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 carbon could become one of the largest markets in the world, with a trading volume of $60 billion to $250 billion by 2008. Supporters assert emissions trading allows the invisible hand of the market to do what the “command and control” approach to regulation of greenhouse gas emissions can not; that is, meet and even exceed expectations of emissions reductions. Critics charge that carbon trading is a smokescreen: At best, it will represent a tiny drop in the growing “bucket” of carbon dioxide that must be removed from the Earth’s atmosphere and, at worst, may make the warming climate even more unstable while robbing the poor of their rights. And now some unlikely actors are gearing up to profit from this new, invisible market. Foremost among them is the World Bank. The World Bank was established 60 years ago as an institution charged with the task of rebuilding war-torn Europe. When that mission was too quickly accomplished, it morphed into an institution whose raison d’etre was to help developing countries develop. This mandate finally became refined and focused on “poverty alleviation and sustainable development” in the ‘80s and ‘90s. However, the Bank remains prone to “mission creep,” that is, recasting itself every few years in response to global trends, and carbon trading is perhaps its most creepy mission thus far. It was eight years ago that confidential documents were leaked to me at the Institute for Policy Studies from within the World Bank, revealing the early internal debates around and plans for the World Bank to get involved in carbon trading. That year, the U.S. government was forging Kyoto’s “Joint Implementation” trading scheme (JI), in which carbon emission credits were traded exclusively among industrial Northern (Annex B) countries. Brazil and other developing countries countered with the much more intuitive “Clean Development Fund.” 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) which proposed a market-based emissions trading scheme, similar to JI, between Annex B and Annex A states. Here, the World Bank saw opportunity. One leaked document exposed World Bank plans to profit handsomely by charging a five percent commission on carbon transactions, in a self-appointed role as a broker between Northern and Southern governments and industries. (This “commission”—which they now claim is merely to cover their costs-- will be closer to 7 or 8 percent.) With a potential market in CO2 that could reach $2 billion by 2005, the World Bank noted in this 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 wouldn’t come online via the CDM until carbon reached a price of $50/ton or more, the Bank predicted. None of the signatories to either the Climate Convention nor the Kyoto Protocol had asked the World Bank to play this role—in fact, many, including U.S. Treasury officials, actively discouraged it, recognizing potential conflicts of interest. But the World Bank, rarely accountable to national or international governmental bodies, simply took the task upon itself. The Bank worked its way into the carbon trading business initially with the Prototype Carbon Fund (PCF), established in July 1999, portraying it as an opportunity to work out the glitches in the CDM before it was launched globally. PCF Director Ken Newcombe assured concerned NGOs that the PCF would be “entirely renewable.” Solar, wind, micro-hydro, and geothermal power projects would make up its portfolio. As time transpired, it became clear that the PCF was far from “entirely renewable,” and was, in fact, following the more forthright trajectory laid out in the leaked 1997 World Bank document, namely, pursuing the low-hanging fruit in the global carbon market. Echoes of apartheid Perhaps the most putrid of low-hanging fruit 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, most of it coming from the more affluent white communities. What was once an open field in a vibrant community quickly became a foul-smelling, toxic waste dump. Cancer clusters began to emerge in the vicinity of the landfill. As the apartheid regime was torn down, local community activists raised their hopes and concerns with the ruling African National Congress (ANC). ANC leaders promised in campaign pledges in 1994 to close down the symbol of the apartheid regime, and to clean up the site. Then along came the Bank’s Ken Newcombe in 2002. He proposed to the mayor of Durban that they profit from methane captured, turning waste gas into electricity—making money both by selling it locally and with money provided by the World Bank’s Prototype Carbon Fund. The methane gas that this and other landfill produced could be siphoned off to a power plant, and the city government would be rewarded with 60 million rand over 21 years from northern industries 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 represented an undemocratic institution, overruling the will of the local people and the stated intent of their leaders, the ANC, by effectively bribing them with sorely needed government revenue. While the gas captured may have climate benefits, she argues, to local communities it means noisy generators disturbing nearby school children, and, worse, and 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 the dump, and pay for the resettlement of local homeowners. She began organizing her fellow community members, and launched legal challenges and an international campaign to overturn the PCF proposal. However, thus far, her efforts have been met with bureaucratic intransigence. The Bisasar Road dump is emblematic of the sort of global apartheid carbon trading encourages, allowing Northern governments to profit from carbon profligacy in the North while forcing the poorest and darkest skinned in the South to pay with their health and their 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 allowing 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 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 land 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 on nearby lands, 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 pig iron rather than charcoal from Plantar's plantations. That's 4.3 million carbon credits that can be sold to a Northern industry that is unwilling to reduce its emissions domestically by the same amount. Is there truly a net benefit? Tthese eucalyptus trees may be destroyed by fire or other natural causes, but they will definitely, within 7-21 years, be cut down for use in pig iron production. The CO2 produced by Northern industries that have bought the PCF’s carbon credits, however, will remain in the atmosphere, on average, 50 to 200 years. New World Bank schemes While the PCF has ventured down an already dangerous path, the World Bank Group is diversifying into other carbon trading schemes. In June 2004, it launched the Bio-Carbon Fund. The Bank says this will test and 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 currently has developed two projects, “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, and the Italian Carbon Fund, launched in 2003. Perhaps these World Bank carbon finance projects will die quiet deaths, as financing fails to materialize. However, if they continue to grow, the World Bank will have secured for itself a new self-appointed role, creating a new market that undercuts its mission by threatening to expand its profiteering at the expense of the poorest. The left hand ignoring what the right is doing Sadly, the irony of the World Bank involving itself as a money-making broker in the