Climate finance and the World Bank

Part II — Nigeria: A watershed management project as a case study in climate finance

World Bank President Ajay Banga has set ambitious goals in “climate finance”. In December 2023, he announced that the WB would commit 45 percent of its funding to “climate” in 2025. This post reviews two problems with honoring that commitment—the definition of climate finance and measuring the impact of such finance—using a case study from a large watershed management project in Nigeria.

There are, broadly, two types of climate finance: mitigation (reducing GHG emissions) and adaptation (managing the costs of global heating and other environmental effects of rising emissions).

The World Bank Group (WBG) defines mitigation finance targets in terms of Gt CO2 eq to be removed from the atmosphere as the outcome of actions taken in one or more Bank-supported operations in a given nation.[1] The Bank’s public scorecard set an annual goal of about 1.45 Gt CO2 eq to be removed in the Bank’s fiscal year (FY) 2024, of which about 75 Mt CO2 eq would be removed as the result of the Bank’s support to eight projects in Indonesia. It is not clear how much of the funding in the projects seeking to achieve the 2024 goal of 1.45 Gt CO2 eq is defined as “climate finance” and, indeed, attributing emissions to individual projects is difficult. A future post will discuss the Bank’s work in mitigation.

Adaptation targets are defined as numbers of beneficiaries—people “with enhanced resilience to climate risks”. The adaptation target in WB FY 2024 (ending June 30, 2024) was 372 million beneficiaries from World Bank Group finance (mainly IDA and IBRD) having a total project commitment value of US$65.3 billion and an annual commitment value of US$10.9 billion (https://scorecard.worldbank.org/en/data/result-details/CSC_RES_RESI_CLIM_RISK?orgCode=ALL&refareatype=REGION&refareacode=ACW&age=_T&disability=_T&sex=_T)

Achieving the adaptation objectives will not be simple. This post explains why that is so in reviewing the recently completed Nigeria Soil Erosion and Watershed Management (WB project code P124905) and in illustrating the analytic issues involved in targeting adaptation finance and in measuring its impact.

The Nigeria Soil Erosion and Watershed Management project (NEWMAP)

The World Bank approved an IDA Credit of US$500 million to Nigeria for a Soil Erosion and Watershed Management project (NEWMAP) on May 8, 2012. The Global Environmental Facility (GEF) gave a grant of US$3.96 million and the Special Climate Change Fund (SCCF) gave a second grant of US$4.63 million. IDA provided an additional credit of US$300 million on June 27, 2018, accompanied by a grant of US$100 million. Nigeria supplemented World Bank and GEF/SCCF money with an estimated amount of US$56 million in national funding. Table 1 summarizes original project finance by component, as approved by the Bank, and actual project finance, as spent under the project, which ran until June 20, 2022. To give an idea of the global importance of NEWMAP, IDA exposure to Nigeria (Table 2 [2]) was US$17.1 billion in September 2024, making the IDA commitment of US$0.9 billion to NEWMAP alone about 5.3% of IDA’s exposure to Nigeria and perhaps 0.4 % of global IDA exposure.

NEWMAP was clearly relevant. It sought to reduce the high and widespread costs of soil erosion in tropical watersheds, a problem that will become more serious with the heavier and more intense rains associated with global heating. The Environmental Impact Assessment (EIA) seems to have been well done and followed decades of research and field experience in tropical land management, much of it done in Nigeria (e.g., R. Lal, 1976, Soil erosion on alfisols in Western Nigeria: I. Effects of slope, crop rotation and residue management. Geoderma, 16(5), pp. 363-375).

In addition to reducing potential losses from such climate-related disasters as floods and landslides, the project offered income generation from crop, livestock, and crafts production. The project model allowed local management of common property watersheds. The operation was thought, with good reason, to be scalable to much of rural and peri-urban Nigeria. The safeguards framework, notably on re-settlement, seemed adequate.

The Project Appraisal Document (PAD, Report No: 67983-NG) declared: “The objective of the Erosion and Watershed Management Project for Nigeria is to reduce vulnerability to soil erosion in targeted sub-watersheds” (p. 5). The project was to generate benefits by building erosion control and watershed management structures and by strengthening local institutions in watershed management. The PAD was ambitious, stating "The total number of primary beneficiaries at the onset of the project will reach about 2.2 million people and will gradually increase to about 2.6 million in 2020 and about 4.2 million in 2042 " (PAD: p. 6).

