When former World Bank chief economist Sir Nicholas Stern published his Stern Review back in October 2006, he concluded that 'climate change is the greatest and widest-ranging market failure ever seen'. Well, lets get straight to the point. The banks are directly funding this 'market failure'. How much of our current GHG [Greenhouse Gas] emissions are the banks responsible for?
Well lets look at the big picture.
An article in the Guardian reports that 'According to IEA research, 37 governments spent $409bn on artificially lowering the price of fossil fuels in 2010. Critics say the subsidies significantly boost oil and gas consumption and disadvantage renewable energy technologies, which received only $66bn of subsidies in the same year'.
'Most developed countries have already phased out policies that directly subsidise fossil fuel consumption. But recent analysis by the OECD suggests that these nations continue to prop up the oil, gas and coal industries in less obvious ways, such as providing tax breaks or favourable access to land and infrastructure.
These indirect mechanisms are worth an estimated $45–75bn. Coal, the most polluting of the three main fossil fuels, currently receives 39% of this support – mostly as a result of governments in Europe, and to a lesser extent Australia, Canada, Korea and the US, trying to ensure that changes to their coal-mining industries happen gradually rather than overnight'.
In an associated page the Guardian reproduces data from the IEA World Energy Outlook (WEO) that shows graphically the distribution of subsidies, which are about 500 times greater than renewable energy subsidies. Yet it seems that the cost of establishing renewables are never far from media scrutiny.
The WEO sums up the situation clearly: 'Subsidies that encourage wasteful consumption of fossil fuels jumped to over $400 billion. The number of people without access to electricity remained unacceptably high at 1.3 billion, around 20% of the world’s population. ...and the turmoil in parts of the Middle East and North Africa have cast doubts on the reliability of energy supply, while concerns about sovereignfinancial integrity have shifted the focus of government attention away from energy policy and limited their means of policy intervention, boding ill for agreed global climate change objectives.
In 2009, the G20 group of Countries agreed in principle to phase out FFS. But this has just not happened. The World Bank has produced a paper for the G20 - Mobilizing Climate Finance. Briefly, it looks at climate mitigation and adaptation and considers the role that reducing fossil fuel subsidies could play in this process.
The paper taps into a detailed report from OECD, which I won't go into detail here. But if you're a number cruncher then it might be of interest! But it essentially goes into detailed figures on a country by country by country basis.
It also refers to a UN report on climate financing.
It would be fair to say that there is now a comprehensive body of work on what is required if we are to reduce fossil fuel subsidies and invest in alternatives. Greenpeace's own report Energy [R]evolution goes into this in detail (although I haven't looked at it in detail myself yet).
However s good explanation can be found at Oilchange International.
'The value of U.K. pensions could be at risk because of investments that may lose value as “policy and technology work consistently over time to reduce returns in high carbon areas while supporting low carbon ones”.
Well there's no sign just yet that Mervyn King is going to make a charge. And the world bank is talking the talk - apparently. But on the ground it seems that investments are following a familiar pattern.
One example is the European Bank for Reconstruction and Development, which was set up to help promote market economies in countries of the former Eastern Bloc. Much of the financial assistance provided by the bank has effectively locked these countries into fossil fuel based infrastructure.
But lets move on to the big banks and the role they play in Fossil fuel financing.
An article from the Ecologist put the 3 top UK banks financing fossil fuel projects under the spotlight. These are the Royal Bank of Scotland (RBS), Barclays and HSBC. Out of these 3, RBS is most heavily involved in fossil fuel projects.
They claim to be a major investor in renewables, but after the bank was bailed out after the financial crash, it moved about 25% of the bailout money (£45.5 billion) into the fossil fuel sector, most of it into tar sands investments in Canada and Madagascar. They also financed Cairn Energy to the tune of £116 million towards their controversial drilling operations in Greenland.
RBS also awarded corporate loans during the US coal rush from 2004 to 2005. 'This money was put towards mountaintop removal coal mining, responsible for severe water pollution in some of America’s poorest regions in the Appalachian mountains through waste water from cleaning coal and the dumping of waste earth in or near streams. RBS issued credit and shares to US coal producer Alpha Natural Resources in 2005 and gave corporate finance and loans to US coal producer Arch Coal in 2006. Much of this finance was inherited through RBS’ £49 billion takeover of Dutch bank ABN Amro, in October 2007, in what was at the time the biggest bank takeover in European history'.