growing international trade in carbon does not end there. Today, the World Bank is also one of the largest public sources of funds for the fossil fuel industry. The irony of this dual role—carbon trader and fossil fuel financier—is apparently lost on the Bank: “The World Bank's carbon finance initiatives are part of the larger global effort to combat climate change, and go hand in hand with the Bank's mission to reduce poverty and improve living standards in the developing world. The threat climate change poses to long-term development and the ability of the poor to escape from poverty is of particular concern to the World Bank.” To understand how it has come to this state of institutional schizophrenia, a bit of history is in order. For decades, the Bank has pried open developing countries’ fossil fuel sectors in order to satisfy the growing import needs of Northern industrialized countries. This process began in the 1980s, under pressure from the Ronald Reagan administration in Washington. A 1981 U.S. Treasury Department review of the Bank’s energy lending program urged it to play a lead role in the “expansion and diversification of global energy supplies to enhance security of supplies and reduce OPEC market power over oil prices.” The U.S. Treasury also noted that, as opposed to the U.S. government, “the neutral stance of the Bank can play an important role” in fostering foreign corporate investment in developing countries’ energy sector. “As a multilateral ‘development advisor’ it can help Least Developed Countries revise their incentive structure to encourage investment.” The Bank implemented these directives with great success for a decade. Then came the 1992 Rio Earth Summit, progenitor of the Kyoto Protocol, which placed much of the financial control over sustainable development aid—and particularly clean energy financing-- within the confines of the World Bank. The Sustainable Energy & Economy Network (SEEN), founded in 1996 at the Institute for Policy Studies, has been tracking how well the Bank has held up its end of the bargain. Among other problems, we have witnessed unprecedented levels of Bank financing for fossil fuel projects, especially those that export oil to Northern markets, and only threadbare support for renewable energy and energy efficiency projects. From the 1992 Rio Earth Summit through late 2004, the World Bank Group has approved $11 billion in finance for 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 (Annex B) countries. In the oil sector, over 82 percent of the World Bank’s approved finance goes to projects that export to the North. In fact, much of the carbon dioxide generated by World Bank projects will be released in the global North. Energy projects approved for financing by the Bank since Rio will lead to over 43 billion tons of carbon dioxide emissions, of which over half (23.8 billion) are export-oriented projects. Over the past decade, many have tried to convince the Bank to change from within, to redirect its energy portfolio from the status quo to one more in line with the goals of the Rio Earth Summit. Many voices -- from the world’s most disenfranchised peoples to Nobel laureates and 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 Bank-commissioned study, chaired by 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, based on human rights, economic, development and environment grounds. The Bank’s management and executive board disregarded the fundamental critique of the review—namely, that these extractive projects did nothing to forward the Bank’s stated mission of alleviating global poverty. They feigned agreement on many of the review’s other critiques, but the “action plan” they adopted in September 2004 represented more business as usual. This inertia in response to external and even internal critiques is commonplace. It is enforced through the institution’s anti-democratic power structure, over which the United States government wields an exclusive right to veto. As we have documented in previous reports, Northern corporations, particularly those based in the United States, are the primary direct beneficiaries of the fossil fuel projects that the Bank board has approved since Rio. They benefit-- either through direct loans or through the privatization process enforced by Bank loans. Halliburton and Enron, to name two such primary beneficiaries, enjoyed global expansion in the 1990s hand-in-glove with World Bank Group project financiers. More significantly, the main beneficiaries of the Bank’s extractive industry portfolio —particularly its oil investments—are industrialized countries. For decades, expanding access to worldwide oil and gas supplies has been a centerpiece of U.S. foreign policy. This quest intensifies each year: In 2002, the U.S. imported 53 percent of its oil; this is projected to rise to 70 percent by 2025. The World Bank provides one critical tool in its toolbox for opening up new areas for oil and gas exploration for U.S. markets. Although the 1992 Rio Earth Summit positioned the World Bank to be a conduit for the transfer of resources from the wealthy North to the poorer South, the lender instead redoubled its financing of new oil fields for global consumption. Such projects actually transfer resources—both natural and financial-- from South to North. (Ironically, many of the Bank-financed oil- and gas-extraction projects are export-oriented in order to repay in hard currency the debt developing countries owe the World Bank.) The Bank also lives in a state of denial regarding its clean energy financing, burnishing its image by touting lukewarm efforts to spark renewable energy and energy efficiency, using fuzzy math to exaggerate their scope, and low-balling its future commitments, as we have detailed in our report, “Wrong-Turn from Rio: The World Bank’s Roel in Climate Chaos.” .It further fogs its contributions to climate change through a dishonest methodology that allows it to deny the full climate impact of its investments by, for example, only counting powr plant emissions but disregarding the billions of tons of CO2 that would be emitted by oil fields it helps pry open. The 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 over 80 percent of all private banks—those so-called Equator Principle banks that base their standards upon those of the World Bank—and all of the public banks who also look to the World Bank for guidance on their investments and guidelines. For over a dozen years now, the World Bank Group has had the opportunity to prove that it could fulfill the promise of Rio 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—except for corporations such as Halliburton. Those who embrace the 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 nation in the world, the U.S., 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. Perhaps it’s time to end the monopoly of an institution that is pushing us toward disastrous climate change by ambitious campaigns to hurt those its mission is to help. There no longer is anything to lose by exploring and creating 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 this rogue institution for what it is and begin to rein it in appropriately. *This modified excerpt is taken from the longer report, “Wrong-Turn from Rio: The World Bank’s Role in Climate Catastrophe”, co-authored by Jim Vallette, Daphne Wysham and Nadia Martinez, available at www.seen.org Daphne Wysham is the founder of SEEN and a fellow at the Institute for Policy Studies in Washington, DC.

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