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Carbon rush at World
Bank
By Daphne Wysham
As the Kyoto Protocol comes into force
this month, a carbon rush is gaining steam in the
financial industry. Investors predict that the
carbon trade could become one of the largest
markets in the world with a trading volume of
US$60-$250 billion by 2008 and some unlikely
actors are gearing up to profit from this new,
invisible market. Foremost among them is the World
Bank.
The Kyoto Protocol requires
industrialized country signatories to reduce their
emissions by 5.2% below 1990 levels during the
2008-12 commitment period. However, the scientific
community has determined that, to avoid dangerous
climate change, greenhouse gas emissions
reductions of over 60% below 1990 levels were
necessary by 2000, rendering the commitments made
at Kyoto insufficient. Moreover, some of the
largest emitters - the United States and Australia
- are not even participating in the protocol. And
the Kyoto agreement is weakened further by the
fact that virtually all of the emission reductions
required of industrialized nations can be achieved
by trading carbon credits between nations, thus
avoiding real reductions. For example, since
Russia has already met and exceeded the Kyoto
targets due to its economic collapse following the
fall of the Berlin Wall, Soviet-era ghost
emissions are now for sale to the highest bidder,
creating the illusion of reductions where none
have occurred.
Why is there so much
support for carbon trading? Well, there is plenty
of money to be made. The average citizen won't
make any; instead, the very same corporations who
fuel the problem - the large oil, gas, and coal
companies - are among those who will profit from
this trade in invisible gases. For instance, just
last month, Danish power utility Energi E2 sold
hundreds of thousands of dollars of the rights it
had been granted free by its government to Shell
Oil Company after mild temperatures kept the
utility's carbon emissions below expected levels.
No such free rights have been granted to ordinary
Danish citizens, however.
One institution
that is well versed in this complicated market is
the World Bank. It was eight years ago that
confidential documents were leaked to the
Institute for Policy Studies from within the bank,
revealing the early internal debates and plans
regarding the World Bank's involvement in carbon
trading. That year, Washington was forging Kyoto's
Joint Implementation (JI) trading scheme , whereby
carbon emission credits could be traded
exclusively among industrial Northern countries.
Brazil and other developing countries countered
with the much more intuitive Clean Development
Fund (CDF). The CDF, based upon the polluter-pays
principle, would have financed projects in
developing countries with levies against
industrialized Northern countries that failed to
comply with Kyoto's emissions reduction goals.
Northern negotiators, wary of any fines,
transformed the CDF into the Clean Development
Mechanism (CDM), a market-based emissions trading
scheme, similar to JI.
Here, the World
Bank saw opportunity. One leaked document exposed
World Bank plans to profit handsomely by charging
a 5% commission on carbon transactions in a
self-appointed role as a broker between Northern
and Southern governments and industries. (The
commission - which the Bank now claims is merely
to cover costs - will be closer to 8-10%.) With a
potential market in carbon dioxide that could
reach $2 billion by 2005, the World Bank noted in
the leaked memo, it could quickly earn $100
million in one year - and that was just for
starters.
Leaked 1997 World Bank Group
document
The leaked documents make clear
that "low hanging fruit" - the easy pickings in
the world of carbon emissions reductions - would
be the first to be capitalized in a global market.
Renewable energy would not come online via the CDM
until carbon reached a price of $50/ton or more,
the bank predicted.
The World Bank worked
its way into the carbon trading business initially
with the Prototype Carbon Fund (PCF), established
in July 1999, portraying the PCF as an opportunity
to work out the glitches in the CDM before it was
launched globally. PCF director Ken Newcombe
assured concerned nongovernmental organizations
that the PCF would be "entirely renewable". Solar,
wind, micro-hydro, and geothermal power projects
would make up its portfolio. With time however, it
became clear that the PCF was far from "entirely
renewable". Following the more forthright
trajectory laid out in the leaked 1997 World Bank
document, the PCF was pursuing the low-hanging
fruit in the global carbon market.
Echoes of apartheid
Perhaps the
most putrid of low-hanging fruits currently on the
PCF's books is the Bisasar Road Landfill methane
capture project. During apartheid-era South
Africa, white rulers created the landfill at
Bisasar Road in a brown-and-black community. The
site became a repository of waste, much of it
toxic, coming mostly from the more affluent white
communities. What was once unspoiled land with a
vibrant community of monkeys and birds quickly
became a foul-smelling, toxic waste dump - made
more foul by "perfume rods" that were placed
strategically around the dump to try to mask the
smell. Cancer clusters have also emerged in the
vicinity of the landfill.
As apartheid was
dismantled, local community activists raised their
hopes and concerns with the ruling African
National Congress (ANC). In campaign pledges in
1994, ANC leaders promised to close down this
symbol of the apartheid era and to clean up the
site.