In Bankrolling Climate Change - a comprehensive report from BankTrack in association with a group of other organisations - the above points are expanded further in more detail. Although the focus is on coal it gives a detailed insight into the extent that the major world banks are investing in fossil fuel projects.
Coal is certainly the largest contributor to Greenhouse gas emissions. Ending emissions from coal “is 80% of the solution to the global warming crisis,” according to NASA climate scientist James Hansen.
The report points out that 'Coal-fired power plants are not cheap to build. Typically, a 600 Megawatt plant will cost around US$ 2 billion. Power producers therefore rely heavily on banks to provide and mobilize the necessary capital for such ventures. As much of this financing is indirect – delivered through corporate loans and bonds – banks have for the most part been successful in keeping these investments hidden from public scrutiny'.
Research has revealed that since 2005 (the year the Kyoto Protocol was ratified) the total value of coal financing provided by the banks amounts to 232 billion Euros.
The environmental impacts of coal
The Bankrolling report states that 'The entire process from mining through combustion to waste disposal has a dire impact on the environment, human health and the social fabric of communities living near mines, power plants and waste areas. It severely disrupts ecosystems and contaminates water supplies. It emits other greenhouse gases like nitrogen oxide and methane as well as toxic chemicals such as mercury and arsenic. It displaces communities and destroys livelihoods. Of course, none of these costs are reflected in the price of coal. These costs are paid by society – and the heaviest price is often paid by the poor'.
Mountain top removal is another controversial process. 'After mountains are leveled, the leftover dirt and rock – full of toxins from the mining process - is dumped in local valleys. In the United States alone, over 2,000 miles of streams have been buried or polluted by mountaintop removal. Heavy metals like cadmium, selenium and arsenic poison the local water supply. Mountaintop removal also pollutes the air with hazardous particles. Recent studies have found that cancer rates are twice as high for people who live near mountaintop removal sites.'
It is estimated that coal mining could be responsible for about 25% of methane emissions.
Burning coal in coal fired power plants 'requires huge amounts of water for cooling purposes and they produce huge amounts of waste. Known as coal combustion wastes, these toxic by products are both solid and liquid. They include fly ash from the smokestacks and bottom ash (from the bottom of the boiler). They also include the particles and chemicals trapped by pollution controls like scrubber sludge. Finally, they include many low volume wastes like run-off from coal reserve piles and liquid wastes from cleaning operations. Although some solid coal wastes are used in construction materials, most coal wastes are either destined for landfills or surface impoundments'. And of course coal generates more CO2 unit for unit than other fossil fuels.
In the past acid rain and smog were huge problems in the developed world. These issues have by and large been dealt with. But in emerging economies such as China and India - where the coal industry is expanding rapidly - some of these problems are returning.
Over the past few years campaigning by civil society groups has become increasingly targeted towards the banks. The main message banks should be getting is that their reputations are on the line and that this process will intensify. What they need to acknowledge is that their biggest impact on climate is, in fact, through their core financial business. And there does seem to be a gradual realization that there has to be a shift from 'business as usual'.
The first step in this process was the adoption of the Equator Principles, established in 2003 by the banks 'in order to ensure that the projects we finance are developed in a manner that is socially responsible and reflect sound environmental management practices'. And 'negative impacts on project-affected ecosystems and communities should be avoided where possible'.
These were followed by the carbon and climate priciples.
Officially 'The Equator Principles (EPs) is a credit risk management framework for determining, assessing and managing environmental and social risk in Project Finance transactions. Project Finance is often used to fund the development and construction of major infrastructure and industrial projects'. They are of course voluntary guidelines, but they have been adopted by many of the worlds financial institutions: 'The EPs have become the industry standard for environmental and social risk management and financial institutions, clients/project sponsors, other financial institutions, and even some industry bodies refer to the EPs as good practice.
The EPs were launched in Washington D.C. on 4 June 2003.
