- Forestry projects: certification

In 1998, the World Bank and WWF announced a new ‘Forest Alliance’ with the target of securing 200 million hectares of certified forests in World Bank client countries by 2005. The Alliance has faced a serious challenge in reaching this goal. As most logging operations are in fact carried out by private logging companies, the main part of the World Bank lacks leverage to persuade companies to upgrade their logging to certification standards, but the IFC, which does invest in the private sector, has yet to change its policy in line with the rest of the World Bank and is anyway not part of the Alliance. The Alliance admits that, to date, only some 22 million hectares of forests have been certified to credible standards in Bank client countries but the contribution of World Bank-WWF projects to securing this total is far from clear.

For the Bank to fund a forestry project, the new policy does require either that the project has been certified under a credible certification scheme (article 9a) or has a plan to get certified (9b). According to the Forests Policy, the certification should require: compliance with the law; recognition and respect for legally documented or customary land tenure and use rights as well as the rights of indigenous peoples and workers; measures to maintain or enhance sound and effective community relations and multiple benefits; conservation of biodiversity and ecological functions; monitoring and evaluation. In addition, certification must be fair, transparent, independent, based on third party assessment, cost-effective, based on objective and measurable performance standards defined at the national level, compatible with internationally accepted principles and criteria of sustainable forest management (SFM), developed with meaningful participation of local people and communities and other members of civil society, and designed to avoid conflicts of interest. The only scheme which comes anywhere near to meeting these criteria is the Forest Stewardship Council but the World Bank-WWF Alliance overlooked many of the problems of FSC certification process. An analysis of the Bank’s 11 ‘criteria’ for a ‘credible’ certification scheme showed that the FSC probably failed on at least 7 of them.

However, where the World Bank has made major interventions in the forestry sector, as in the Democratic Republic of the Congo (see article “Democratic Republic of Congo –after the war, the fight for the forest” in this issue), there is no evidence that these criteria have been applied. The vigilance of the World Bank-WWF Alliance in tracking these developments is also open to question.

Under Article 9b the Bank may fund a project in a forest that has not yet meet the requirements of certification subject to a “time-bound phased action plan acceptable to the Bank for achieving certification”.

In addition, in its new Forests Strategy, the Bank claimed that it had:

“agreed with leading international conservation agencies that it will encourage the widespread use of internationally agreed criteria and indicators for sustainable forest management. These criteria include those defined by the ITTC, discussed in the IPF [and] IFF, and embodied in the principles and criteria of bodies such as the Forest Stewardship Council” .

There are other fundamental problems with this element of the Bank’s Forest Policy:

- Neither the Strategy nor the Policy are at all clear on what happens in the eventuality that companies without certification at the time of receiving Bank loans or grants fail to comply with their ‘action plan’ for achieving certification. Would the Bank request re-payment of any loan or grants?

- The Strategy and Policy fail to address the obvious paradox that, under ‘credible’ certification systems such as the FSC, an important criterion for certification is that the forestry operation is ‘economically sustainable’. If certified operations are already economically sustainable, it is not clear what would be the purpose or value of providing them with World Bank funding.

In practice, like so many other elements of the Forests ‘Strategy’ and commitments set out by the Bank in 2002, the certification requirements have not been implemented. The authors of this report are not aware of any single case where the IBRD/IDA has actually required certification in association with a forest sector loan or grant, although some funds have been provided to develop national certification standards, notably in Eastern Europe.

In the Forests Strategy, the Bank suggested that an expert in certification should be included in any Advisory Panel that would be required under all ‘Environmental Category A’ forestry projects. However, as noted elsewhere in this report, the Bank has substantially weakened the panel, and has avoided the requirement for certification, either by downgrading controversial forestry projects to ‘Environmental Category B’, or by including forest sector interventions within Structural Adjustment Credits which are not subject to the Forests Policy.

By Forest Peoples Programme, e-mail: info@fppwrm.gn.apc.org , http://www.forestpeoples.org, and The Rainforest Foundation-UK, e-mail: simonc@rainforestuk.com, http://www.rainforestfoundationuk.org

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- A Fig Leaf of False Transparency: the ‘External Advisory Group’

In order to facilitate transparency and be guided during the implementation of its new Forests policy, the Bank announced that it would set up an External Advisory Group (EAG) to interact with the Bank. The group would ‘have the task of providing independent advice’ on forests to the Bank, ‘and have the right to disclose those recommendations’. This group would include people from client governments, indigenous peoples, local communities, civil society, the private sector, the ‘international forest community’, and multilateral and bilateral agencies.

