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The World Bank’s spin on carbon markets

“The total value of the carbon market grew by 11 percent in 2011, to $176 billion”, the World Bank announced this week. The occasion was the launch of the Bank’s “State and Trends of the Carbon Market 2012”. But as Oscar Reyes notes, the carbon market growth is “more spin than substance”.

The Bank launched the report at the ninth Carbon Expo in Cologne. It can be downloaded here (pdf file, 4.2 MB).

The World Bank has a great deal invested in carbon markets. At a time when companies are laying off carbon traders, the World Bank has 200 full-time staff working on carbon markets. It has 15 carbon funds, worth a total of almost US$2.4 billion. The Bank claims that these funds, “have demonstrated the role market instruments can play in supporting cost-effective emission reductions and channeling mitigation finance to developing countries.”

By now, it’s clear that the Bank is lying. Push a carbon trader long enough and they will admit that carbon trading does not reduce emissions.

So when the World Bank announces that carbon markets have reached an all time high of US$176 billion, it’s worth taking a closer look at the figures. Oscar Reyes points out that “The largest proportion of the ‘carbon market growth’ is accounted for by a change in how the World Bank counts the figures”. In a footnote, the Bank’s glossy new report tells us that it has changed the methodology used to calculate the value and volume of carbon trades. The explanation of the new methodology is tucked away on page 124 of the report (between the Annexes and the Acknowledgements):

Instead of using external data, however, in 2012 the authors calculated the volumes and values for 2010… The calculation resulted in higher volumes and values, particularly for EUA and secondary CER transactions. Instead of the global carbon market of US$142 billion reported in 2010, the revised calculations resulted in a global carbon market that is greater by about US$17 billion year on year (yoy). A higher value in the EUA market accounted for about US$14 billion, 80% of the difference. This year’s calculation also resulted in a secondary CER market greater by US$2 billion in 2010 yoy. The remaining differ- ence is explained by the value of the post-2012 CER transactions, not reported last year, which reached over US$1 billion in 2010.

The carbon market did grow slightly between 2010 and 2011 with most of the increase coming from the EU Emissions Trading Scheme. But a large part of this is the result of an increase in hedging and speculative trades. “Trading volumes soared in 2011… A considerable portion of the trades is primarily motivated by hedging, portfolio adjustments, profit taking, and arbitrage,” the Bank’s report notes.

The Bank’s spin about a growing carbon market is part of an attempt to deflect attention from the shrinking primary Clean Development Mechanism market. This is the market for carbon credits bought from CDM projects, excluding the speculative further trading of these credits. In 2011, this market fell to US$990 million, the lowest since 2004:

The primary market for pre-2013 Kyoto offsets continued to decline in 2011. The volume of primary CERs (pCERs) [Certified Emission Reductions] contracted fell 27% year on year (yoy) to approximately 91 million tons of carbon dioxide equivalent (tCO2e). As a result, the total value of the primary CDM market fell by 32% yoy to US$ 990 million (€711 million).

As a graphic, things don’t look too good for the CDM:

So, the Bank massages these numbers by adding in nearly US$2 billion for forward pCERs. The Bank’s press release explains that,

“With the end of the first commitment period of the Kyoto Protocol in 2012, the value of the pre-2013 primary CER [Certified Emission Reduction], ERU [Emission Reduction Unit] and AAU [Assigned Amount Unit] markets declined once again in 2011. Not surprisingly, however, the market is starting to look beyond 2012 and consequently the post-2012 primary CDM market increased by a robust 63 percent, to US$2 billion, despite depressed prices and limited long-term-visibility.”

These are “call options on credits that are not yet issued,” Reyes explains. “Put simply, it’s counting an option to buy a credit that does not yet exist as part of the value of the CDM.” These are called ERPAs (Emission Reductions Purchase Agreements) and the Bank admits that at current price levels it’s unlikely that these options will be taken up:

“[W]ithout a brighter market outlook, it is unlikely that a substantial proportion of these post-2012 ERPAs will be exercised at the indicative prices and volumes
established in these documents.”

