MARK COLVIN: In a big policy shift, the World Bank says it’ll no longer fund coal fired power stations in poor countries.

The board of the World Bank has agreed to a new energy strategy which will limit the financing of coal generation except in ‘rare’ circumstances.

Rare circumstances could include places where there are no feasible alternatives to coal.

Jennifer Macey reports.

JENNIFER MACEY: The World Bank has slowly been moving away from funding fossil fuel projects, but now it’s official policy. The bank will limit the financing of coal-fired power stations, except in rare circumstances. In its latest climate change report, released last month, the World Bank president, Jim Yong Kim, said a two degrees Celsius rise in average temperatures would leave millions of people trapped in poverty.

JIM YONG KIM: We wanted to make clear that a two degrees Celsius warmer world would be a disaster that we have to avoid. The good news is that there are things we can do right now. Things that we are working on at bank are one, sustainable energy for all, we think that we can provide funding and technical expertise so that every country in the world can have the energy they need to grow but grow in a sustainable fashion.

JENNIFER MACEY: The last big coal-fired power project funded by the World Bank was built in South Africa in 2010, a attracted lot of international criticism, particularly from the US and Britain.

Erwin Jackson is the deputy CEO of the Climate Institute. He says the Bank’s policy move is a change in culture.

ERWIN JACKSON: We’ve seen a remarkable turnaround, and they have realised, because of their impacts that many of the world’s poorest countries will suffer as a result of climate change, they need to actually walk the talk, as they’ve been saying.

And they know that it’s not a sustainable position to say that if we allow global temperatures to increase by four degrees, then we’re going to turn back economic development, they can’t at the same time be funding major expanses in the fossil fuel industry.

JENNIFER MACEY: The World Bank says in the last five years it has doubled its financial support for renewable energy projects such as off grid household solar in Bangladesh and Mongolia, wind farms in Turkey and geo-thermal projects in Kenya.

Erwin Jackson says that the World Bank has also been instrumental in backing carbon markets to help fund these green energy projects in poorer countries.

ERWIN JACKSON: In their view the most effective to reduce emissions is to put a price on carbon. So they have been working with many countries – Chile, Mexico, South Korea, Indonesia, Vietnam – to actually start building the global carbon market and building carbon markets. And we’re actually now starting to see the fruits of that, with countries like China putting in place emissions trading schemes.

JENNIFER MACEY: Since taking up the presidency of the World Bank a year ago, Jim Yong Kim, the first scientist to helm the global development bank, has also taken on the challenge of climate change with vigour.

He’s released two World Bank reports on the dangers of the world warming by two and four degrees Celsius.

Robin Davis is the associate director of Development Policy Centre at the Australian National University; he says the president’s interest in climate change at first took everyone by surprise. But he says the latest move to phase out the funding for coal generators was expected.

ROBIN DAVIS: Really it formalises a shift that we’ve been seeing in practice for some time, at the present time there is only one coal project in the pipe line, a project in Kosovo. So I think in practice the bank and its board have been, you know, moving away from investment in coal projects, except in rare circumstances.

And this policy move and is completely consistent with the signals that were given by the Obama administration in recent weeks.

JENNIFER MACEY: However the new energy policy also sees a return to large scale hydro-electric power.

ROBIN DAVIS: It will be problematic for the bank to move back into this area, there is a long history of opposition to investments in large scale hydro. But if it’s serious about renewables and it wants to meet the energy needs of you know, the two-thirds of people in the poorest countries who don’t have access to electricity, it clearly needs to consider large scale hydro as one of the options in the mix.

JENNIFER MACEY: However Thulsi Narayanasamy, the director of Aid Watch, says it’s another backwards step by the bank.

THULSI NARAYANASAMY: Hydro power was once considered to pose an unjustifiable social and environmental risk and it’s now perceived as suddenly justifiable by a climate change perspective, which in many ways demonstrates the co-option of the sustainability agenda to serve commercial interests.

A lot of the livelihoods of people reliant upon the free flowing of rivers, fisherman, as well as people that use the free flowing water to irrigate their land, by damning this it has serious ramifications for communities that are often down river.

JENNIFER MACEY: And there’s also the danger that donor countries like China may fill in the space left behind the bank and continue to fund fossil fuel projects in poor countries.

MARK COLVIN: Jennifer Macey.