SEEN's Bulletin on Fossil Fuel Projects and Development Aid
(This also appeared in November 22, 1998,
San Jose Mercury News/Knight-Ridder wire)

International lender leads developing world toward 
fossil fuels and global warming

WASHINGTON

THE GATHERING in Buenos Aires a week ago was supposed to be about climate change, but it felt more like a trade show. Instead of focusing on how to prevent global warming, attendees jostled to get a piece of a lucrative emerging market: trading in pollution credits.

Leading the pack was the World Bank, which has become the largest public financier of carbon-emitting oil, gas and coal projects in developing nations. Not only are the bank's projects contributing to climate change, but the bank is also hoping to double-dip -- by funding fossil fuel projects in poor countries at the front end, then reaping financial benefits from the resulting pollution.

The consequence of this daisy chain is to lock developing countries into a fossil fuel energy path, repeating the mistakes of the First World rather than leapfrogging to newer and cleaner energy technologies. And the ultimate consequence is rapid, perhaps irreversible, global climate change.

The World Bank's stated mission is to alleviate poverty and promote sustainable development. Energy consumption is a key indicator of a nation's economic growth, so it is no surprise that roughly a fifth of the World Bank's lending goes toward increasing energy and power supply in poor nations.

What is surprising is that the World Bank is doling out billions of dollars a year for fossil fuel projects -- the single greatest contributor to climate change.

This is despite the bank's acknowledging that climate change is disastrous for poor nations, and that efficiency and renewable resources such as solar power are the best ways to serve the 2 billion rural poor worldwide who have no electricity.

Nevertheless, more than three-fourths of its energy loan portfolio is devoted to fossil fuels. Since the Rio de Janeiro Earth Summit in 1992, the World Bank has spent $13.6 billion on coal mines, oil and gas fields and fossil-fueled power plants in developing countries and the former Soviet bloc; an additional $3.9 billion in loans and credits is pending. And each taxpayer-backed World Bank dollar paves the way for five or six additional dollars in private investment for such projects.

Together, these projects will have a significant impact on the global climate.

Fossil-fuel burning from post-1992 World Bank projects eventually will contribute an immense burden of carbon dioxide to the Earth's atmosphere -- equivalent to 1.3 times the total emitted by all the world's countries in 1995.

Profiting from emissions
Plan to enter market in trading pollution

It is these emissions from which the bank now hopes to profit.

Under a proposal that has been kept tightly under wraps, the bank plans to enter the market in pollution credits -- estimated to reach $150 billion in trading by 2020 -- and skim 5 percent from each trade it brokers.

Two types of emissions trading exist under a system approved at the Kyoto climate conference last December:

Trades between industrialized nations.

These nations pledged at Kyoto to reduce their emissions to below 1990 levels by 2008. Some countries have reached this goal already, so they have the "right" to pollute more. They can sell that right to other nations. The climate doesn't know the difference, or so the logic goes.

Trades involving a specific project in which two nations cooperate.

Under these so-called "joint implementation" deals, one nation gets outside investment and allegedly cleaner technology than it could afford alone. In return, the other doesn't have to reduce emissions as much within its borders.

That might be a good idea -- if it worked. But the concept behind emissions trading fails on several counts.

First, the rationale for emissions trading is that fossil fuels are the only economically viable way for developing countries to get the energy they need to grow. Yet already, the health and other costs from burning coal in China are estimated at 5 percent of China's gross domestic product. And hurricanes such as Mitch, which are expected to increase in intensity with climate change, cause incalculable damage in countries such as Honduras or Nicaragua.

Second, emissions trading assumes energy services will "trickle down" to the poor, who will then be able to use that energy for cooking, heating or lighting. In fact, the opposite is happening.

That's because some World Bank-supported projects encourage the export of fuel to wealthy nations, such as the pipelines that extract oil and gas from Nigeria and Chad. Others produce power for the urban middle-class or for heavy industry, including energy-intensive industries that migrate to these countries as soon as energy is available and cheap.

And the poor, whose energy needs go unmet, continue cutting down trees for fuel -- which adds to the problem of global warming.

Incentive to pollute
Deliberate inefficiency can boost later profits

A third problem is that early evidence shows emissions trading may actually increase pollution, by giving parties an incentive to artificially inflate their baseline figures.

