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Nothing More Than Hot Air: The World Bank's Perverse Incentives to Pollute Continue Preempting a Better, More Principled Way Forward

The author argues that despite the World Bank's "mandate" since the 1992 Rio Earth Summit to help reduce carbon emissions, in fact its project funding has gone in the opposite direction. Based on studies by the Sustainable Energy and Economy Network. one backward step has been the Bank's increased funding for investments in coal, oil and gas. In addition, by increasingly entering on a large scale into the "cap and trade” carbon offsets market, the Bank has "launched a whole new market in some of the most perverse incentives for increasing greenhouse gases ever imagined."

By Daphne Wysham

June 1, 2011

It started in the dog days of August, 1996, when Washington becomes a ghost town. That was when the World Bank revised its energy efficiency standards for thermal power plants, weakening them dramatically. Why would the primary institution entrusted with the task of financing clean energy development at the Rio Earth Summit in 1992 suddenly lower its standards for fossil fuel power plants, essentially incentivizing more pollution? It turned out it had a lot to do with carbon offsets.

But it took us a few years to figure that out. The first piece of the puzzle came together in 1997 when the project I direct, the Sustainable Energy & Economy Network, issued a report finding that the World Bank had been ramping up its investment in coal, oil, and gas. Our report found that, in the five years since the Earth Summit, the bank had funded projects that would add about 2 gigatons of carbon to Earth’s atmosphere every year. The Bank had failed in living up to the mandate entrusted to it in Rio, and instead was taking the planet toward climate catastrophe.

It wasn’t until a year later that the puzzle came together. In a second report, we found that the World Bank was poised to embark on trading in carbon offsets. Bank officials said they were merely “learning by doing” and would only “help” the UN set up carbon markets, then exit, stage right. Fourteen years later, carbon offsets have gone from a boutique business to a booming industry, and our worst fears have been realized.

Ever since the World Bank lowered its energy efficiency standards, power plants have been able to raise them again to where they were before August 1996, and count that as a carbon offset. It works like this: A polluter in the North buys a certain quantity of carbon offsets emissions from the World Bank, at a cost cheaper than reducing those carbon emissions at home. A coal burner in a developing country gets paid to do what it was previously required to do as a condition of World Bank lending ­— burn coal more efficiently. The World Bank charges a 13 percent brokerage fee on the transaction. The net result: The Bank is richer for expanding fossil fuel and carbon finance in the global South, the global climate is more unstable with additional carbon dioxide, and some corporation in the global North can claim fake emission reductions and carry on polluting. Weakened energy efficiency standards, we came to find out, are the least of our worries. As my co-director at the Sustainable Energy and Economy Network, Janet Redman, wrote in our 2008 report, “World Bank: Climate Profiteer,” the World Bank launched a whole new market in some of the most perverse incentives for increasing greenhouse gas emissions ever imagined.

For example, the bank’s “Global Gas Flare Reduction Partnership,” is now poised to push Nigeria, the second largest emitter of CO2 from poisonous gas flares, to gain carbon offset credits for ending gas flaring. Sounds great, right? Well, gas flaring is already illegal in Nigeria. Has been since 1984. By providing carbon offsets for ending gas flaring, the bank is actually incentivizing oil companies to obey the law and stop poisoning communities only if paid. Some people call that bribery. A better word might be extortion. If Chevron Nigeria ends gas flaring, for example, Chevron in Richmond, California could actually increase its emissions and claim a “reduction” with these gas flare offsets.

Similarly, in 2005 the bank helped broker carbon offsets for one of the most potent global warming gases on the planet – HFC-23. The end result: Rather than phasing out the production of these ozone-destroying and global warming gases in China as required under the UN’s Montreal Protocol, there was a sudden jump in the production of HFCs – in order to reap millions to then turn around and destroy them. Thankfully, that trade has now been banned by the European Union.

The World Bank’s perverse incentives to pollute are now something of the norm when it comes to greenhouse gas mitigation efforts. In California, for example, the state’s cap and trade with offsets scheme allows companies to use carbon offset credits to fulfill a percentage of their emissions compliance requirements. Some California environmental justice communities have recently filed a lawsuit to stop it. The reason? Offsets allow pollution to continue, even increase, in their communities, so long as the polluter buys some other carbon offset elsewhere.

The US Government Accountability Office has issued repeated reports claiming that carbon offsets are virtually impossible to verify, warning: “The use of carbon offsets in a cap-and-trade system can undermine the system’s integrity, given that it is not possible to ensure that every credit represents a real, measurable, and long-term reduction in emissions.” But that hasn’t stopped people from pushing to expand carbon offsets to include large tracts of forests in the global South under the proposed Reduced Emissions from Deforestation and Degradation (UN REDD). An inevitable conflict is now playing out between the future “owners” of the carbon in the trees in the global North and Indigenous peoples who have inhabited and protected these forests for generations.

There is a better, more principled way forward, and it does not involve destroying things we value if we save or “offset” the same quantity of that natural resource elsewhere. It involves internationally recognized principles like “polluter pays.” It involves strong national laws like US EPA authority to regulate greenhouse gas emissions within our national boundaries and enforcement of the Endangered Species Act. It involves cutting subsidies, like World Bank loans or cheap oil, gas, and coal leases handed out to mining companies by the Department of Interior. It involves providing predictable finance for clean, renewable energy – just as Germany has done with great success while simultaneously phasing out nuclear power.

We need not entrust the unstable global climate to the derivatives traders at Goldman Sachs and the neoliberal schemes of offset brokers at the World Bank. We know how to value nature without putting a price on it. Indeed, something as priceless, and unpredictable, as our planet’s carbon cycling capacity – a critical foundation of all life on Earth – should never be cheapened with a price tag.

* Originally published in Earth Island Journal


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