World Bank’s carbon trading plans fail Africa

2 July 2007

versión en español

While the World Bank promotes the burgeoning carbon trading market as a “tool to help Africa’s poor”, an investigation has unearthed gross incompetence with the Clean Development Mechanism (CDM) in which the Bank is heavily involved. A report by Oxfam points out serious inadequacies with the Bank’s figures for climate adaptation funding, and a parliamentary motion urges the UK government to stop supporting oil extraction via multilateral development banks.

The Bank plays a key brokering role in the CDM, established under the Kyoto Protocol to allow industrialised countries to meet their greenhouse gas reduction commitments by investing in carbon emission reduction projects in developing countries (see Update 53, 47). In June, UK daily The Guardian uncovered UN paperwork which documents rule-breaking and possible fraud from CDM projects, faults with up to 20 per cent of the carbon credits already sold, and gross incompetence from three out of the 17 specialist companies that validate and verify the projects.

The Bank’s carbon finance unit is apparently oblivious to such scandals. In its State and trends of the carbon market 2007 published in May there is only praise for the sharp growth and “relative price stability” of CDM projects. Africa accounted for just three per cent of certified emission reduction permit sales last year, with the majority going to China and India. The Bank recognised that the CDM lacks a facility through which developing countries with “obvious energy needs.can be rewarded for clean development.” Most African countries’ emissions are too low for them to qualify to earn credits for carbon reductions.

Adaptation: rich world must do more

Oxfam International finds serious inadequacies in the World Bank’s methodology for estimating the costs of climate change adaptation for developing countries. In its report, Oxfam sets the figure well above the Bank’s widely cited estimate of $10-40 billion annually (see Update 53, 51) – at least $50 billion and far more if emissions are not cut rapidly. The Bank’s estimate only accounts for some of the costs faced by ‘macro actors’ (donors, governments and the private sector), such as integrating adaptation into planning and policies, and climate-proofing new infrastructure. It has failed to consider the costs of climate-proofing existing infrastructure, as well as costs faced by ‘community-level actors’ for the vast majority of adaptation needs.

Citing the latter as the most effective actors in supporting adaptation, Oxfam argues for an approach rooted in equity and justice. Finance for adaptation should be provided in addition to aid and defined separately.

DFID must try harder

Speaking at the School of Oriental and African Studies in London in April, the UK’s development minister, Hilary Benn urged the Bank to set “bold” new targets for renewable energy investments such as wind and solar, energy efficiency and low-carbon growth to help tackle climate change. He also called on the Bank to pilot new ways to provide alternative incomes for people living in rainforests, rather than from cutting them down (see Update 56). Benn committed the UK to a new £800 million Environmental Transformation Fund (ETF) announced by the UK Chancellor in April, slated to “provide resources for a range of activities being financed under the [World Bank’s] Clean Energy Investment Framework”.

Welcome words, but clearer action is needed. A statement by UK NGOs in response to the ETF announcement is calling for a public consultation on the scope and management of the ETF, as well as clarity on its relationship to existing aid targets. It demands coherence with other UK government policies and practices and urges strong caution on the World Bank as a disbursement mechanism.

In March an Early Day Motion (EDM) on the UK Department for International Development’s (DFID) strategy on climate change and energy was tabled by UK MP Michael Meacher. The EDM notes that DFID “provides both financial and political support for oil companies in developing countries through multilateral organisations” [including the World Bank]. Echoing the findings of a report by the Environmental Audit Committee of September 2006 (see Update 52 ), the EDM points out that this support is inconsistent with DFID’s mandate to increase access to low carbon energy, alleviate poverty and help mitigate the effects of climate change. Forty four MPs have signed on so far.