None of this is true. Instead the Bank hand picked a small group of persons who stand on the EAG in an individual capacity but drawn from RECOFTC, IUCN, CIFOR, FAO, CoFO, Government of Ghana, Forest Trends and one NGO in Papua New Guinea. There are no representatives of local communities, indigenous peoples, the private sector or bilateral agencies. The EAG has met three times since 2003 but, despite requests from the EAG itself, the Bank has not released any information whatsoever about its structure, membership, or terms of reference. Nor have the minutes of its meetings and the recommendations of the EAG been made available outside the Bank.

NGOs have repeatedly asked the Bank for clarification about the EAG but the process remains opaque. Far from acting as a mechanism of transparency, and notwithstanding the good intentions of EAG members, the EAG is in effect just a smokescreen behind which the Bank can hide its non-compliance with its new policy.

The effectiveness of the EAG has been tested by the case of the Bank’s involvement in the forest sector in the Democratic Republic of Congo (DRC ). This represents one of the biggest forestry challenges the Bank has faced since the adoption of the new forest policy, and has been highly controversial (see article “Democratic Republic of Congo –after the war, the fight for the forest” in this issue). The members of the EAG were contacted by the Rainforest Foundation in February 2003, and informed that the Bank’s actions jeopardised the future of the world’s second largest area of rainforest – as well as the future of millions of people dependent on it – and was in blatant contravention of the Bank’s Forest Strategy. In response, the Foundation was informed that many of the EAG’s members shared the Foundation’s key concerns, but that the Chair of the group “is the only person authorized to speak on its behalf”.

The EAG Chair responded in March 2004, noting that: “the group is currently in a formative stage and yet to evolve its mandate, methodology and means to address the kind of issues you have raised. On my part, I am seeking a meeting with WB officials and calling for an early meeting of EAG to hasten the process. I will keep you informed”.

Nothing has been heard since.

By Marcus Colchester, Forest Peoples Programme, e-mail: Marcus@forestpeoples.org, http://www.forestpeoples.org, and Simon Counsell, The Rainforest Foundation UK, e-mail: simonc@rainforestuk.com, http://www.rainforestfoundationuk.org

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- The International Finance Corporation (IFC): Luring Increased Private Sector Investment into Forestry and other Sectors Affecting Forests At Any Price?

The International Finance Corporation is the member of the World Bank Group which lends directly to the private sector or purchases equity stakes in private sector companies that do business in developing countries. But the IFC’s stated role goes beyond helping to generate profits for the private sector companies and their shareholders. According to its mission statement, the IFC exists to reduce poverty and improve people’s lives through sustainable private sector development.

Working in tandem with the IFC is MIGA (Multilateral Investment Guarantee Agency) which provides insurance against political and commercial risks to corporations operating in developing countries, economies in transition or emerging markets – whichever euphemism we may choose.

At present the IFC has a committed portfolio of close to US $ 18 billion, but its role in syndicating loans from private banks for infra-structure, oil development and other sectors increases its influence far beyond its own investments.

The World Bank’s 2002 Operational Policy on Forests (OP 4.36) only applies to the Bank’s public sector operations which is when the Bank lends to governments. It does not apply to the IFC and MIGA. But OP 4.36, a brief document laying out mandatory guidelines, is accompanied by a Forest Strategy document which is all encompassing and entirely voluntary. This Strategy document which was also adopted by the IFC calls for vastly increased private sector investment in the forest sector to be mobilized by IFC and MIGA.According to the Forest Strategy, MIGA would have a larger role in forests through its ability to insure private investors against political and catastrophic risk. This naturally begs the question of how the Bank’s central goal of poverty reduction through sustainable forest management can ever be reconciled with support for this type of high risk forestry investment, where private sector risk is cushioned by the public purse while forest-dependent peoples and ecosystems are bearing the cost for ill-conceived schemes.

What does apply to the IFC is a 1998 Operational Policy on Forestry (OP 4.36 – which is analogous to the World Bank’s previous policy of 1993) which in theory is mandatory. Among the provisions of the policy are: a ban on direct financing of logging operations or the purchase of logging equipment for use in primary moist tropical forest;the promotion of the active involvement of local people in long-term sustainable management of forests; and the requirement to undertake environmental and social assessments of forests being considered for commercial use. If fully implemented, this policy would help address concerns about ecological sustainability and respect for the rights of indigenous peoples and forest-dependent communities more broadly.

