The gap between the World Bank’s pronouncements on the dangers of climate change and the reality of its lending practices presents an ever increasing danger for the global commons.

Green lending …

The Bank’s involvement in climate change began with the establishment of the Global Environment Facility (GEF) in 1991. Managed by the Bank, the GEF was heralded as the answer to the world’s environmental problems at the Rio Earth Summit a year later. Since its inception, over $6.2 billion has been raised from donor countries for over 60 projects in developing and transition economies.

The other major initiatives led by the Bank are the Prototype Carbon Fund (PCF), the BioCarbon Fund and the Community Development Carbon Fund. These funds invest contributions made by corporations and governments in projects designed to produce emission reductions. Assessment of potential carbon finance recipients is done by the Bank. The Bank also manages two other specialist carbon funds for the Netherlands and one for Italy.

the Bank takes the pressure off fossil fuels through the use of sinks

…or a lot of hot air?

Critics of the Global Environment Facility have argued that, by absorbing the costs of environmental mitigation of the Bank’s main lending projects, the Facility subsidises otherwise unviable dirty industry. The first carbon sink project to receive credit from the Bank’s Prototype Carbon Fund has come in for heavy criticism. A group of over 70 NGOs, academics, church groups and labour unions in Latin America has said that the project’s eucalyptus plantations in Brazil threaten environmental degradation and social dislocation. Furthermore, as fast-growing timber trees, they would fail to store the carbon permanently. Acceptance of the project will see the release of “a large number of worthless carbon credits onto the market.” The Bank is currently investigating the charges.

Business as usual

Research by the Sustainable Energy and Economy Network (SEEN) reveals that the Bank financed over $2.5 billion in fossil fuel projects in the year ending September 2003. In contrast, it had approved just seven renewables projects, totaling $151 million. The ratio of renewable projects to fossil fuel-oriented ones was 1 in 17, roughly equivalent to the 1:18 ratio of the prior decade. Funds continue to flow for highly controversial projects such as the Baku-Ceyhan and Chad-Cameroon pipelines, widely opposed by environmental and human rights groups.

Fossil fuel funds subsidise corporations which drive global warming and whose business practices have been under attack. The list of firms receiving the most support from the World Bank in the decade 1992 – 2002 includes pariahs such as Enron, recipient of almost $1 billion, which continues to seek public financing despite bankruptcy proceedings in the US.

World Bank fossil fuel welfare kings, 1992 to 2002

source: SEEN

The trend in project-based lending is reinforced at the policy level. The Bank has backed away from the recommendations of the World Commission on Dams and is re-engaging in so-called “high-risk, high-reward” infrastructure. The contribution of large-scale dams to global warming results from the enormous areas of previously forested land which is either flooded or logged during construction.

Bank management has similarly tried to distance itself from the Extractive Industries Review (EIR). The review argues that the Bank should reverse its portfolio prioritisation. Currently fossil fuel projects comprise 94 per cent of the portfolio, with renewables at just 6 per cent. The EIR recommends increasing the latter by 20 per cent a year so that by 2008 it can phase out investments in oil production and devote its investments to renewable energy and clean energy technology.

Emil Salim who led the study has said that he is not against fossil fuel projects, but has argued that Bank money should be used to advance renewable energy, leaving oil and coal projects to private ventures. The official response of the Bank’s board to the EIR is expected in early May.

Other setbacks include safeguard reviews which lifted a prior ban on the logging of moist tropical forests. Ben Pearson of CDMwatch sums up the Bank’s climate change work: “Basically as we see it they are in the forefront of using carbon finance to push unsustainable technologies like large hydro, and take the pressure off fossil fuels through the use of sinks. Renewables are merely window dressing”.