There’s a great deal of useful information in the World Bank’s report. The problem is the spin. The World Bank is not an honest broker. It has invested way too much in carbon markets to be able to pretend that this is anything like a neutral analysis. It is a Bank attempting to boost a sector that it stands to benefit from.

But the signs are clear to read – not only in the report’s text. The report’s cover is a staircase spiralling down and down to a small blue circle. By the time we’ve reached the bottom, it’s a long climb back. The first photograph in the report is a road going straight through a desert into the setting sun. It could, of course, be a sunrise and the image is full of the symbolism of a new dawn, but to me it looks like the Bank is inadvertently confirming that this is a report about the sunset of the carbon markets.

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12 Comments

  1. Wow a whole US$9.00 per carbon tonne…What an analysis! And that is just carbon in trees of the tropical realms…what about the rest.

    Like many actions the WB make it is often a knee jerk reaction to the true reality of the value of all our forests (including biodiversity and ecosystem services) at US$500.00 per carbon tonne….Now this will stop us cooking up our kids lives…and the very nature of food production both in the temperate and tropical regimes.

    The global larder is getting smaller every day..tick tock….natural capital under current political philosophy is similarly diminishing….dont believe me….7.1 billions wanting to consume as if a G8 nation. Yes think again….its like trying to obtain a whole number answer to 22/7!

    Is there anyone out their with the responsibity to join our growing band of ‘brainstormers’ to promote a survival mode for all life on our Earth or is the current vortex of destruction for us axiomatic and we are too fearful to promote ideas which are now available to us all!

  2. Just for an experiment, let us revive “Biosohere 2″…you know the Eden like dome which cost well over £60 million to construct and operate in the 1990’s as a pathfinding life dome for interplanetary settlers to live in when on say Mars…..Well for your information a group of scientists attempted to live in it. What happened.

    Well let all the World Leaders and their Senior Economists together with those in the IMF and the World Bank have a holiday in the revived Biosphere 2 and see how they fare after two weeks. How well do you think they would last. Well if they last two weeks they would be doing well for that is how long the original settlers in the 1990’s version lasted.

    Now come forward to 2012 and Bioshpere 1 is still here…..now really think about what you have read. Put it into your subconscience and then start to reconnect with nature. And act on your true feelings!

  3. Thanks very much for this posting, as it is really important that the world is able easily to see the kinds of distortions, misrepresentations and outright lies that the World Bank is culpable of in the realm of carbon trading. (This is nothing new, of course: as a major evaluation of the Bank’s policy research noted a few years ago, Bank ‘research’ papers “frequently draw conclusions that are not supported by the evidence” – in other words, they make things up to suit their own agenda.)

    Only the Bank would try and suggest that the dumping of (mostly EU) carbon credits that went on in 2010 and 2011 is a sign of a healthy carbon market. Given the amount of money which the Bank itself has invested in carbon credits, this all looks to me very much like the last desperate pleas of a snake-oil salesman, exposed as a charlatan and left with crates of useless product.

    If I were in any of the governments whose money has been used to make these failing World Bank investments in speculative carbon trades, I would be looking to hold those responsible accountable for their actions. They are no less culpable of negligence and misdeeds than the bankers of Goldman Sachs or the managers of McKinsey.

    I would also put an immediate stop to investments under the Carbon Fund of the Forest Carbon Partnership Facility – which is yet another snake oil product, but one that has been discredited even before it has been launched.

  4. Nigel Miles has asked the right question: ‘Is there anyone out there with the responsibility to join our growing band of ‘brainstormers’ to promote a survival mode for all life on our Earth or is the current vortex of destruction for us axiomatic and we are too fearful to promote ideas which are now available to us all!’