But a listing of current projects under preparation by the IFC appears to indicate that it is operating in a policy vacuum despite the – theoretically - mandatory nature of the safeguard policies, which include Operational Policy 4.36 on Forestry. None of the forestry-related projects in the list requires a full environmental assessment. All are listed as Category B projects for which a simple desk review is usually deemed sufficient:

• India - AP Paper Mills $ 35 million loan + $ 5 million in equity (approved July 6, 2004)
• China - Chenming Corporation Pulp & Paper - $ 75 milion
• China - Krono Beijing- Wood Panels $ 21.69 million
• Brazil - Aracuz Celulose- $ 50 million
• Chile - Sociedad Inversora Forestal S.A. – $6.5 million
• Uruguay - Pulp and Paper Metsa Botnia –$ 100 million
• Russian Federation - Kronospan Wood Panels –$ 70 million

This brief list of projects currently in the pipeline barely scratches the surface. It tells us nothing about investments in the hundreds of millions of US dollars in forestry currently being implemented. In addition to forestry, IFC investments in extractive industries, large-scale infra-structure, agribusiness, etc. are in many cases likely to have significant impacts on forests and forest-dependent people.The latest IFC listing includes investments in hydropower in India, gas in Bolivia and coal-fired power plants in the Philippines. None of which are listed as category A projects and therefore will not require a full environmental assessment.Furthermore, one third of IFC funding supports banks and other financial intermediaries. An example of the IFC’s latest listing is a US $ 40 million loan for Banco Agro Industrial de Exportaciones (Banex) of Costa Rica to expand export-oriented agribusiness. Again, there is little transparency on how the environmental and social impacts of these types of loans are accounted for, prevented or mitigated.

The IFC is currently in the process of revising its environmental and social policies as well as its disclosure of information policy. As described by the IFC, the revision is part of its efforts to fully integrate sustainability in all its business activities. NGOs fear that the IFC plans on replacing mandatory safeguard policies –for which it can be held accountable– by almost voluntary performance standards.NGOs across the world are calling for clear and enforceable rules for IFC lending and the institutional reforms necessary to ensure their implementation. IFC investments in forestry and extractive industries are a stark reminder of the need for transparent monitoring and evaluation of the companies benefiting from IFC support and for effective accountability to affected communities and the public at large.

By Korinna Horta, Environmental Defense, e-mail: khorta@environmentaldefense.org, http://www.environmentaldefense.org

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- The Natural Habitats Policy: institutionalised derogation

A superficial reading of the World Bank’s Forests Policy suggests that it implies a proscription prohibiting World Bank funding of projects that it determines may damage ‘critical forests’. However, a closer reading of the policy suggests otherwise. This is because, in the first place, it is Bank operational staff and not others, who will decide what areas of forests are ‘critical’ and what are not. Secondly, the Forests Policy relies on the procedures of the current Natural Habitats policy (revised in June 2001), which allows derogations from the overall proscription where there are no feasible alternatives. The quotes below compare the language in OP 4.04 on Natural Habitats and OP 4.36 on Forests.

OP 4.04 ‘Natural Habitats’:

“4. The Bank does not support projects that, in the Bank's opinion, involve the significant conversion or degradation of critical natural habitats.

5. Wherever feasible, Bank-financed projects are sited on lands already converted (excluding any lands that in the Bank's opinion were converted in anticipation of the project). The Bank does not support projects involving the significant conversion of natural habitats unless there are no feasible alternatives for the project and its siting, and comprehensive analysis demonstrates that overall benefits from the project substantially outweigh the environmental costs. If the environmental assessment indicates that a project would significantly convert or degrade natural habitats, the project includes mitigation measures acceptable to the Bank. Such mitigation measures include, as appropriate, minimizing habitat loss (e.g., strategic habitat retention and post-development restoration) and establishing and maintaining an ecologically similar protected area. The Bank accepts other forms of mitigation measures only when they are technically justified.”

OP 4.36 ‘Forests’:

“5. The Bank does not finance projects that in its opinion would involve significant conversion or degradation of critical forest areas or related critical natural habitats.If a project involves the significant conversion or degradation of natural forests or related natural habitats that the Bank determines are not critical, and the Bank determines that there are no feasible alternatives to the project and its siting, and comprehensive analysis demonstrates that overall benefits from the project substantially outweigh the environmental costs, the Bank may finance the project provided that it incorporates appropriate mitigation measures.” (7) (Footnote 7: “For provisions on designing and implementing mitigation measures for projects that may have an impact on forests and natural habitats see OP 4.01 and OP 4.04”). This means that while Article 5appears to proscribe Bank financing of projects that will convert or degrade ‘critical’ forests, Footnote 7 suggests that this provision is subject to the procedures in OP 4.01 and OP 4.04 The latter sets out a series of derogations from the overall proscription.