Then along came the World Bank's Ken
Newcombe in 2002. He proposed to the mayor of
Durban that the city profit from methane captured
at the landfill, turning waste gas into
electricity. The municipality could sell the
electricity locally, and the project could qualify
for funding from the World Bank's Prototype Carbon
Fund. The methane gas that this and other
landfills produced could be siphoned off to a
power plant, and the city government would be
rewarded with 60 million rands (US$10 million)
over 21 years from industries in the northern
hemisphere reluctant to reduce their own emissions
and eager to buy their way out of the problem.
Sajida Khan lives right next to the
Bisasar Road dump. She has suffered two bouts of
cancer and lost a nephew to the disease. To Sajida
Khan, the PCF represents an undemocratic
institution, overruling the will of the local
people and the stated intent of their leaders, the
ANC, by effectively bribing the government with
sorely needed revenue. Although the methane
project may have climate benefits, Khan argues
that to local communities it means noisy
generators disturbing nearby school children and,
worse, other toxic gases - such as benzene and
formaldehyde - being spewed into the air from the
power plants. Her solution: decommission the dump,
create a buffer zone around it, and pay for the
resettlement of local homeowners. She began
organizing her fellow community members and has
launched legal challenges and an international
campaign to overturn the PCF proposal, but thus
far her efforts have been met with bureaucratic
intransigence.
The Bisasar Road dump is
emblematic of the sort of global apartheid that
carbon trading encourages, allowing Northern
governments and corporations to profit from carbon
profligacy in the North while the poorest and
darkest skinned in the South pay with their health
and lives. Worse, because there are no limits on
greenhouse gas emissions in the developing world,
the sort of emissions trading being proposed by
various CDM actors could create perverse
incentives for greater inefficiencies - such as
encouraging more dumps to be built without methane
capture as part of their design in order to lure
potential carbon traders - and higher overall
greenhouse gas emission as a result.
The
Bisasar Road project is certainly distasteful, but
it is not an aberration. Another equally
disturbing model for the CDM proposed by the World
Bank is emerging in Brazil.
The Plantar
project
Plantar, a company located in the
state of Minas Gerais, Brazil, owns a monoculture
eucalyptus grove covering 23,100 hectares. The
total area owned by Plantar, acquired by pushing
local communities off their land under previous
dictatorial regimes, is extensive - some 700,000
hectares. The fast-growing eucalyptus trees will
eventually be harvested and used as charcoal for
the production of pig iron - a low grade of iron -
by the company. For small farmers living nearby,
the consequences of this tree plantation are
devastating: streams and swamps have dried up,
chemicals contaminate the air and water, and the
diverse plant and animal species that once
inhabited the land have all but vanished.
These plantations are allegedly avoiding
the production of 4.3 million tons of carbon
dioxide that would have been emitted had coal been
used for smelting the pig iron rather than
charcoal from Plantar's plantations. That's 4.3
million carbon credits that can be sold to a
Northern industry unwilling to reduce its
emissions domestically by the same amount. Is
there truly a net benefit? Unless these eucalyptus
trees are destroyed by fire or other natural
causes, within 7-21 years, they will be cut down
for use in pig iron production. The carbon dioxide
produced by Northern industries that have bought
the PCF's carbon credits, however, will remain in
the atmosphere, for 50 to 200 years.
New World Bank schemes
While the
PCF is venturing down a dangerous path, the World
Bank Group is diversifying into other carbon
trading schemes. In June 2004, it launched the
Bio-Carbon Fund to demonstrate how land use,
land-use change, and forestry activities can
generate carbon credits. The bank also plans a
Community Development Carbon Fund. This fund,
which has already developed two prototypes, "will
link small-scale projects seeking carbon finance
with companies, governments, foundations, and NGOs
seeking to improve the livelihoods of local
communities and obtain verified emission
reductions." Additionally, the World Bank
administers some funds for individual countries,
including the Netherlands Clean Development
Facility, launched in 2002, the Italian Carbon
Fund, initiated in 2003, and the Spanish Carbon
Fund, established in 2004.
Perhaps these
carbon finance projects will die quiet deaths, as
financing fails to materialize. However, if they
continue to grow, the Bank will have secured for
itself a lucrative self-appointed role, creating a
new market that undercuts its mission by
threatening to expand profiteering at the expense
of the world's poorest people.
Sadly, the
irony of the World Bank involving itself as a
moneymaking broker in the growing international
trade in carbon does not end here. Currently, it
is also one of the largest public sources of funds
for the fossil fuel industry. In fact, research
conducted by the Sustainable Energy and Economy
Network shows that in an average year of
financing, the World Bank supported fossil fuel
projects that have lifetime emissions of 1,457
megatons of carbon.
From the 1992 Rio
Earth Summit through late 2004, the World Bank
Group approved $11 billion in financing 128 fossil
fuel extraction projects in 45 countries. Of
these, 52 projects extract and export oil, coal,
and gas for the global marketplace - mainly, the
Northern countries. Much of the carbon dioxide
generated by World Bank projects will be released
in the global North. In the oil sector, for
example, over 82% of the World Bank's approved
financing goes to projects that export to the
North. Energy projects approved for financing by
the Bank since the Rio Summit will lead to over 43
billion tons of carbon dioxide emissions, of which
over half are export-oriented projects.