A summary of the four components is as follows:

Component 1 was planned to be about 80% of the operation. Its objective was to " ... support on-the-ground interventions to help reduce vulnerability to land degradation." (PAD: p. 8). This goal was to be achieved through anti-erosion and watershed management investments (civil works) to reduce economic and biophysical losses from land degradation. Its sub-components were: 1A. Gully Rapid Action and Slope Stabilization (GRASS), consisting of such investments as repairing gullies, stopping landslides, and preventing erosion and remediating eroded sites; 1B. Integrated watershed management, involving such methods as preparing watershed managing plans, developing those plans with community organizations, and making grants to such organization for soil erosion control and land management works; and 1C. Livelihoods, involving grants to support local manufacturing and repair enterprises and to build local water harvesting works.

Component 2 involved support to erosion and watershed management institutions and information services with the goal of strengthening the administration of erosion and watershed management. The component activities were to build capacity, modernize and coordinate federal, state, and local “institutions involved in investment planning, management, assessment, enforcement, and monitoring of watershed activities and disaster risk management”. Part of Component 2 was to create a Spatial Knowledge Management Information System;

Component 3 was a set of climate change response activities, contributing to Nigeria's framework for climate action, while enhancing “ … capacity to promote low carbon, climate resilient development”; and

Component 4 was a project management component to finance goods, equipment, staff, travel, and consultant services for: (a) project management at the federal and state levels; (b) social and environmental safeguards management; (c) communications and outreach; (d) monitoring and evaluation (M&E) services, including two mid-term reviews; and (e) impact evaluation fully integrated into M&E that “will help build replicable intervention models early during implementation”.

The Environmental and Social Management Framework (ESMF, September 2011) covered the seven original states (Abia, Anambra, Cross River, Ebonyi, Edo, Enugu and Imo). The ESMF sought to "ensure that implementation of NEWMAP (the project) meets with the existing EIA law in Nigeria and World Bank safeguards policies". The ESMF (p. 16-17) identified such potential positive environmental impacts as: less erosion, less flooding, rehabilitation of degraded lands, increase of vegetative cover, conservation of biodiversity, and fewer disaster risks at project sites, notably those posed by landslides.

Project results

Table 3 shows the Bank’s account of NEWMAP’S results framework as evaluated in the Implementation Completion Report (ICR; Report No: ICR00005460 of July 19, 2023). The operation succeeded in reaching some of its targets after an effectiveness delay of 17 months and despite lags in civil works (the chief component). The operation eventually covered 103 sites in 20 states. Roughly 1.83 million people benefited from investments and advisory services. There were no complaints to the Inspection Panel. All grievances received under the project were resolved. The 21 state resettlement action plans (RAPs) had been completed at mid-2023 (ICR: pp. 27-28). The ICR rated the project outcome as “Satisfactory”, Bank performance as “Satisfactory”, and M & E quality as “Substantial” with some mild hesitation about sustainability. The Bank’s Independent Evaluation Group (IEG) in a post-ICR analysis rated outcome as “Moderately Satisfactory”, Quality of M & E as “Substantial”, and Quality of ICR as “Modest”.

I argue that the Bank has overstated the project’s achievements. My critique has 2 parts: (1) the data produced by the operation are not credible, in terms of their use for estimating economic, climate mitigation, and local biophysical impacts; and (2) the ICR's ex-post economic analysis is unjustifiable.

The project data cannot be found and might not even exist

The ICR states that the operation’s core component of watershed management ultimately treated 30,628 hectares with erosion control measures, notably civil works to limit or to avoid the effects of flooding and soil erosion. Such data should include: (1) details of the geo-referenced sites; (2) maps of the works done, showing the areas treated by type of works (tree planting, check dams, erosion control terraces) and; (3) costs of works in enough detail to allow calculation of costs per hectare from data available online.

Project documentation makes much[3] of the geo-referenced site data, but a search for that information found nothing. Bank staff have admitted to me that geo-referenced data do not exist. The main (Abuja) office of the Nigeria Erosion and Watershed Management Project (NEWMAP; 9.031491082507817, 7.52137324945591) has no website, nor do the NEWMAP offices at Calabar in Cross River state, or at New Owerri in Imo state, or at Umuahia in Abia state. The link to the Nigeria Federal Ministry of the Environment (main site is https://environment.gov.ng/#) gives the main Ministry website. The link to the Erosion and Watershed Management Project (https://newmap.gov.ng/) gives only the message “Maintenance mode is on” and has done so at least since mid-October.

Neither the PAD (P124905) nor the ICR has a quantitative annex nor a link to the geo-referenced site data. The 20 disclosed supervision reports do not show adequate site information. The project's mid-term reviews do not show site data and project contracts are not available in enough detail to extract site-level evidence.