Under the Natural Habitats Policy (OP 4.04 and BP 4.04), a series of derogations allows the Bank to support projects that will damage ‘critical’ natural habitats subject to the following conditions:

• There are no ‘feasible’ alternatives
• Mitigation measures are in place in accordance with OP 4.01 on Environment Assessment to minimize impacts
• Compensatory protected areas are established or maintained
• The borrower’s capacity to implement such mitigation measures is assessed and strengthened if needed
• The Bank ‘expects’ the borrower to ‘take into account’ the views, roles and rights of NGOs and local communities and involve them in project design, planning, implementation, monitoring and evaluation.
• The project is classified as Category A (implying greater provision of information to civil society and slightly longer project preparation time)
• The costs of mitigation and compensatory conservation are included in the project’s financing.
• However, if compensatory conservation is not possible and/or mitigation in line with OP 4.01 is not possible, then a further derogation is allowed. Other forms of mitigation may then be ‘technically justified’ (OP 4.04 Article 5 last sentence). In these cases, the Bank’s own environmental and legal staff are consulted and the Regional Vice President has to approve the project (BP 4.04 Article 3).

What is needed, and has been called for by NGOs for years, is an independent review of the effectiveness of the Natural Habitats policy. Is it being applied effectively? Does it actually protect biodiversity and critical ecosystems? No one really knows.

By Marcus Colchester, Forest Peoples Programme, e-mail: marcus@forestpeoples.org, http://www.forestpeoples.org

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- Forests and Structural Adjustment: The World Bank’s Steamrolling of Stakeholders and its own Board

The World Bank held nine regional consultations with governments, industry and civil society organizations all over the world during 2000 and 2001. The stated purpose of this far-flung effort was to receive input into the development of the Bank’s new Operational Policy on Forests. In addition, the Bank set up a Technical Advisory Group (TAG) to advise it on the writing of the new policy.At the end there was one resoundingly clear and unanimous message to the Bank from both the regional consultations and the TAG: The Bank’s new Operational Policy on Forests must apply to the Bank’s lending for structural adjustment to prevent further loss and degradation of the world’s forests.

It is well-known today that the main causes driving deforestation are located outside of the forest sector. Chief among those external causes are ill-conceived economic policies which –sometimes inadvertently- provide incentives to clear or convert natural forest lands by promoting export-related industrial-type activities such as plantation forestry and industrial logging while weakening or dismantling government agencies responsible for the environment and social safety.

The World Bank’s own Operations Evaluations Department (OED) has identified trade liberalization and export promotion measures as important driving forces of deforestation. Yet these are precisely the type of economic policies that World Bank lending is actively promoting through structural adjustment loans without considering their environmental and social consequences. At present about one third of World Bank lending is for this type of fast disbursing loans in support of economic policies geared towards privatization of public enterprises, export promotion and the downsizing of government regulatory functions.

Over the past decade, structural adjustment has received an increasingly bad reputation for causing social hardship and for its failure to lead to economic development. In response to the growing lack of credibility of structural adjustment, the Bank has simply given it a new name: “Development Policy Lending” (DPL). DPL consists of essentially the same set of economic policies with the addition of a bit of rhetoric on ‘government ownership’ and the need for better institutions.

The need to pay attention to the impact of structural adjustment lending on forests is not a new issue. Already the Bank’s previous Forest Policy Paper of 1991 had promised to pay attention to the potential impact on forests in macro-economic planning. But as the Bank’s own evaluators concluded in 2000, adjustment operations put large pressure on forests but had rarely taken this into account, even in countries where forests are important in the macro-economy.

Despite the unanimous view of stakeholders, advisers and findings by the Bank’s own OED, the Bank did not include a reference to structural adjustment (or its heteronyms programmatic lending/ development policy lending) in its new Operational Policy on Forests which came into effect in November 2002.

The adoption of Operational Policy 4.36 on Forests was widely disappointing including to organizations that are usually supportive of the World Bank. The director-general of IUCN -the World Conservation Union, which had assisted the Bank in organizing the regional consultations- warned World Bank president Wolfensohn about the loss of credibility, as the consultations were being perceived as a superficial exercise with no real commitment on the part of the Bank to heed their findings.

The Bank argued that for efficiency-sake the on-going review of the Bank’s Policy on structural adjustment would address the possible impact on forests. Several members of the World Bank’s Board of Directors were voicing their own concerns about the possible impact of structural adjustment on forests. In order to reassure its own Board, the Bank promised that transparent arrangements would be put in place to screen adjustment operations when they were under preparation to identify potential harm and help governments to avoid or at least mitigate that harm.

