by Janet Redman

Following two weeks of climate talks in Bali that brought together nearly 190 countries and more than 10,000 delegates, observers and activists, it looks like there's very little to show for negotiations that were less about urgent climate action than business as usual.

The meetings were convened under the UN Framework Convention on Climate Change, the international body that 10 years ago negotiated the Kyoto Protocol, the accord that set binding targets for industrialized countries on climate-altering greenhouse gas emissions. The United States was the only wealthy country not to ratify the agreement. This year's talks were about forging a path to a new agreement that would be ready to take over when Kyoto expires in 2012. Ultimately, Bali turned into a game of cat and mouse with the U.S. trying to water down the plan and everyone else trying to get the U.S. on board.

Monumental Boos

The final straw came on December 15, a day after the talks were scheduled to end, when U.S. Under Secretary of State for Democracy and Global Affairs Paula Dobriansky said the United States could not accept language that required rich countries to help poorer countries deal with the consequences of climate change in "measurable" ways. An unprecedented thunder of boos went up from delegates, most of whom were from poorer nations. Dobriansky left the room only to return moments later saying that the United States would not block progress on a roadmap for future negotiations. The cheering that followed left delegates and observers, and apparently reporters, with a sense that something monumental had been accomplished at Bali.

But the Bali "action plan" does almost nothing to ensure that the people most affected by the worst impacts of climate change will receive the resources needed to survive impending climate chaos. This transition plan for replacing the Kyoto Protocol, which is so far being called the "Bali mandate," instead entrenches the power of big business, and the global financial institutions that work on its behalf, without committing any government to tangible emissions reductions.

Carbon Trading

The proposals put forward in the agreement for reducing emissions and adapting to climate change lack concrete detail, but they are spelled out clearly enough to see that trading in carbon credits will likely be at the center of a post-2012 global treaty.

Carbon trading has already been outlined in the Kyoto Protocol as a way for polluting countries to "offset" their greenhouse gases by purchasing credits from projects in developing countries that reduce emissions. For example, an energy company from Spain could buy credits from a company in Chile that wants to build a hyrdropower plant, which would substitute "clean" electricity for power that would otherwise come from burning coal. The idea is that the hydro electricity could not be produced without the additional investment from the Spanish company. This Clean Development Mechanism (CDM) is meant to both lower global emissions levels and provide an income stream for non-industrialized countries to develop clean sources of energy.

What's the Point?

However, criticism of the effectiveness of carbon trading generally, and the CDM more specifically, abounds. After two years of operation the European Union Emissions Trading System failed to reduce emissions and resulted in windfall profits of up to $2 billion for private corporations that were given free credits for their pollution. Add to this the findings of a study commissioned by the World Wildlife Foundation that about 20% of projects that received funding from the CDM didn't deliver more emissions reductions than would have been generated without the extra money. You have to wonder whether carbon trading will actually help avoid climate catastrophe.

The definition of "clean" in the "mechanism" has also been called into question. Technologies like flaring gases that escape from landfills result in other forms of pollution while providing a financial incentive to keep toxic facilities open. Large hydropower projects are abundant in the CDM registry, but large impoundments not only release methane, they often lead to the displacement of whole communities, plunging families further into poverty. And institutions that are neck-deep in carbon trading like the World Bank are experimenting with new methodologies for supposedly "clean" coal and flaring methane from gas pipelines. In other words, some of the most polluting industries would then qualify for additional finance because they would be considered "clean."

Forcible Finance

Described in Bali's road map is an Adaptation Fund for developing countries that could reach $500 million by 2012, which would be administered by the Global Environment Facility (GEF) with the World Bank acting as financial trustee. One funding proposal suggests bolstering donations to the Fund from industrialized countries by recouping a 2% fee on revenues from CDM projects. Proponents of the Adaptation Fund claim that by using the Clean Development Mechanism, rich countries would be "forced" to finance clean energy projects in poorer countries. Because the United States, which releases 24% of the world's greenhouse gases, is not a party to the Kyoto Protocol, it cannot participate in the CDM and would once again get off the hook in compensating those who will live the harsh effects of global climate change.

The Fund's total capital is almost insignificant compared to the $50 billion that Oxfam estimates the developing world will need every year to cope with climate changes. But by naming the CDM as a major source of funding for adaptation, the Bali action plan entrenches carbon trading in future negotiations. The proposal ensures that developing countries, eager for a way to pay for responses to expected disasters, have an increasingly vested interest in seeing market mechanisms flourish. And as the institution that both promotes new "clean" development methods and brokers offset finance for emerging technologies, the World Bank will have an increasing stake in the carbon market, as well.