The benefit-cost analysis is unjustifiable

The ICR concluded that "The present post-project BCA [benefit-cost analysis] shows that the findings of the BCA done at appraisal and during additional financing are justified, on the basis of conventional measures of project viability" (ICR: p. 53). Using information given in the ICR (Annex 4, “Efficiency Analysis”: pp. 53-61) I revised the benefit-cost analysis of the project at completion and concluded that the ICR’s updating of the NEWMAP's rate of return is both unjustifiable and enlightening.

The BCA is unjustifiable because its empirical basis is weak (Table 5a shows the Bank’s final BCA). The analysis is weak because there are no watershed-level models of costs and benefits [4]. On the cost side, the BCA accounted annual project costs as the sum of disbursements each year from IDA, GEF, SCCF, IDA-AF, and national funds. It discounted those costs at 10% over the 10 years of implementation, allowing additional annual costs of 10% for maintenance of investments during 10 years after project completion. There was no assignment of costs to specific watersheds, even though the data for such an assignment should have been available from archived contracts.

Benefits, like costs, were constructed for the project, not in the 103 individual watersheds. Adaptation benefits were: (1) avoided losses of housing to gully erosion; (2) avoided deaths in floods and landslides; (3) reduced time lost in traffic; (4) avoided displacement of people and their work; (5) afforestation; (6) reductions in GHG emissions; and (7) increases in land values around project sites. The Bank team did not calculate benefits from watershed data though, as with project costs, finer estimates of watershed-level benefits should have been available from the EIAs, from field visits during implementation, and from contract records.

Several benefits in the original benefit-cost analysis (BCA), as done in 2012 for the PAD, were dropped from the 2022 BCA with incomplete explanation. These were: (i) Calabar port dredging costs avoided; (ii) improvements in urban water supply; (iii) avoided decreases in crop yields; (iv) avoided losses in farmland due to erosion; (v) soil nutrient loss avoided. The dredging of Calabar port is particularly worrying because the ICR (p. 53) admits that this projected source of project benefits was dropped from the BCA for lack of data.

The chief benefit of NEWMAP is the value assigned to “infrastructure loss avoided” which generated about 65% of estimated NPV benefits, with land appreciation contributing another 22% (Table 5a). (Most of the civil works constructed under the project were for erosion control and flood control, as shown in Table 6). Note that the infrastructure benefit function is rather speculative. It derives from data from one state reported in a 2006 paper (Abegunde et al at https://www.fig.net/resources/proceedings/fig_proceedings/fig2006/papers/ts56/ts56_02_abegunde_etal_0787.pdf) using data collected in 2002, implying that new surveys at project sites are needed to better estimate the chief benefit.

Whatever the problems are with the BCA data—and they are serious problems, including potential corruption—the BCA may have been underestimated in at least one respect. The origin of the underestimate is that BCA model did not allow for benefits during the 10-year project period (a revised BCA in Table 5b shows such benefits during the project period). The progress of works is proportional to disbursements and therefore benefits would have accrued before the project's 10th and final year as the structures were completed. Such early benefits would of course be discounted by a smaller factor, hence raising the numerator of the benefit-cost analysis (BCR).

The ICR does report mitigation benefits in terms of GHGs avoided but the calculation of mitigation gains lacks empirical force. [5] The reader is left uninformed as to how the gross amounts of GHGs avoided were estimated. Even tolerating some obscurity in the method of calculation, at best gross mitigation gains are only 2.3 % of total benefits over a 20-year period and are not net mitigation gains because they do not account for Jevons' effects.

Another critique of the BCA model is that it ignores the right-skewed distribution of damages. The erosion damage function will have many below-average values and a few large ones that are well above average. Again, there would be much to learn from a watershed-by-watershed analysis of costs and benefits to set priorities for future erosion control work.

What are the lessons of the Nigeria project for climate finance ?

Understanding the climate weights, benefits, and costs of NEWMAP is relevant for understanding the climate finance content and impact of WBG lending.

The BCA is "unjustifiable" not in the sense that its numbers are made up out of geo-textile, so to speak, but in the sense that its empirical basis is convincing only to the uninformed—Bank country management, senior management and Board members—whose chief interests in soil erosion in Nigeria would have been in disbursing quickly and in spinning a happy story about the Bank’s adaptation work. It is a scandal that most of the project’s putative environmental benefits--less erosion, less flooding, rehabilitation of degraded lands, increase of vegetative cover, conservation of biodiversity—were not measured. The Bank’s agricultural managers—who, in theory, should know better—ought to be ashamed for letting this work escape more rigorous analysis.