There was much doubt that a new policy on structural adjustment would be able to deal adequately with a specific sectoral issue such as the direct and indirect impact on forests. Indeed, in December 2003, the first draft of the new structural adjustment policy –OP 8.60 on Development Policy Lending– did not even mention the word ‘Forests’.This little oversight was corrected in the final OP 8.60 of August 2004, but to what effect?The paragraphs on ‘Poverty and Social Impacts’ and ‘Environmental, Forests and other Natural Resource Aspects’ of OP 8.60 state that the Bank will determine if there is going to be significant impact on the environment, the poor and forests and assess the borrowers’ systems to address those impacts. If those systems have gaps, then the Bank commits itself to describing them. In other words, the Bank is not obliged to take action when its own lending hurts the poor, degrades the environment and devastates forests.

According to World Bank environmental staff,there have been few efforts to define how best to screen structural adjustment loans which nowadays often amount to general budgetary support –albeit with economic policy conditions. While some funding appears to have recently been committed to further study the matter, there is little evidence that Bank staff have the resources or expertise to even carry out their very limited mandate under the new Development Lending Policy.

The Bank’s new Operational Policy on Forests (OP 4.36) of November 2002 seriously weakened provisions for forest protection. The Bank promised that one of its main shortcomings –its failure to apply to structural adjustment lending– would be addressed by the new Operational Policy on Development Policy Lending (OP 8.60) of August 2004.This promise has been broken.

NGOs and other stakeholders, experts on the Technical Advisory Group and the Bank’s professional evaluators invested considerable time and resources to provide input into the Bank’s Forest Policy. Their unanimous recommendations on the need to ensure that structural adjustment policies do not negatively affect forests were brushed. The commitment made to the Bank’s own Board of Executive Directors to put in place transparent mechanisms to screen structural adjustment lending has not been kept.Fundamental questions of accountability are coming to light here.Addressing them is long overdue.

By Korinna Horta, Environmental Defense, e-mail: khorta@environmentaldefense.org, http://www.environmentaldefense.org

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- The Invisible Sourcebook: a ‘critical’ omission

A virtue of the 1991 Forests Policy was its simplicity. Following the shattering revelations in the 1980s about the huge areas of rainforest being destroyed in World Bank-funded projects – building dams, roads, oil wells, plantations and in colonisation and logging -the 1991 policy instructed Bank staff to stay clear of any projects that could damage primary moist tropical forests.

By contrast, the 2002 Forests Policy permits Bank funding of projects in all types of forests, except those that imply ‘significant’ clearance of ‘critical’ forests. Logging operations are to be ‘certified’ (or have a ‘time bound phased action plan’ to get certified). By ‘preference’ plantations should not be established in areas cleared of non-critical forests unless alternatives are not ‘feasible’. Just what these key words actually mean was not made very clear at the time and the Bank admitted that they could allow for a great degree of subjective judgement. To clarify how Bank staff should interpret these terms, the Bank promised to issue a ‘Forest Conservation and Management Sourcebook’, which would issue ‘good practice guidance on these and other issues’. Despite repeated promises to concerned governments, the ‘sourcebook’ has never appeared. This has left Bank staff to make up the rules as they go along.

The World Bank now has some US$ 3 billion worth of projects ‘in the pipeline’ that are affecting forests. But there is no clarity about how or whether these projects are being screened to ensure they do not impact ‘critical forests’.

By Forest Peoples Programme, e-mail: info@fppwrm.gn.apc.org, http://www.forestpeoples.org

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- The World Bank’s role in the creation of the carbon market: helping the rich become richer, and the poor grow poorer as fossil fuel subsidies keep flowing

The concept of carbon trading as an instrument to ‘avert dangerous climate change’ first surfaced in the negotiations that resulted in the UN Framework Convention on Climate Change (UNFCCC) of 1992. Under the UNFCCC, projects claiming to reduce greenhouse gas emissions could sell the ‘saved’ emissions to a company that finds it more lucrative to pay someone else to reduce emissions rather than to reduce them themselves. Although the concept faced some opposition, the first Conference of Parties (COP) to the UNFCCC in 1995 established a pilot phase of Activities Implemented Jointly (AIJ), a mechanism that would allow for such projects. In response, a large number of countries, including Costa Rica, Vietnam, Zimbabwe, Russia and the USA set up AIJ funds and initiated projects.

In 1996 the World Bank also established an AIJ fund which developed pilot projects in conjunction with the Norwegian Government and the IFC. While the projects could not generate tradable carbon credits, they did begin the process of establishing the expertise and knowledge necessary for future schemes. As the Bank noted, this early learning was “critical for establishing a long-term basis for AIJ and other environmental trading schemes”.

