* World Bank provided assistance to market investments in Brazil’s pre-salt oil fields
* First field in the pre-salt area to be developed by international oil companies
* World Bank-proposed new Climate Change Action Plan fails to end Bank policy-based lending that drives new fossil fuel investments
In early June, ExxonMobil (USA) and Equinor (Norway) reached the final investment decision for $8 billion in the first phase development of the Bacalhau deep-water oilfield in Brazil’s pre-salt area. Exxon and Equinor both hold 40 percent stakes, while Petrogal Brasil holds 20 percent. Estimated recoverable reserves for this first phase development are more than one billion barrels of oil. On June 17, the World Bank’s Board of Directors is scheduled to discuss the Bank’s proposed new Climate Change Action Plan (CCAP).
This $8 billion investment in new oil production is the first since the International Energy Agency (IEA) called on investors and energy companies not to fund any new oil, gas or coal production projects if the world is to reach net zero emissions by mid-century.
“Brazil is a G20 country and the ninth largest oil producer in the world with record-breaking oil production in 2019. As such, it would seem that international public assistance should not be used to encourage more oil investment in Brazil. However, the World Bank did just that,” said Heike Mainhardt, Senior Advisor at Urgewald.
According to Urgewald, a German civil society organization, the World Bank’s ongoing technical assistance in Brazil aims to attract and increase private investments into Brazil’s pre-salt oil fields. The World Bank’s Energy and Minerals Sectors Strengthening Project, which started in 2011 and continues through the end of 2025, covers pre-salt oil and gas resources in Brazil as well as other gas, renewable energy, mining and transmission activities.
Starting in June 2018, the Bank’s assistance funded $500,000 to IHS Global Ltd. consultants “for the implementation of Brazil’s long-term oil and natural gas marketing policy.” According to Bank program documents, part of the government’s marketing included driving upstream investment into its pre-salt oil and gas resources. Specifically, this marketing included holding bid rounds for new onshore and offshore exploration areas in late 2019.
The Bank concluded in its project appraisal document that “the bid rounds were not as successful as anticipated…highlighting the need for additional legal and regulatory reforms. This Bank statement indicates that the Bank believed the legal and regulatory framework needed to be reformed to better incentivize more investment in the pre-salt oil and gas resources. In May 2020, the Bank approved an additional $38 million to continue this technical assistance program.
This $8 billion investment represents the first field in the pre-salt area to be developed by international oil companies and not the state-controlled Petroleo Brasileiro SA. It appears the reforms supported by Bank assistance provided the right incentives to attract the international oil companies of Exxon and Equinor to come to their final investment decision.
Equinor states that “Bacalhau is a globally competitive project with a break even below USD 35 in a key energy region.” In this same key energy region, Exxon has another significant oil field with a break even mark below USD 35 – the Stabroek oil block offshore Guyana. The low breakeven cost is not the only thing in common between these oil fields. The World Bank also has on-going technical assistance to Guyana’s government for upstream oil development.
Heike Mainhardt said: “the World Bank’s Brazil assistance is just one of many examples of the Bank’s policy-based operations that push reforms providing incentives for fossil fuel investments. These incentives include tax breaks and higher energy tariffs, which are part of the Bank’s technical assistance and Development Policy Finance (DPF). Such policy reforms make fossil fuel investments more profitable.”
Previous research by Recourse in 2017 concluded that Bank DPF policy reforms in Mozambique, Indonesia, Egypt and Peru resulted in the creation of new subsidies and investment incentives for coal, oil and gas. According to Urgewald, since the Paris Climate Agreement, the World Bank has policy-based operations targeting the energy sector in at least 54 countries.
World Bank’s Climate Change Action Plan fails to address policy-based operations
On June 17, the World Bank’s Board of Directors is scheduled to discuss the Bank’s proposed new Climate Change Action Plan (CCAP).
Heike Mainhardt stated: “The Bank’s policy reforms are the drivers behind investments in the energy sector – in both clean and dirty operations. However, in the World Bank’s proposed CCAP , the Bank only touts supporting policy reforms for renewable energy and carbon pricing and fails to act on the other half of the climate equation – the Bank’s policy incentives for fossil fuels.”
Heike Mainhardt maintained: “By not addressing fossil fuel investment incentives within Bank policy-based lending, the CCAP is not a meaningful plan to address climate change. The world cannot wait any longer for the World Bank to stop pushing policy reforms that make fossil fuels profitable.”
 The World Bank’s Energy and Minerals Sectors Strengthening Project in Brazil started in December 2011 with $50 million with additional finance of $38 million approved in May 2020 (with an end date of December 31, 2025).
 World Bank Appraisal Document for Brazil Energy and Minerals Sectors Strengthening Project II, March 3, 2020, page 15, paragraph 29. https://documents1.worldbank.org/curated/en/212481590458428284/pdf/Brazil-Second-Energy-and-Mineral-Sectors-Strengthening-Project.pdf
 The World Bank has only provided CCAP summary slides. It has not yet disclosed the CCAP document to its Board of Directors or to the public. https://blogs.worldbank.org/voices/join-conversation-our-new-climate-change-action-plan
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Senior Advisor on multilateral financial institutions at Urgewald