How much of NEWMAP is climate finance ? At Board approval, the operation was considered to have a climate change thematic weight of 10 percent (PAD: Basic Information, p. v). At the time of the Implementation Completion Report (ICR; July 19, 2023) staff assigned a mitigation weight of 10 percent to the operation and an adaptation weight of 98 percent[6]. My subjective adaptation weights (Table 4) are: (i) Component 1, 100 %; (ii) Component 2, 50 %; (iii) Component 3, 25 %; and (iv) Component 4, 0. I set component mitigation weights at zero because there is no empirical evidence that the project mitigated anything. My total (subjective) adaptation weight for the project would therefore be 78% as shown in Table 4, meaning that US$702 million of the US$900 million in IDA commitments could be called “climate finance”. In NEWMAP, it is likely that a more careful climate weighting of spending by component would have allowed a better understanding of Bank reporting on its climate commitments and this conclusion probably holds in many other projects.

Adaptation benefits in NEWMAP have almost nothing to do with public goods. Let us group adaptation benefits in Table 5a into: (i) direct benefits, which are immediately related to the watershed investments, including avoided losses of houses and workshops and avoided displacement of Nigerians and their work; these are some 74 percent of total adaptation benefits; (ii) indirect benefits to productive assets, which arise from a market response to the civil works, including land appreciation; this class generated some 22 percent of adaptation benefits; and (iii) indirect benefits in agriculture—afforestation and related crop and fodder production—occurring from a market response and being only 4 percent of the total.

If the impact data cannot be found—which Bank staff have admitted--and the analysis is unreliable, then the Bank's credibility as a technical and financial partner in adapting to global heating is weak. If data from what should be a model adaptation operation in one of the most populous tropical countries are not credible, then the work calls into question the global estimates of climate adaptation costs.

Recommendations

IDA funding should be allocated only to components with direct adaptation or mitigation benefits. If direct benefits are the majority, then global funding can be limited to creating such benefits through civil works. Civil works (Component 1) in NEWMAP were more than 70 percent of IDA disbursements. The balance of the IDA funding in NEWMAP went to pay for indirect benefits, which depended on local supply responses (afforestation, land appreciation) and were self-financing in that sense. Activities such as planning and livelihood support seem to have done little in NEWMAP and therefore do not merit scarce global funding.

The expected between-site variation in returns—e.g., Northern Nigeria being less humid and with less aggressive rain showers than central and southern Nigeria—suggest a re-allocation of concessional money. Pure grants would be made in less-erodible areas because expected market benefits are smaller, the beneficiaries are poorer to begin with, and the targeting to a GPG (poverty) is more accurate. Concessional funds would be allocated to more-erodible areas where expected market benefits generated by project activities are probably greater.

IDA funding should not pay for local costs. One may argue that advisory services and project management were necessary components of the overall operation but the facts are that such services contributed little or nothing to project benefits and should be paid from the counterpart ^[9]. This re-allocation to the national funding would avoid the scandal of NEWMAP in which the share of project management costs rose from 6.6 percent at Board approval to ~ 14 percent when the final disbursement figures were accounted. National governments should pay the costs of project management and of sector planning from their resources.

A finer analysis of costs and benefits would allow better priority setting for future civil works to block erosion. [7]^[10] For example, the costs of civil works per hectare treated would vary with slope, total rainfall, rainfall intensity, LGA income, and population density (which largely determines resettlement compensation). The Bank-GoN analysis of the project should have shown a distribution of such costs across sites. Within NEWMAP, when the project expanded from the 7 original states to the final 21, it appears that the erosion risk model, the EIA and other data on site-specific climate risks were not used to set priorities[8].

A closer analysis of unit costs of civil works would clarify why this operation was so expensive and give lessons for similar projects. A total cost of US$956 million for ~ 30,000 ha of works is > $30,000 / ha. This is unreasonably high and suggests that the operation's competitive bidding procedures were ineffective or corrupt. Again, a study of the raw contracting data, including the rejected bids, would be valuable in getting better estimates of the true value of adaptation finance.

The resettlement compensation payments can be used to derive more realistic loss functions. The types and locations of resettlement compensation—made for loss of assets and income caused by projects—are a rich source of information. Using the RAP compensation[9] data, suitably adjusted for variation in project type and in per capita income across countries, would allow better estimates of adaptation costs in similar projects in other countries.

NEWMAP has implications for the volume and targeting of global climate finance. As far as volume, erosion control projects, if properly designed, could consist of something close to 100 % adaptation. Such projects would be funded on pure grant or on concessional terms (e.g., IDA), but only the components that are truly adaptation and not the prebendal elements that buy Range Rovers for project officials.