The World Bank already is being tempted, internal documents leaked at the Buenos Aires conference this month suggest. The bank could exaggerate the progress on carbon reductions by building inefficiency into its own fossil fuel projects.

This "win-win" strategy, the documents say, would have the World Bank "picking... low-hanging fruit" first.

Translation: Certain kinds of inefficiencies are cheap to fix, so the bank and corporations could profit by reducing or "capturing" these emissions. But that pollution would not exist if the bank were abiding by its own guidelines for building energy-efficient projects.

The bank estimates it can net $100 million a year from these "low-hanging fruit" by 2005.

Domestically, trading in pollution credits has had similar results. Two pioneering efforts in Los Angeles are being challenged in court by environmental justice groups. In both cases, pollution increased as companies raised their baselines so that they could look good later by "reducing" emissions.

The Los Angeles trading had another side effect: It allowed companies to concentrate pollution in poor neighborhoods while getting credit for environmental efforts in other arenas.

This "hot spot" phenomenon already is plaguing developing countries like India, where energy-intensive industries such as aluminum smelters are migrating to avoid the inevitable ceiling on greenhouse gas emissions in industrialized nations.

That points up a fundamental flaw with emissions trading as the United States and the World Bank envision it: Without limits on developing nations' emissions, and without limits on how much industrialized nations can trade, an increase in pollution is inevitable.

In other words, carbon trading encourages an unregulated increase in greenhouse gas emissions globally -- the exact opposite of its intended outcome.

Business perks
Companies enjoy fossil fuel benefits

So why is such a plan being pursued? For the answer, follow the money as it goes round and round, from corporations to politicians to the World Bank and back to corporations.

The biggest beneficiaries of emissions trading will be large global corporations. These are the same corporations that squawked loudly over the Kyoto protocol, claiming it was unfair because it didn't impose targets on developing countries. Yet they are doing brisk business exploiting fossil fuels in those countries, thus increasing emissions, with the aid of World Bank contracts.

Nine of 10 energy projects financed by the World Bank benefit at least one corporation headquartered in the wealthy Group of 7 nations.

The G-7's collective financial muscle is extraordinary, accounting for about two-thirds of the global economy.

The United States, as the World Bank's largest contributor, has the most influence over bank projects -- which it does not hesitate to use.

One way is in contracts from the World Bank, which are big business. For every dollar the U.S. government contributes, it gets $1.30 in contracts for U.S.-based corporations to build projects in developing countries.

Many of these corporations, in turn, are members of the Global Climate Coalition, a powerful U.S. lobbying group that aims to prevent any action by the United States in reducing its own massive greenhouse gas emissions.

Although polls show the American public wants strong action on climate change, the coalition does not. Instead, it pushes "free market" policies such as pollution credits.

Now, it is urging the Clinton administration to push for unlimited emissions trading. That way, the companies could make all of their emissions reductions in poorer countries, at one-third the cost of creating cleaner energy here at home.

Process rolls on
Disaster looms worst for the poor

And so the process rolls on, unchecked. In the past year, the World Bank spent $1.35 billion on four new coal-fired power projects in China alone. Sources inside the bank say the most recent China project was pushed through in violation of a U.S. law requiring 120 days to assess environmental impact of World Bank projects; it also violated the bank's own less-than-stringent environmental policies.

As we have seen in recent flooding in Bangladesh and hurricanes in Central America, climate change is affecting the world's poorest citizens most mercilessly, leading to homelessness, crop failure, disease, hunger and death.

The greatest irony is that most of the power and energy projects financed by the World Bank in the name of increasing prosperity are further impoverishing the poor, who desperately need energy for their basic survival needs -- as illustrated poignantly by the Nigerian pipeline explosion that killed hundreds of people, mostly women and children, last month as they scavenged for fuel.

Meanwhile, World Bank loans are lining the pockets of undemocratic Third World regimes and the richest and most powerful corporations, many of whom oppose any action on climate change.

And the bank, which should be jump-starting the global market for clean and renewable energy, is instead using our tax money to create a self-fulfilling prophecy of rising greenhouse gas emissions, dirty profits and rapid climate change.

Daphne Wysham (dwysham@seen.org) is a research fellow with the Washington-based Institute for Policy Studies and author of a report on the World Bank and climate change (available at www.seen.org/reports.html). She wrote this article for the San Jose Mercury News Perspective.

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