Little Mitigation

The fact is, the Bank is continuing to finance oil and gas companies with public money to the tune of $8 billion since 2000 (82% of which was for export to industrialized countries). And the Bank's existing carbon finance portfolio has done little to mitigate climate change or support the development of sustainable energy for the 1.6 billion people living without access to electricity.

To date, the Bank has channeled more that $1 billion from the most polluting companies in the industrialized north to the most environmentally destructive industries in the global south. Only a fifth of the World Bank's active "carbon finance" projects are in the renewable energy sector. More than 80% of the funds dispersed have gone to coal, metal, cement and industrial gas companies. Of the Bank's entire carbon finance portfolio only 2% of the total $2 billion in capital raised is earmarked for projects with explicit sustainable community development requirements. It should either fund real renewable energy alternatives or stop claiming to be part of the solution.

Code REDD

Considering the World Bank's less than stellar track record, it was surprising to see the international community call on the Bank to take the lead in a proposal emerging from the Bali talks to reduce greenhouse gas emissions from deforestation in developing countries, a process known by the acronym REDD.

By making the goal of slowing deforestation part of the roadmap, forests essentially get folded into the carbon market. But the Bali Action Plan does little to explain how forested countries, and the communities who depend on forests for their survival, would be compensated for slowing deforestation.

The World Bank has stepped into this vacuum to guide a market in forest credits through its newly launched Forest Carbon Partnership Facility (FCPF). This fund will select countries to try a new approach to carbon trading by setting national reduction targets for a country's entire forest sector, instead of creating baselines and targets on a project-by-project basis.
Indigenous Protests
Indigenous rights and sustainable forestry groups have protested that there is nothing built into this World Bank program ensuring that the benefits of a global forest trading scheme would reach the people who live in and depend on forests. These fears appear to be well-founded. According to the World Bank's own staff, indigenous and forest- dwelling peoples were left out of early planning for the fund. Critics familiar with the World Bank's current forestry program have raised warnings of massive displacement as companies rush to acquire forested land and governments shift public policy to facilitate industrial land grabs.

Investors, however, are quite pleased with the concept, having long asked for the Bank to establish consistency throughout the carbon market. Under the new World Bank initiative, private investment companies would have an easier time assessing the risks of putting money into the carbon market, and lower their transaction costs by purchasing credits from a large number of carbon offset forestry projects at the same time.

Aside from its work dealing with forests, the Bank has already begun designing another new system for channeling money from rich countries to poor ones to address climate change called the Carbon Partnership Facility. This initiative will simplify the trading in carbon credits generated from power sector development, gas flaring, energy efficiency, transportation and waste management systems in developing nations.

The growing role of the World Bank in clearing a path for private capital in an expanded carbon market was not lost on climate justice groups in Bali. Close to 100 activists from around the world demonstrated outside the conference room where Bank president Robert Zoellick led inauguration ceremonies for the Forest Carbon Partnership Facility. And World Bank side events and press conferences were peppered with demands for the Bank to get out of the carbon market.

Calling for Alternatives

In a broad call for climate justice, the Institute for Policy Studies and the International Forum on Globalization convened 137 prominent citizen leaders from every continent to put forward positive solutions to the climate crisis. The result was a demand for a parallel track of negotiations to initiate the just transition to an equitable, low-carbon global economy. Our "Bali Call," urged negotiators to set binding emissions cuts of at least 80% below 1990 levels by 2050, and ensure that those with the greatest resources bear the greatest burden of adjustment.

To deliver deep cuts, signatories outlined a number of strategies to move away from intensive energy consumption, including promoting sustainable agriculture, "green cities," and community control of natural resources. The Bali Call also underscores the need to cut back on oil production and consumption, and protect human rights and ecosystem integrity.

Also, before the talks even began, business leaders from 150 global companies called on the Bali delegates to create further stability in the carbon market by setting legally binding targets for greenhouse gas cuts. In a communique they argued that tackling climate change could be a catalyst for growth. But scaling up investments in renewable energy technology will require concrete commitments lacking in the Bali action plan. Ironically, companies are calling for stronger global environmental regulations than appear to be on the way. With no guarantee of large profits to be made from clean energy, businesses are largely remaining on the sidelines in discussions about real alternatives to dirty energy consumption.

As climate negotiations unfold in the next two years, scrutiny of the World Bank's climate programs -- and proposals for real solutions from those most affected -- will be increasingly important to ensure that people, not markets, determine the shape of a just international agreement to stem greenhouse gas emissions.

Janet Redman, a Foreign Policy In Focus contributor, is a researcher for the Sustainable Energy and Economy Network at the Institute for Policy Studies. Redman went to Bali as an NGO observer of the UN climate talks.
 Copyright © 2007, Institute for Policy Studies