The World Bank and Climate Change: Sustainability or Exploitation?

Following decades of scientific research and environmentalist action, governments across the globe (with the frequent exception of the United States) are finally accepting the reality of human-produced climate change, and taking action to tackle this pressing issue. Following decades of scientific research and environmentalist action, governments across the globe (with the frequent exception of the United States) are finally accepting the reality of human-produced climate change, and taking action to tackle this pressing issue. The effort to coordinate global action to reduce greenhouse gas (GHG) emissions began with the Kyoto Protocol, which was adopted in 1997 and now has been ratified by 183 nations. While many of the strategies established in the protocol are encouraging, some are proving to have fatal flaws. One such program, known as Clean Development Mechanism (CDM) investment, has become a means by which industrialized countries avoid reducing their own emissions through the implementation of "emissions-reduction" projects in developing nations. While the World Bank claims that this system "supports sustainable development…and benefits the poorer communities of the developing world,"[1] the program in reality has become little more than a corporate profit-boosting enterprise. In fact, CDM projects are being used by many trans-national corporations as justification for the expansion of environmentally and socially harmful industries. In Latin America, where a long history of corporate exploitation has already taken a steep toll, environmentalists and indigenous communities are beginning to speak out about the dangers of the Clean Development Mechanism. Because of a myopic focus on greenhouse gas reduction only, and a lack of accountability to local communities, many projects are producing other environmental and social ills which are diametrically opposed to the program’s stated objectives.

Clean Development Mechanism 101

Clean Development Mechanism investment is merely one facet of an increasingly prevalent market-based solution to climate change that assigns a ‘price’ to carbon emissions through the establishment of a global "carbon market." In accordance with the Kyoto Protocol, many governments have established ‘caps,’ or limits, on the greenhouse gas emissions produced in their respective countries. Industries can respond to these government-imposed limits in two different ways. On one hand, industries can choose to reduce their own emissions by modifying their facilities, increasing production efficiency, and innovating more sustainable technology. However, companies are also allowed to bypass this process by purchasing ‘carbon credits,’ or the emissions reductions purportedly accomplished by other industries or corporations in other parts of the world. CDM investment, brokered by the World Bank, is a mechanism by which carbon credits are produced in developing countries, or the global "South," in order to ‘offset’ the GHGs emitted by the industrialized "North." Proponents of this scheme argue that it is more cost-effective to implement emissions reductions in developing countries where technology is less advanced, and that this provides an incentive for companies to commit to global GHG reduction.

However, skeptics from across the globe, including environmentalists and social activists, have criticized the merits of such an arrangement. These critics argue that by offering a "quick fix" to greenhouse gas reduction, CDM discourages the kind of innovation necessary to truly tackle the climate change problem. A recent World Wildlife Fund (WWF) report on European GHG emissions contends that CDM "could have serious consequences for investment decisions made within the EU by heavy industry…potentially leading to a "lock in" to high carbon investments and soaring emissions from these sectors for many years to come."[2] Joris den Blanken, a climate change specialist with Greenpeace, concurred in an interview with Interpress Service, saying: "Offsetting means exporting responsibilities to the developing world and removes the incentive for industry to improve efficiency and invest in renewable energy."[3]

Nevertheless, the United Nations Environmental Programme (UNEP) reports that, to date, 4364 projects have been approved for CDM funding[4] – and the movement continues to gain momentum. According to the WWF, the number of new project proposals has risen drastically in just a few years, from less than ten per month in early 2005 to about 100 per month in 2007.[5] About twenty percent of worldwide CDM projects have been established in Latin America. Most projects (44 percent of the regional total) are to be found in Brazil, followed by Mexico with 24 percent.[6] While the projects have proven lucrative for many corporations, local communities and the environment have largely lost out.

