Carbon Finance and the World Bank

Friends of the Earth

31 October 2008 | Minutes

Patrick McCully, Executive Director, International Rivers
Janet Redman, Researcher, Sustainable Energy and Economy Network, Institute for Policy Studies
Susanne Breitkopf, Senior Campaigner, Africa Forest Campaign, Greenpeace International

Janet Redman, Researcher, Sustainable Energy and Economy Network, Institute for Policy Studies

The World Bank has a portfolio of 12 funds on carbon financing, which is relatively small. The larger impact is the precedent that the Bank sets for other financial institutions and the pilot projects they may choose to undertake.

Carbon financing is a way to help clean up emissions. The World Bank is making deals in the South on carbon financing projects. World Bank Group lending to coal, oil, and gas is up 94% from 2007, reaching over $3 billion. Coal lending alone has increased by 256% in the last year.

Renewable energy and energy efficiency lending is up 87%, with the vast majority going to support large hydropower projects and supply-side energy efficiency.

Of funds promised for renewables only 5% are really for clean, renewable energy. Large hydropower projects are being favored.

Dirty industry still dominates among the World Bank portfolios with $1 billion in coal, iron, steel and others.

Furthermore, despite being a development bank, less than 10% of the carbon financing projects contribute to community development in the South. In many cases these financing projects actually harm people (i.e. clearing of forest to plant eucalyptus for coal).

The Biocarbon Fund is little better. The funds trade credits from reforestation projects. However, half of these projects tend to be large plantations and the remainders are agro forestry projects, which do not benefit local communities or set out sustainable development models.

The World Bank is now planning to evaluate climate finance projects and scale them up despite the numerous flaws built into them.

Forest Carbon Financing: 20% of global CO2 emissions come from deforestation. As a result, there are efforts to protect forests in order to reduce emissions. The Forest Carbon Partnership Facility (FCPF) of the Bank is part of these efforts. There are two components:

  • Readiness Fund which helps countries get prepared for reduce emissions from deforestation and forest degradation (REDD) projects
  • Carbon Fund which compensates countries for protecting forests

Again, this funding is small in the large picture, however there are concerns about the models and precedents being established by the Bank in these funds. There is particular concern about the lack of NGO participation in the setting-up of these funds. They were included in Bank consultation, however, their inputs weren’t reflected in decision-making and outcomes.

All of the Banks safeguards apply to these facilities, but there is a feeling that there are no safeguards for biodiversity or community development because of the focus on carbon as opposed to forests. This could lead to the funds having some perverse outcomes. For example, the funds foster industrial logging and agribusiness. Under the Bank facilities development projects can be certified as sustainable when they are not genuinely sustainable.

Susanne Breitkopf, Senior Campaigner, Africa Forest Campaign, Greenpeace International

Participant countries submit applications to the Readiness Fund. Fourteen have been approved so far, including the Congo. The Congo proposal was developed and written by foreign consultants. It had no data about indigenous people. The proposal was unclear on how any non-carbon issues would be addressed in a beneficial ways such as biodiversity and forests. Furthermore, there was no consultation with anyone in the country – no stakeholder consultation at all.

The advisory panel at FCPF responded to the proposal and said it needed to be rewritten to make it appear that it had come from the country itself and make it look less obvious that it is a proposal geared towards commercial development.