    I have written elsewhere, apropos Africa, that , ‘ David Harvey has analysed the forces at work within capitalism, noting how prone it is to crisis, calling for remedial social action by setting out ‘Some loosely agreed-upon common objectives’. These objectives resonate with traditional African communal culture. As he wrote in 2010,

    ‘These might include respect for nature, radical egalitarianism in social relations, institutional arrangements based in some sense of common interests, democratic administrative procedures (as opposed to the monetised shams that now exist), labour processes organised by the direct producers, daily life as the free exploration of new kinds of social revelations and living arrangements, mental conceptions that focus on self-realisation in service to others and technological and organisational innovations orientated to the pursuit of the common good rather than to supporting militarised power and corporate greed. These could be the co-revolutionary points around which social action could converge and rotate’.

    And an old-hand Africanist, Basil Davidson, in 1992, called for something similar; for an autochthonous model for Africa’s development:

    ‘It would be found, rather, in devolving executive power to a multiplicity of locally representative bodies. It would be found in re-establishing ‘vital inner links’ within the fabric of society. Democratic participation would have to be ‘mass participation’ And ‘mass participation, patiently evolved and applied, would be able to produce its own version of a strong state: the kind of state, in other words, that would be able to promote and protect civil society’.

    These, in essence, are objectives and views of the way forward that are in harmony with African culture. The World Bank? No.

  5. Full disclosure: one of the lead authors works in business development for the carbon exchange Bluenext. Given their commercial interests I’m not surprised that published market data was disregarded to show an expanding market. How can the World Bank be so dumb. If the report is accurate then It is sad because the one thing expanding in Europe is trading hot air.

    Between 2010 and 2011 EU emissions are virtually unchanged but the trading of emissions (market volume in EUAs) is up 17% according to the World Bank and they seem to think this is a good thing. According to the numbers in the World Bank report emissions trading in EUAs is 550% of the amount emitted. Crazy stuff when people all over Europe are struggling.

  6. We are learning the follies of building this new economic dimension atop our failing economic structure. It is not carbon financial markets that will correct this ship; we need to look at the fundamentals of a new economic dimension. We must be able to envision the positive opposite or the antithesis of the tragedy of the commons, or more aptly stated, the tragedy of the economy. Symbiotic Demand is emerging as the polar opposite and is illustrated at:https://prezi.com/tpfaewgz1jie/apportioning-ecological-values-and-costs-through-symbiotic-demand/

  7. It is bad governance to use a business development manager from the global carbon exchange Bluenext to write the World Bank carbon report. It is dishonest not to disclose this fact to the press.

  8. I agree with the comments on full disclosure (or lack of it) above.

    & for more on the WB strategy, it’s worth looking at the World Bank Group’s new 10-year environment strategy, in which carbon finance plays a central role – v quick commentary here: thisisoscar.blogspot.com/2012/06/world-bank-group-environment-strategy.html

  9. ALL THE GAMBLING SCEEMS, THAT HAVE COME OFF THE DESKS OF INDIVIDUALS WHO SIT IN CHAIRS OF LIMITED LIABILITY, ARE IN THE INTEREST OF GAMBLERS ONLY. THEY ARE DESIGNED TO PREVENT OR DISGUISE REAL ENVIRONMENTAL OR ECONOMIC RESPONSIBILITY. CORPORATIONS AND GOVERNMENTS ARE PARTNERS IN THE PREVENTION OF REAL PROGRESS. THE TRUSTFUNDS OF INDIVIDUALS WHO HAVE SAVED FOR THEIR RETIREMENTS AROUND THE WORLD HAVE BEEN GAMBLED AWAY AND THE EXPECTATION AND HOPE FOR THESE GAMBLERS IS, THAT TOGETHER WITH THEIR FRIENDS IN POLITICAL OFFICES, THEY TOO CAN GET BAILED OUT WITH TAX MONEY IF THEY MAKE BAD BETS. WHEN ARE WE GOING TO STOP GIVING PERMISSION TO THIS FORM OF GAMBLING ? WHEN ARE WE SHUTTING THIS CASINO DOWN ? WHEN ARE WE CLOSING DOWN THE SANCTUARY FOR INDIVIDUALS TO MISAPPROPRIATE PUBLIC FUNDS ? RESPECTFULLU SUBMITTED. ILMARINEN G. VOGEL.