IFI governance

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Deforestation and double standards

5 October 2007

The World Bank is preparing to launch its Forest Carbon Partnership Facility (FCPF) which aims to catalyse the market for carbon emissions credits from avoided deforestation see Update 56. However many forestry experts are unconvinced, given the possibility that this framework will benefit industrial scale logging and in light of previous IFI-induced forestry disasters, for example in the DRC.

The FCPF claims it will assist selected countries to find the most cost effective way to reduce carbon emissions from forest degradation and promote carbon trading-based incentives for those reductions. It is slated to pilot a carbon trading system that justifies additional fossil fuel emissions in industrialised countries in exchange for emissions reductions from avoided deforestation and avoided forest degradation post-2012, when the current Kyoto Protocol ends. The targeted volume of the facility would be approximately $250 million. Its launch is expected at the UN climate change conference in December in Bali.

The FCPF will consist of two components:

could create a new source of revenue for logging companies, governments, and investors
  • The ‘readiness mechanism’ to assist 20 interested developing countries to measure their carbon forest stocks, identify forest-related carbon emissions and prepare a strategy to reduce this; and
  • The ‘carbon finance mechanism’ to facilitate payments to a smaller number of countries “that achieve measurable and verifiable emission reductions” by catalysing public and private purchases of credits. Indonesia, Papua New Guinea, Costa Rica, Brazil and Democratic Republic of Congo (DRC) are suggested pilot projects.

Given that land use changes and deforestation account annually for one fifth of greenhouse gas emissions, there is broad consensus on the need to tackle this. But concerns abound on the proposed design and impacts of the FCPF, which are still unclear. Without adequate consultation or prior strengthening of community land tenure rights and forest law enforcement capacity, the FCPF could merely create a new source of revenue for logging companies, governments, and investors without securing genuine long-term reductions in carbon emissions and protection of forest resources from degradation, or equitable benefits for the poor (especially forest-dependent communities). It is also questionable whether the five country-pilot projects for the carbon finance mechanism currently have sufficient capacity to enforce avoided deforestation commitments, given their poor record in forest governance.

A September letter to Benoît Bosquet of the Bank’s carbon finance unit, from NGOs Rainforest Foundation, Global Witness, Greenpeace and Forests Monitor urges the Bank to redraft its FCPF concept note to make it explicit that industrial-scale logging companies will not benefit under the framework. They state that the Bank needs to learn lessons from its previous mistakes, such as in Cambodia (see Update 51), before it launches new forestry activities. The groups also ask how the findings of the Bank’s forest strategy implementation review, which are still not yet public, have been taken into account in the design of the FCPF.

An August letter from six US senators raised concerns with the Bank’s president over the destructive logging practices currently under expansion in the DRC. Senators are “troubled by the Bank’s lack of commitment to implement the sustainable development plan it helped establish”. The Bank played a key role in the design of the DRC’s new forestry code, but has failed to ensure that any of the necessary legal implementation decrees have been developed. The Bank also supported a 2002 moratorium on the issuing of new logging titles (see Update 50) but since this was signed, over 100 new contracts covering 57,000 square miles of rainforest have been awarded to international logging companies. Poor forest communities have largely failed to benefit from the new framework.

According to Rainforest Foundation, which obtained a leaked advance copy of a scathing Inspection Panel investigation of World Bank support for DRC forestry, the Bank has broken numerous safeguard policies, downgraded projects to lower risk levels, and failed to recognise forest-dependent communities. Simon Counsell, director of Rainforest Foundation said that the report “is a major victory for the ‘Pygmy’ peoples of the Congo whose rights and livelihoods would be seriously harmed by inappropriate development of the country’s rainforests. We are now calling on governments to put pressure on the Bank’s board to demand immediate action to safeguard the Congo forests and the 40 million people depending on them.”

Meanwhile, the IFC is financing the Singapore-based trading group OLAM International Ltd, which has recently been accused of trading in illegal timber sourced from local companies whose permits have expired in the province of Bandundu in the DRC. In 2005 OLAM was awarded logging titles covering 300,000 hectares in violation of the DRC government’s 2002 moratorium. As of FY 2006 the IFC held $11.2 million in OLAM loans and guarantees. In May Greenpeace wrote to IFC asking that it divest from OLAM on the basis of its illegal logging titles. The request was rejected in July.

Under the Influence

A report by Jubilee Australia explores the influence of IFI interventions on deforestation in Indonesia and Papua New Guinea. The IMF rescue package for Indonesia after the 1997 Asian financial crisis, led to the increased exploitation of natural resources in an attempt to raise more revenue. Under IMF pressure in 1998 the Indonesian government lifted a 10 year ban on the export of raw, unfinished logs. Public spending cuts and privatisation of public assets weakened state-run environmental protection measures, leaving forest resources vulnerable to pirate operators. The IMF’s package also required removal of barriers to investment in palm oil, resulting in a rapid spread of palm oil plantations and deforestation to make way for them. The use of clear cut and burn methods to convert rainforest to palm oil plantations has resulted in the dramatic spread forest fires. Ironically a recent report by the World Bank Indonesia and climate change points out that most of the country’s emissions are caused by carbon released through deforestation. Since 2000, 19 million hectares of Indonesian forest has been cleared, predominantly for commercial use.

Since the design of PNG’s structural adjustment programme in 1989, the government has been under pressure to legislate changes that prioritise the commodity value of land and forests over the country’s customary social and cultural values. Conditions introduced in 1998 included a tax reduction on log exports from 33 to 0.5 per cent, and tariff cuts on other forest products. Meanwhile the Bank estimates that approximately 70 per cent of PNG’s total forest production is illegal. In 1999 the Bank agreed to loan the government $90 million, for the promotion of better governance in the forestry sector, conditional on a comprehensive review of the industry. The conditions were not met due yet the Bank disbursed the loan regardless.