The concept of a carbon market was consistent with the Bank’s ongoing liberalising and deregulating agenda for the South and it embraced the emerging market enthusiastically, seeking from the early days to become a key player. With its extensive project pipeline and experience in developing-country project finance the Bank was well placed to position itself as a fund manager for industrialised country governments and industries seeking to invest in projects, particularly in the South, that would enable them to lower emission reductions domestically. Embracing the role of fund management was also potentially lucrative. Early internal documents on the Bank’s carbon market activities estimated the international carbon ‘offset’ market reaching billions of dollars by 2020 with the Bank in a position to capture US$ 100 million per year in net revenue by 2005. In addition to its AIJ program the Bank began a range of ‘capacity building’ programs in key developing countries – such as the National Strategy Studies program – to identify projects and begin setting up the legal and institutional infrastructure necessary for future carbon market projects.

As international climate negotiations moved towards industrialised countries taking on mandatory emission reduction targets under the Kyoto Protocol in 1997, World Bank President James Wolfensohn at the Rio+5 Conference in June 1997 proposed a Carbon Investment Fund. Through the proposed fund, the Bank would invest money from industrialised countries into greenhouse gas reducing projects in exchange for carbon credits that industrialised countries could use to meet their Kyoto targets. At the conference, the Bank declared itself “willing to set up such a Fund if signatories to the Convention find the proposal useful”.

They did, but not under Bank management. Initially received with scepticism by everyone but US government officials and one or two non-governmental organizations, countries agreed to two similar project-based mechanisms under the Kyoto Protocol that would allow countries with a reduction target to exploit the theoretically cheaper reduction opportunities in other countries: Joint Implementation (JI) would allow for projects in other countries with a reduction target, and the Clean Development Mechanism (CDM) for projects in developing countries that did not have a reduction target.

The Bank’s plan for a Carbon Investment Fund was easily adapted to this new reality. Only 20 months later, in July 1999, President Wolfensohn had received approval from the IBRD Board of Directors to establish the Prototype Carbon Fund (PCF), a mutual fund that would operate along the same lines as the proposed Carbon Investment Fund, but within the CDM and JI framework. The PCF was publicly launched in January 2000 with contributions from Finland, The Netherlands, Norway, Sweden and a number of Japanese utilities and trading houses. It was soon followed by a variety of other funds under the Bank’s management. The structure of the Bank’s funds is also designed to showcase the use of “public-private partnerships” with the flagship PCF being described as a “Public-private partnership to combat global climate change”.

Today, the Bank is one of the largest public sources of funds for the fossil-fuel industry. From 1992 through late 2004, the World Bank Group approved US$ 11 billion in financing for 128 fossil-fuel extraction projects in 45 countries. These projects will lead to more than 43 billion tons of carbon dioxide emissions, with more than 82% of World Bank financing for oil extraction going to projects that export oil back to countries in the industrialised North. In 2003 alone, the Bank provided US$ 2.5 billion in financing for fossil fuel projects.

In contrast, the combined capitalisation of the six funds under Bank management as of May 2004 amounts to US$ 410 million. Thus, the entire amount that the Bank’s carbon funds will place in greenhouse gas-‘reducing’ projects over a period of seven years will be about 20% of annual World Bank financing for greenhouse gas-producing fossil fuel projects. Even the total amount of investment the Bank estimates will be leveraged by all its carbon market funds is only US$ 2.2 billion, less than 2003 spending on fossil fuels.

In 1999, the year the PCF was established, the Bank assured NGOs that it would focus on renewable energy projects, yet that very same year the Bank rejected a proposal to redirect 20% of its mainstream funding to renewable energy projects. Five years later, the Bank again rejected proposals to stop financing extractive industries and to utilise its lending to “aggressively promot[e] the transition to renewable energy” - this time from the Bank’s own Extractive Industries Review. The rejection to phase out fossil fuel funding came only two months after the Bank had sponsored the first carbon market trade fair in Cologne, Germany, whose promotional material called climate change “one of the main challenges facing humanity”.

The financing package for the controversial Chad-Cameroon pipeline project is more than the combined capitalisation of all six World Bank carbon funds. Greenhouse gas emissions directly related to the Chad-Cameroon pipeline project are estimated at 446 million tonnes of CO2 - more than six times the total expected emission reductions achieved by all 43 current PCF projects over the next 21 years and about 3 times the total amount of reductions that are expected through all six of the Bank’s carbon funds.

The contradictions of funding greenhouse gas producing projects at the same time as claiming a leading role in contributing to ‘avert dangerous climate change’ don’t end here. The Bank’s carbon funds continue this trend, with many PCF investors simultaneously receiving Bank financing for fossil fuel projects.

