At the UN Framework Convention on Climate Change’s 29th Conference of Parties (COP29) on 14 November, the Multilateral Investment Guarantee Agency (MIGA), the World Bank’s political risk insurance arm, presented a Letter of Authorisation (LoA) template aimed at de-risking carbon markets for private investors under Article 6.2 of the Paris Agreement. Article 6.2 facilitates bilateral carbon credit trading, i.e., allowing countries and companies to achieve ‘net zero’ targets by purchasing credits from emission-reduction projects in the Global South (see Inside the Institutions, The role of the World Bank in carbon trading markets).
This move comes despite evidence that carbon markets have failed to reduce emissions. A January 2023 joint-investigation by The Guardian and other outlets revealed that over 90 per cent of rainforest carbon offsets certified by Verra, the world’s leading certifier, were effectively “worthless”. On 12 November, a coalition of climate justice groups issued a press release stating that carbon markets serve only as “a smokescreen for big polluters to keep on emitting at the expense of people and nature.”
Often dubbed the ‘wild west’ due to poor regulation, carbon markets have bred exploitative schemes that mainly benefit foreign dealers at the expense of local communities. While COP29 saw marginal improvements in transparency under Article 6.2, outcomes failed to establish robust accountability measures. A 23 November Climate Home News article argued, “the rules for bilateral trades under 6.2 could open the door for the sale of junk carbon credits.” Meanwhile, while Verra introduced a new carbon credit system to improve project integrity, concerns about the methodologies remain. On 24 November, The Guardian quoted Injy Johnstone, an Oxford researcher, who cautioned “the risk of abuse still remains alive and well.”
MIGA has a history of enabling fossil fuel projects, and it is still supporting fossil gas power plants to this day. With this new LoA, the World Bank Group is yet again contributing to prolonging the fossil fuel era, albeit indirectly, by helping big polluters get a free pass to continue their dirty business.Marjorie Pamintuan, Recourse
De-risking ‘junk’ carbon credits?
MIGA introduced the LoA to “define legal rights to carbon credits and improve the insurability of investments”, securing enforceable host government commitments through compensation and dispute resolution procedures. The template, still under discussion, states that host countries “expressly [and irrevocably] permit, consent to, and authorize the transfer, sale, or any other disposition” of internationally transferred carbon credits and associated rights. This applies to transfers made by the investor, recipients, or future holders, both within and beyond the host country.
The LoA’s provisional language suggests that host governments could face financial liabilities if they modify or revoke credits within the agreed timeframe, with compensation including “the prevailing market value of the affected Credits [and estimated revenue losses].” This potentially poses significant risks for host countries, given the significant problems with carbon credit schemes to date. Indeed, some countries argue that revocation should be allowed in cases of fraud or human rights violations. Although MIGA has environmental and social Performance Standards for the projects it insures, civil society organisations (CSOs) have long questioned its approach to accountability (see Observer Autumn 2020).
As some host governments began to regulate carbon markets, like Zimbabwe’s announcement in May 2023 that it would retain half of project revenue and consider voiding existing contracts, US-based CSO Oakland Institute warned in July 2023 that MIGA’s proposed guarantees would “directly benefit investors, developers, and intermediaries in the Global North,” insulating them from host countries’ regulatory measures (see Observer Autumn 2023).
Marjorie Pamintuan from international CSO Recourse commented, “MIGA has a history of enabling fossil fuel projects, and it is still supporting fossil gas power plants to this day. With this new LoA, the World Bank Group is yet again contributing to prolonging the fossil fuel era, albeit indirectly, by helping big polluters get a free pass to continue their dirty business. Instead of backing unproven and ineffective voluntary carbon markets, MIGA should be prioritising guarantees for just, clean energy transition projects in the most climate-vulnerable countries.”
