for inviting me. It's great to be with you.

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