The contributions of the corporations Mitsui (PCF and BCF), BP, Mitsubishi, Deutsche Bank, Gaz de France, RWE, and Statoil to the PCF for carbon market projects in 1999-2004 were of US$ 45 million. The support they received from the World Bank for fossil fuel projects in 1992-2002 amounted to US$ 3,834,600 million.

Even more striking is that in many cases PCF investors are receiving emission reduction credits from projects in countries where they are simultaneously developing fossil fuel projects supported by the Bank – projects which will help lock those countries into a fossil fuelled energy path and lead to emissions of greater orders of magnitude than the PCF projects claim to be reducing.

The Bank is in the unconvincing position of claiming to be developing a market in greenhouse gas emissions to deal with a problem that the Bank itself helps perpetuate.

Given the Bank’s historic role in financing and promoting fossil fuel use, it is perhaps unsurprising that it has emerged as one of the most committed champions of using carbon finance to promote tree planting projects – so-called carbon sinks, because trees soak up carbon from the atmosphere. By absorbing carbon emissions in the short term, tree plantations help avert near-term action to reduce carbon emissions at source which would inevitably involve reducing fossil fuel use. Despite the Bank’s rhetoric about the PCF being focused on renewable energy projects, the two PCF carbon sinks projects in Brazil and Moldovia are claiming a combined total of over six million emission reduction credits – 15% of the credit volume from projects taken forward as of 30 September 2004. Moreover, the Bank has a specialist carbon sinks fund – the BioCarbon Fund (BCF), which is expected to deliver four million carbon credits through approximately 14 small afforestation projects. Critics argue that without the support of the BCF, many of these small projects would be unable to compete in a market where a single large-scale tree plantations project like the PCF’s Plantar project will deliver 4.2 million carbon credits – more than the entire portfolio of the BCF combined. The World Bank may also develop more plantations projects through its Community Development Carbon Fund, which was set up to “give carbon a human face”.

The Bank has publicly set itself the task of ‘selling’ carbon sinks. The Bank’s literature on carbon sinks focuses on small community based projects with an emphasis on poverty alleviation and sustainable development. The BioCarbon Fund slogan is, unblushingly, “bringing carbon finance to the world’s poor”. Yet behind the rhetoric the Bank is focused on using carbon financing for the same industrial tree plantation projects it has long championed. The first carbon sinks project developed by a World Bank carbon fund – the PCF in this case – is the Plantar project in Minas Gerais, Brazil; the project will establish 23,000 ha of eucalyptus plantations which temporarily sequester carbon before being converted to charcoal for use in pig iron production. For small farmers nearby, the consequences of this plantation are devastating: streams and swamps have dried up, chemicals contaminate the air and water, and the diverse species that once inhabited the land have all but vanished.

The Plantar project was always intended as a precedent for other projects of its type. The 2002 Project Appraisal Document states explicitly that “The project is expected to prepare the ground for similar projects in the future”. Projects like Plantar are the real focus of the Bank’s carbon sinks agenda. The BCF is primarily a greenwash fund that aims to increase support for carbon sinks with politically attractive initiatives that draw attention away from projects like Plantar, which are based on industrial wood production. Yet in the current carbon market, projects of the type being developed by the BCF will provide little more than a cover picture for the BCF annual report given the high costs and the tiny volumes of carbon credits these projects will generate. The small volumes also render them a largely irrelevant response to climate change as long as they justify additional fossil carbon releases.

It is unavoidable that if sinks projects are to attract commercial investment and generate significant volumes of carbon credits, they will inevitably involve projects based on industrial wood production, like Plantar. A comparison of the carbon credits being generated by the Plantar project compared to the BCF underlines the point well: Plantar’s single sequestration component alone will generate more emission reduction credits than the entire BioCarbon Fund, and forest destruction related to World Bank-funded fossil fuel extraction and infrastructure projects is likely to release more carbon than BCF projects claim to sequester.

By Jutta kill, Sinkswatch, e-mail: jutta@fern.org, http://www.sinkswatch.org, and Ben Pearson, CDMWatch, e-mail: cdmwatch@ozemail.com.au, http://www.cdmwatch.org

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- The GEF and Indigenous Peoples: some findings of a recent critical study

The Global Environment Facility (GEF) is the main intergovernmental mechanism for addressing “global” environmental problems, including the loss of biodiversity. It is the main vehicle for funding the United Nations Convention on Biological Diversity (CBD). Since its formation in 1991, forest-related projects have accounted for between 30 and 50% of the GEF’s annual spending on conservation. By June 2003, the GEF had allocated $778 million USD in grants for 150 forest conservation projects. Most of these projects have been implemented by the World Bank and most have supported the establishment or expansion of protected areas, which remain the “cornerstone” of GEF support to biodiversity conservation. Many of these GEF-assisted projects have affected lands traditionally occupied and used by indigenous peoples. Yet indigenous peoples have repeatedly claimed that these conservation schemes often fail to respect the rights of indigenous peoples and undermine their traditional livelihoods.

