The World Bank's Climate Profiteering

By Daphne Wysham and Shakuntala Makhijani, Foreign Policy in Focus. Posted April 2, 2008.

The World Bank's long-running identity crisis is proving hard to shake. When efforts to rebrand itself as a "knowledge bank" didn't work, it devised a new identity as a "Green Bank." Really? Yes, it's true. Sure, the Bank continues to finance fossil fuel projects globally, but never mind. The World Bank has seized upon the immense challenges climate change poses to humanity and is now front and center in the complicated, international world of carbon finance. It can turn the dirtiest carbon credits into gold.

How exactly, does this work, you ask?

Quite simply: The Bank finances a fossil fuel project, involving oil, natural gas, or coal, in Poor Country A. Rich Country B asks the Bank to help arrange carbon credits so Country B can tell its carbon counters it's taking serious action on climate change. The World Bank kindly obliges, offering carbon credits for a price far lower than Country B would have to pay if Country B made those cuts at home. Country A gets a share of the cash to invest in equipment to make fossil fuel project slightly more efficient, the World Bank takes its 13 percent cut, and everyone is happy.

Everyone, that is, who is cashing in on this deal. If you're after a real solution to the climate crisis, these shenanigans can and should make you unhappy.

Aiding the Tata Group

Consider a project the International Finance Corporation (IFC) had scheduled for board consideration on March 27, but is now, according to its press office, slated for approval in April. (The World Bank Group's boards virtually never reject anything sent to them). The IFC, the World Bank's private sector lending arm, plans to back a massive coal-fired power plant in Mundra, a town in the Indian state of Gujarat. The complex of five 800 megawatt plants will cost $4.14 billion to build and be owned and operated by Tata Power Company Limited, a scion of India's largest multinational corporation, the Tata Group.

To put this in perspective, Tata Motors, a division of the same conglomerate, recently announced plans to buy the luxury car companies, Jaguar and Range Rover from U.S. automaker Ford for $2.3 billion. And Tata Power's 2007 revenues totaled $1.6 billion. So, it's hard not to ask how much help Tata needs from the World Bank, which has as its motto: "our dream is a world free of poverty." Several other corporations are involved. Toshiba, for example, will supply the steam turbine generators.

Once operational, the Mundra power plant will be India's third-largest emitter of greenhouse gases. But it doesn't stop there. Now, the World Bank has planned for the Tata coal burner to be eligible for carbon credits under Kyoto's Clean Development Mechanism. Carbon credits for a coal burner, you ask?

In the bizarre logic of the carbon market, a market the World Bank is both shaping and investing in, yes, Country B can get credits for helping a corporation, even one of the world's wealthiest corporations such as Tata, capture a few carbon emissions, as long as these emissions are captured in a "poor" country, like India, regardless of how rich the company involved may be.

Indonesian Coal

And it gets stranger still. One would hazard a guess that the IFC is lending $450 million, "considering investing up to $50 million in equity as part of its exposure to the project," and possibly helping Tata obtain $300 million from other sources at favorable rates for the Tata burner because India has no other choice but to burn its own abundant supply of coal. But, no, the IFC plans to import coal from Indonesia to fuel the plant in India. In fact, Tata bought a 30 percent stake in two Indonesian coal-mining units for $1.3 billion in April 2007 in order to secure the coal resources for the Mundra plant.

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Daphne Wysham is a fellow and Shakuntala Makhijani is an intern with the Institute for Policy Studies. They are both contributors to Foreign Policy In Focus.