- Review and Categorisation
- Social and Environmental Assessment
- Applicable Social and Environmental Standards
- Action Plan and Management System
- Consultation and Disclosure
- Grievance Mechanism
- Independent Review
- Covenants
- Independent Monitoring and Reporting
The framework of the EPs incorporates the International Finance Corporations' (IFC) Performance Standards on Environmental and Social Sustainability, which was recently updated as part of the IFCs revised Sustainability Framework.
This poses a question. The IFC is the private sector arm of the World Bank. The World Bank has a rather dubious history. So is the EPs nothing more than a highly elaborate greenwash scheme that financial institutions can incorporate into their corporate responsibility structures in order to create a good impression?
Is the IFCs new Sustainability Framework an effort to improve and green the World Banks tarnished image?
Last year Friends of the Earth International (FoEI) released the report World Bank: catalysing catastrophic climate change.
The report examines the Banks investment in high carbon infrastructure and the knock-on effects of its policies in developing countries.
Much of the investment made by the World Bank - via the IFC - is targeted towards coal based projects, mainly in developing and emerging economies, such as India - locking these economies in to fossil fuel dependence when they could be better served by a solar power based infrastructure.
The Bank tends to emphasize the social and economic benefits of large scale investment, but as several case studies within the FoEI report illustrate, this is generally not the case.
After the Kyoto Protocol came into force, the World Bank set up its Carbon Finance Unit to promote an expanding carbon market. Through this it has been funding carbon trading schemes.
The World Bank has also got involved in the Reducing Emissions from Deforestation and Degradation (REDD) scheme.
Again this has come under criticism as there has been no formal structure formally agreed. However projects have been rolled out incorporating REDD, which have done more to exasperate the problem of deforestation.
The most recent discussions on REDD took place at the Durban climate talks, but still a formalized structure remains elusive.
Another major area of controversy has been the adoption of the World Bank as trustee for the Green Climate Fund (GCF). It very much remains a case of lets wait-and-see how the GCF pans out.
So this brings us back to the validity of the EPs and the question over the World Banks' green image. The FoEI report sums up with this conclusion: 'the World Bank – with its troubling record on the environment, human rights, climate impacts, and development – needs to be exposed and held to account for its role as a major climate polluter with an appalling sustainable development track record.
The harmful solutions that are promoted by the World Bank, including carbon market-based mechanisms such as REDD, industrial monoculture tree plantations, agrofuels, so-called “cleaner” fossil fuels and large dams aim to increase the profits of investors by further privatising and commodifying nature'.
The Bretton Woods Project - an organisation set up to monitor and scrutinize the World Bank - has also been critical of the IFC.
In the article Out of sight, out of mind? it examines how IFC investments are funneled through the banking sector.
Instead of financing projects directly, the IFC has a policy of divesting funds through the financial sector. This means that funds could end up in the big banks, who's social and environmental awareness are effectively zero.
Investments made by the IFC could also end up being funneled through tax havens. The main issue highlighted in the article is the total lack of transparency of these processes. There is no strategy in place for tracking what happens to funds once they leave the IFC - quite literally 'out of sight out of mind'.
So is the IFCs new Sustainability Framework an effort to address its critics?
The Bretton Woods Project has its doubts. In another article it reports that the reforms only partly address some of the concerns made by its critics.
So it appears that the World Bank has been painting its wagons green, but by and large they're still carrying pretty much the same cargo they've always carried.
As for the EPs, well they don't seem to equate to very much.
The Bankrolling Climate Change report sums it up: 'The Carbon Principles, which were adopted by several U.S. banks and Credit Suisse in February 2008, only target the financing of new coal power plants in the United States. Moreover, their focus is reducing risks to the banks through anticipated regulatory responses to climate change rather than limiting the actual climate impacts of banks’ investments. As Rainforest Action Network pointed out in its latest report The Principle Matter – Banks, Climate and the Carbon Principles, published in January 2011, “There is no evidence that the Carbon Principles have stopped, or even slowed financing to carbon-intensive projects.”
So with all these Guidelines and structures, do they actually mean anything?
Well, as Billy Connolly once quipped: they're about as useful as an ash-tray on a motor bike!
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