Drawing on a series of past, recent and ongoing case studies of GEF full-size conservation and sustainable use projects (in Peru, Guyana, Mexico, Panama, Cameroon, Uganda, India, Philippines, and Bangladesh) a recent study completed by the Forest Peoples Programme has sought to examine these problems. The study finds that though progress has been made in some quarters, especially through the GEF’s Small Grants Programme, some GEF conservation projects and programmes continue to struggle to respect the rights and livelihoods of indigenous communities.

Key findings are that GEF projects still tend to treat indigenous peoples as “beneficiaries” rather than rights holders. GEF biodiversity projects also finance the legal establishment of protected areas without first ensuring mechanisms are in place to secure the free, prior informed consent of affected indigenous communities. Some GEF projects have resulted in the curtailment of livelihoods, forced relocation and increased enforcement of anti-people laws and exclusionary conservation policies, particularly in GEF projects in Africa and Asia. Other disturbing findings are that GEF projects fail to properly involve affected communities in project design and do not pinpoint critical legal, rights and cultural issues in social assessments. The study has also found that:

• Flawed “alternative” livelihood interventions sometimes leave affected families and communities worse off, less secure and more dependent on the market and wage labour
• Full-size and medium-sized grants are still often considered to be top down interventions by government agencies or big international conservation NGOs
• Indigenous peoples do not enjoy effective participation in decision-making in GEF projects, even in some projects targeting indigenous peoples
• Indigenous communities are not always aware of GEF involvement in projects that affect them
• Some projects targeting indigenous peoples do not implement progressive components set out in grant agreements or project plans e.g., protection of land rights, protection of and respect for traditional knowledge
• Projects often introduce new project-level institutions that fail to build on or may even undermine local traditional institutions and decision-making structures.

An analysis of GEF governance, accountability and policies argues that many of the ongoing problems with GEF projects can be partly traced to an out-of-date and incomplete framework for GEF policy standards and to faults in implementation and monitoring mechanisms. In this regard, it is stressed that implementing agencies such as the World Bank continue to suffer from systemic failures in the implementation of their own mandatory social and environmental policies -an ongoing problem that has been found by recent official reviews of the Bank’s implementation of its Indigenous Peoples Policy (OD4.20).

It is noted that there are signs that the GEF is seeking to respond to some of the above criticisms. For example, it has launched a review of local benefits in GEF projects (due to be published in 2005) and now plans to develop social and participation indicators. In Latin America, the GEF is starting to support community conservation areas and a few medium-sized projects are beginning to be prepared and implemented by indigenous peoples. Nevertheless, such progressive projects still tend to be the exception rather than the rule. Crucially, the study shows that even GEF-World Bank projects that are intended to “do good” can end up doing harm where project governance, implementation and participation mechanisms fail on the ground [e.g., Indigenous Management of Protected Areas in the Amazon Project - PIMA (Peru)].

Indigenous organisations and support NGOs stress that a piecemeal approach to indigenous peoples in GEF projects is not sufficient: what is needed is a root and branch overhaul of GEF policies and oversight procedures. As one indigenous spokesperson told a meeting with the GEF on the margins of CBD COP VII:

"We welcome the GEF’s growing support for indigenous conservation areas in some parts of Latin America. But the questions remain: how will the GEF ensure that all its conservation projects recognise and respect our rights in across all continents where it works? For example, we want to know how GEF policies and projects will respect the right of indigenous peoples to free prior and informed consent?" [Esther Camac, February 2004]

The final part of the study calls on the GEF to adopt a rights-based approach, strengthen its own implementation and accountability mechanisms, and adopt a specific mandatory policy on Indigenous Peoples. At the same time, it is recommended that the GEF update all its biodiversity policies to ensure they are fully consistent with international standards on indigenous peoples and conservationincluding standards established under the CBD and best practice agreed in the 2003 IUCN Durban Action Plan and Recommendations.

By Tom Griffiths of the Forest Peoples Programme, e-mail: tom@forestpeoples.org, http://www.forestpeoples.org

The full study, titled Indigenous Peoples and the Global Environment Facility (GEF), is available in hard copy from: info@forestpeoples.org and is also on-line at: http://www.forestpeoples.org/Briefings/gef/gef_study_base.htm