Corporate Profit: Fraudulent Use of CDM

The Kyoto Protocol stipulates that in order for a project to qualify for CDM funds, it must establish "additionality," or prove that the GHG reduction would not have occurred in the absence of such investment. However, critics have pointed out that this is nearly impossible to prove. In fact, this massive loophole has been mined by many companies that are now effectively being subsidized by the World Bank for projects that they would have undertaken anyway. According to the NGO International Rivers, three-quarters of CDM-funded projects were in operation before being approved for funding, casting serious doubt on the claim that CDM was a prerequisite for these projects.[7]

In 2007, The Guardian reported that "the CDM…has been contaminated by gross incompetence, rule-breaking and possible fraud by companies in the developing world."[8] The article went on to explain that in an independent analysis of India’s approved CDM projects, one third failed the additionality test. But this issue reaches far beyond South Asia. In Brazil, the iron foundry company Plantar was granted CDM funds after claiming that it would switch its fuel source from charcoal to coal, which would have increased its GHG emissions dramatically.[9] As a result of this strategically employed scare tactic, CDM funding is now being used to expand the company’s eucalyptus plantations, which provide a source for charcoal. It is impossible to prove whether Plantar would have actually switched fuel sources in the absence of CDM investment – leaving the possibility that the company is ‘double-dipping,’ or receiving funding for measures it would have taken on its own. If projects are NOT in fact additional, this would mean that the CDM is failing entirely to reduce greenhouse gas emissions on a global scale.

Environmental Harm

Due to its market-based design, CDM investment is aimed at reducing the maximum amount of GHGs at minimal cost. This has meant that other forms of environmental fallout are often ignored if they do not affect the bottom-line.

This lack of environmental accountability is exemplified by the timber industry’s use of the CDM to fund its expansion in Latin America. According to a report by the Environmental Economics Programme (EEP), representatives of the wood and pulp industries "have shown great interest in harnessing the carbon market to justify and help to finance new large-scale plantations" which pose both ecological and social risks.[10] These "large-scale monospecific plantations" threaten the area’s biodiversity and can severely deplete water resources, the report stated.[11]

Plantar’s expansion of its eucalyptus plantations provides a vivid example of the kind of damage that CDM-funded projects can cause. Since the inception of the project, residents of the Brazilian town of Sao Jose do Buriti, along with local NGOs and churches, have spoken out against the plantations’ detrimental effects to their water, wildlife, and local crops.[12] In a recent documentary by Carbon Trade Watch, villagers explained that the massive plantations – which cover about 100,000 acres – are diverting water from local streams, causing a sharp decrease in fishing and killing off medicinal plants. In an interview, one local woman lamented that Plantar "continues destroying our community, destroying our citizens, destroying our fauna, destroying our flora, and nobody does anything."[13]

By presenting plantations as "afforestation projects," the timber industry places a sustainable guise over its own self-interests. A 2008 report by Japan Overseas Plantation for Pulpwood (JOPP), entitled "Feasibility Study on Afforestation CDM for community development in extensive grazing lands in Uruguay," clearly displays how CDM investment can be used as an instrument for exploitation.[14] Essentially a guidebook for timber companies, the report outlines how to receive CDM funding for the establishment of eucalyptus plantations in rural areas of Uruguay. Rather than restoring native forest land, the project would establish plantations in a region where the native vegetation "originally consisted mainly of tall grasses and shrubs."[15] From an ecological standpoint, planting large-scale plantations of non-native species in this area is clearly a step in the wrong direction. From a societal standpoint, this could spell cultural genocide.

Local Communities at Risk

The land which would be used for the JOPP’s "afforestation projects," according to the report, is currently used for "extensive grazing" of cattle and sheep. The report, which elaborates on "land eligibility," makes no mention of the people who own, live on, or make a living from the use of the land in question. The only allusion to this issue is the brief assurance that all displaced cattle would be "sold on the open market."[16] Despite the fact that "cattle and sheep production has been the traditional rural activity in the project area and all the surrounding regions since the 17th Century,"[17] the report contends that the establishment of plantations would be a more cost-effective use for the land than pasture. The question then becomes: cost-effective for whom?

The World Bank touts the CDM as an "integral part of the Bank’s mission to reduce poverty through its environment and energy strategies." However, in Latin America as in other parts of the developing world, the global carbon market is proving to be largely detrimental to the indigenous and the poor. With little or no input on how a project is conducted, local communities have virtually no control over how their land, water, and resources will be affected.

