Sierra Club Comments on the Prototype Carbon Fund - June 5, 2003


A. Initial Questions

1. How can the World Bank Group recognize the need to reduce greenhouse gas emissions and promote the development of a Prototype Carbon Fund without addressing the fundamental problem?

2. Fossil Fuels in all their forms are changing our planet’s climate. Those changes will have worldwide devastating consequence for the global economy. They will be especially harsh in some of the poorest countries. Countries that have no responsibility for climate change and are the least able to cope. Climate Change has been brought about largely by the activities of the member countries of the World Bank. Therefore, it is incumbent upon those countries to take responsibility for reducing emissions both within and outside of their boarders. Yet, since the 1992 the Rio conference the World Bank Group has financed projects that will release more than 30 gigatonnes of greenhouse gases.

3. Is it not clear to the World Bank that tinkering at the margins with a Prototype Carbon Fund or a GEF will do nothing as long as The World Bank continues to finance the development of fossil fuels?

4. Should the World Bank not be discussing an end to financing fossil fuel projects first and begin working to develop sustainable energy sources for everyone?

B. General Observations

The concept of assisting Developing and Annex 1 countries in developing and executing clean develop mechanisms is a laudable and likely to be useful. However, is the World Bank Group the best vehicle to explore and develop the Kyoto Mechanisms?

1. The rules which might apply to such transactions must be based on the outcome of the COP 5 and not on arbitrary of ideological beliefs held by the World Bank Group or other international institutions. By getting ahead of the COP there is a danger that rules will be defined by the World Bank and not by the parties.

2. The involvement of third or fourth parties (as the World Bank would be) may make project development, financing and verification unnecessarily cumbersome, time consuming and costly.

3. The COP created the flexibility mechanisms to allow Annex 1 countries to use the most economic means to reduce emissions. Why should poor developing countries be required to borrow public money to achieve this goal. Surely, the country seeking cost effective alternatives to emissions reductions at home should bear the entire cost of the project and not leave the developing nation with a public debt as the result of participating in a CDM project.

4. Similarly why should the developing nation be forced to accept the rules and regulations imposed by the World Bank on all its borrowers which may have implications for its future autonomy in order to participate in a CDM project?

5. Why is it necessary to setup a Carbon fund when flexibility mechanism projects would certainly qualify for normal World Bank Group financing.

6. Wouldn't the most economic means of delivering flexibility mechanism projects by concept and executed by the private sector?

C. Specific Comments

We question the need for the World Bank Group’s involvement in the Kyoto Mechanisms. However, we do have specific questions and comments on the specifics as described Prototype Carbon Fund proposal.

1. Why should the World Bank Group be considering financing projects that will undoubtedly take place in any event? Yet the PCF contemplates funding projects in EITs and developing countries.

i. The bulk of activities taken under the Activities Implement Jointly (since 1995) were undertaken in Economies In Transition (EIT) countries because they have more developed infrastructures and closer ties to Annex 1 countries.

ii. and EIT countries can utilize the Kyoto Mechanisms more readily than Developing Countries (Only a few developing countries with long experience in environmental offsets i.e. Cost Rica participated in AIJ.)

2. Should the Bank not concentrate all its efforts in areas where help is needed in developing nations especially Africa?

3. How can a financial plan of project be concluded when the parties do not know what the transactions fees stipulated in the Protocol will be?

4. Why has the 2012 exit date for PCF been dropped from the February 22, 1999 document. We question whether the Bank should be playing long term role as a project based activity broker.

5. While the PCF document states that PCF projects must be compatible with relevant treaties concerning the environment, development, human rights and international labour agreements. The World Bank has limited its criteria to projects that "comply with international agreements ratified by the host country." Therefore projects sponsored by the PCF potentially displace indigenous people and conflict with cultural and social values of local inhabitants.

6. The PCF document remains vague on the process by which the PCF will facilitate the "equitable" sharing of benefits resulting from the transaction.

7. We are concerned about the lack of opportunity for the least developed countries and the World Bank's poor track record on small-scale projects such as those proposed by the PCF.

D. A Potential Role For a Carbon Fund

1. The greatest difficulty for developing and Annex 1 nations will be identifying potential emission reduction projects and developing them to a point where private companies can sitdown and work out the details.The Prototype Carbon Carbon Fund could play an important role in assisting developing nations develop project ideas and a concepts and create forums for these projects could be presented to potential partners rather act as financier for projects already identified. (We should keep in mind that the COP envisioned the Kyoto Mechanisms as profitable ventures.)

2. The Fund could provide training and seminars for officials and industry representatives from the developing world to explain the Kyoto Mechanisms

3. The Fund could develop definitions and categories for projects and database that Annex 1 partners and developing nations could used to identify projects and link with appropriate partners.

4. The Fund could assist with financing feasibility and engineering studies if they are required to demonstrate to potential Annex 1 partners the potential emission reductions. The cost of such work would be repaid as part of the actual project cost and paid by the Annex 1 partner.