Projects like NEWMAP with an unusually high share of climate adaptation content reveal some basic problems with the Bank’s climate portfolio goals in low-income countries. The true economic benefits of NEWMAP are uncertain. Much of the IDA funding for NEWMAP paid for local costs that the Government of Nigeria should have borne and hence incurs an opportunity cost in climate finance for other countries that need it. The lack of baseline data makes it difficult, if not impossible, to identify environmental benefits (notably loss of topsoil avoided) from NEWMAP. These facts will make it hard to reach Ajay Banga’s 45% goal without major changes in the Bank’s climate portfolio. More fundamentally, the apparent lack of verifiable economic and environmental benefits in NEWMAP, and in projects like it, damages the credibility of the goal itself. I return to these questions in future posts on climate finance and the international institutions.

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Nigeria Tables

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Appendix — Definitions

BCA Benefit-cost analysis

BCR Benefit-cost ratio

EIA Environmental Impact Assessment

ESMF Environmental and Social Management Framework

FY World Bank fiscal year; July 1 - June 30

GEF Global Environmental Facility

GHG Greenhouse gases

GPG Global public good

Gt CO2 eq One billion metric tons of carbon dioxide equivalent

IBRD International Bank for Reconstruction and Development

ICR Implementation Completion Report, containing the Bank’s evaluation of the project’s implementation and impact

ICRR Implementation Completion Report Review, a short review of the ICR done by IEG

IDA International Development Association

IDA Credit An “IDA Credit” is a soft loan from IDA to a low-income country; “soft” in the sense that the NPV of repayments is about 30% that of the NPV of repayments of a commercial loan of the face value

IEG The Independent Evaluation Group of the World Bank

IFC International Finance Corporation

ISR Implementation Status Report, periodic reports issued by Bank technical to follow project progress. NEWMAP had 20 ISRs over 10 years.

LGA Local government authority (of Nigeria)

M&E Monitoring and evaluation

Mt CO2 eq One million metric tons of carbon dioxide equivalent

NEWMAP Nigeria Soil Erosion and Watershed Management Project

NPV Net present value

PAD Project Appraisal Document containing technical, economic, and environmental analysis of the project at the time of its approval by the WB Board of Executive Directors

RAP Resettlement Action Plan

SCCF Special Climate Change Fund

WBG World Bank Group comprised (for purposes of this article) of IFC, IDA, and IBRD

WBG project code WBG project codes typically have the format of “P” followed by six digits; the code for NEWMAP is P124905

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[1] The Appendix defines terms used in this post. I thank several reviewers for their comments on an earlier draft and Bank staff for replying on some important points.

[2] Nigeria has the third-highest IDA exposure of any country, following Bangladesh and Pakistan.

[3] The PAD declares (p. 101): “For major physical works such as gully restoration, it is envisioned that participating communities will be assisted to adopt simple ICT approaches to monitor level of completeness relative to disbursements, and overall quality of the work. Techniques could include equipping community groups with GPS-enabled digital cameras and uploading regular photos to Google Maps (accessible to the public), and low-cost weather balloons outfitted with GPS-enabled digital cameras to provide geo-located images at a wider scale. These techniques could also be applied to major physical works in surrounding watershed areas, such as soil and water management structures (check dams, bunding, water storage, etc.).”

[4] The ICR reports (Annex 2, pp. 50-51) that the Bank spent some US$5.0 million on preparation and supervision of NEWMAP, while deploying some 572 days of staff and consultant time. Some of this could have been spent on better data.

[5] ISR # 12 (archived November 8, 2018) states “On the Net Greenhouse Emission, the client will engage a consultant to help in the monitoring. “ I could not find this consultant’s report. A Bank reply to my point about GHG claimed that the emissions calculation used a new method adapted to Nigerian conditions but gave no details.

[6] Bank procedures changed over the period 2011-2022 with the goal of greater clarity in climate ratings.

[7] The Implementation Completion Report Review (ICRR) observed that “The project incurred costs of US$7.25 million per site compared to the estimated average costs of US$4 million, but the costs were estimated to be US$10 million in the southern states where most of the sites treated by the project were.” Honi soit qui mal y pense.

[8] The PAD (pp. 163-164) does refer to a model of erosion risk.

[9] It has long been the Bank’s practice to pay re-settlement compensation for the value of lost assets (e.g., orchards) and lost income (e.g., harvesting labor in the orchards) from WB loans and credits to ensure that compensation is fully and properly paid.