A lack of accountability to local populations is a fundamental flaw in the way CDM projects are presented, evaluated and implemented. The official "Project Design Document Form" – which the CDM Executive Board uses to approve or deny funding – largely disregards the impact of projects on local communities.[18] The document contains no binding legal language, asking only for a "report on how due account was taken of any comments received" by local stakeholders.[19] In their assessment of four CDM projects carried out in Brazil and Bolivia, the EEP found that "participation of local community members was found to be limited," and "local actors have rarely been engaged in discussion about the nature of these projects."[20]

However, even if local community businesses managed to gain some measure of involvement in CDM projects, this could potentially contribute to economic instability in Latin America’s rural areas. If a project fails to meet its carbon-reduction goals, the World Bank can terminate its contract and leave all outstanding costs to the sub-contractor in the developing country.[21] Also, price fluctuations in the carbon market have been notoriously severe over the past few years. Between 2006 and 2007, carbon prices plummeted from around €30 to less than €1 when it was announced that emission caps in the EU had been set above current levels. According to Business Spectator, this is threatening to recur due to the global economic downturn, which "has caused the European carbon price to slump by two thirds" in the past six months.[22] In the words of Janet Redman at the Institute for Policy Studies: "farmers [in the developing world] are trading communal land rights and their ability to feed themselves for the whims and price fluctuations of the international carbon market."[23]


While the World Bank pays constant lip service to the importance of sustainability and poverty alleviation in the Clean Development Mechanism, it continually fails to deliver positive results for either the environment or disadvantaged communities in the developing world. In reality, the global carbon market is proving to be simply another weapon used by multinational corporations to accelerate their incursion on the rights of indigenous peoples and small-scale landholders in Latin America.

The irony of this situation takes on an especially tragic hue since many of the communities at risk have been living in a sustainable manner for centuries and thus should be seen as models in the fight against environmental degradation and climate change. Instead, the World Bank has adopted a system that inadequately addresses one pressing environmental hazard at the expense of other important environmental issues and the well-being of the world’s most vulnerable populations.

Mary Tharin has authored a number of articles on Latin American politics, and has been been published in the Washington Times and the Economist. She worked as a research associate at the Washington DC-based Council on Hemispheric Affairs (COHA), and currently works with the Institute for Policy Studies (IPS).


[2] "Emission Impossible: access to JI/CDM credits in phase II of the EU Emissions Trading Scheme." WWF-UK. June 2007. p. 3.
[3] Cronin, David. "From EU, 4 Percent Less Reduction Till 2020." Interpress Service. December 17, 2008.
[4] Data available at: UNEP Risoe CDM/JI Pipeline Analysis and Database. Updated January 1, 2009.
[5] WWF-UK. June 2007. p. 9
[6] "CDM Projects by Host Region" UNEP Risoe CDM/JI Pipeline Analysis and Database.
[7] "Rip-Offsets: The Failure of the Kyoto Protocol’s Clean Development Mechanism" International Rivers. November 2008. p. 2.
[8] Davies, Nick. "Abuse and incompetence in fight against global warming." The Guardian. June 2, 2007.
[9] Redman, Janet. "World Bank: Climate Profiteer" Sustainable Energy and Economy Network, Institute for Policy Studies. April 2008. p. 24.
[10] May, Peter H. et all. "Local sustainable development effects of forest carbon projects in Brazil and Bolivia: A view from the field" environmental Economics Programme. January 2004. p. 103.
[11] Ibid.
[12] Redman 2008.
[13] Johnston, Ian. "A gift from Scotland to Brazil: drought and despair" The Scotsman. July 7, 2007.
[14] "Feasibility Study on Afforestation CDM for community development in extensive grazing lands in Uruguay," Japan Overseas Plantation Center for Pulpwood. March 2008.
[15] Ibid., p. 5
[16] Ibid.
[17] Ibid.
[18] "Clean Development Mechanism Project Design Document Form (CDM-PDD)" CDM Executive Board. July 28, 2006.
[19] Ibid., p. 5
[20] May et. all 2004. p. 91
[21] Redman 2008. p. 37
[22] Parkinson, Giles. "A second carbon windfall," Business Spectator. Melbourne, Australia. January 28, 2009.$pd20090128-NPQHX?OpenDocument
[23] Ibid., p. 36