Over the past decade, many have tried to
convince the World Bank to change from within, to
redirect its energy portfolio to make it more
consistent with the goals of the Rio Earth Summit.
Concerned global residents - from the world's most
disenfranchised peoples to Nobel laureates to
internal whistleblowers challenging mission
betrayal - have raised their voices urging change.
These efforts converged around a number of
exercises including, in 2004, the Extractive
Industries Review. Remarkably, this exhaustive
World Bank-commissioned study, chaired by the
former Indonesian environment minister, Emil
Salim, called upon the bank to divest its
portfolio of the most egregious fossil fuel
projects, particularly oil and coal extraction, on
human rights, sustainable development, and
environmental grounds.
The World Bank's
management and executive board disregarded the
fundamental critique of the review - namely, that
these extractive projects did nothing to promote
the bank's stated mission of alleviating global
poverty. Bank managers feigned agreement on many
of the review's other critiques, but the "action
plan" they adopted in September 2004 represented
more business as usual.
Such inertia in
response to external and even internal critiques
is commonplace at the World Bank. It is in part
due to the fact that the powerful Group of 8
countries dominates the board of the bank, with
the US leading the pack and holding exclusive veto
power. And, not coincidentally, Northern
corporations, particularly those based in the US,
are the primary direct beneficiaries of the fossil
fuel projects that the World Bank board has
approved since the Rio Summit. These corporations
benefit both by direct loans and through the
privatization process enforced by bank loans.
Halliburton and Enron, to name two primary
beneficiaries, enjoyed global expansion in the
1990s hand-in-glove with World Bank Group project
financiers.
And the World Bank's impact
reaches far beyond the specific projects it
finances. It sets a standard for all other fossil
fuel financiers: regional development banks,
export credit agencies, and private banks. So
getting the World Bank to take meaningful action
on global warming is not a mere academic exercise;
it potentially affects other private banks that
arrange 80% of the world projects' financing.
These so-called Equator Principle banks base their
standards upon those of the World Bank - as do all
of the public banks that also look to the World
Bank for guidance on their investments.
Conclusion
For over a dozen
years now, the World Bank Group has had the
opportunity to prove that it could fulfill the
promise of the Rio Earth Summit by leading the
global energy sector into a more sustainable,
renewable, and equitable future. Instead, it has
become an enforcer of the status quo, on behalf of
the world's most powerful countries and
corporations. Its energy programs have utterly
failed to curb climate change and alleviate
poverty. Those who embrace the World Bank as an
impartial and honest carbon broker ought to be
aware that this institution's investments are
driven in large part by the thirstiest
oil-consuming country in the world - the US - and
other oil-hungry nations. Until the bank's power
structure is rewired, it will remain an
institution beholden to the world's most powerful
polluters.
It is time to end the monopoly
of an institution that is pushing the planet
toward disastrous climate change. There is no
longer anything to lose by exploring the creation
of new institutions that are truly up to the task
- such as a clean energy bank independent of the
World Bank and IMF- while ensuring that world
leaders recognize the World Bank as a rogue
institution and begin to rein it in appropriately.
The bank could be curbed with regard to global
warming by: 1) following the recommendations
contained in the Extractive Industries Review
report prepared for the World Bank by Dr Emil
Salim; 2) disallowing World Bank financing of oil,
gas, or coal extraction for export to wealthy
industrialized countries; and 3) ending the World
Bank's role in carbon trading.
The United
States - the world's number one carbon dioxide
emitter - has played a shameful role: first by
proposing the carbon trading idea as a way to
ensure its involvement in the Kyoto Protocol, and
then by backing out of the agreement once carbon
trading was accepted by the international
community. Although it is important for the US to
rejoin the global climate regime, it is perhaps a
blessing in disguise that US industries are unable
to trade their carbon dioxide emissions on the
global market, adding to the overall problem of
carbon trading.
At some point in time in
future, when the US rejoins the international
community in tackling the problem of global
warming, one could hope that there would be enough
pressure on Washington to promote - both
domestically and via the Kyoto Protocol or other
multilateral mechanisms - serious emission
reductions at home as a genuine solution to global
warming. Happily, this movement is already under
way in states such as California, where vehicle
emissions restrictions are being proposed that
would far surpass those currently required of the
automobile industry. Elsewhere, in Texas and other
states, renewable energy portfolio standards have
created a favorable business climate for the wind
industry to take root. In the absence of
cooperative multilateral action by Washington
regarding global warming, state and local
initiatives should be encouraged as the only true
and meaningful road to climate equilibrium.
Daphne Wysham is the founder of
Sustainable Energy and Economy network (SEEN) and
a fellow at the Institute for Policy Studies in
Washington, DC.
(Posted with
permission from Foreign Policy in
Focus) |
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