NEW DELHI — Late last year, officials at the World Bank decided it was time to practice what they had been preaching about reducing carbon emissions.
Well, sort of.
Some environmentally-friendly types at the international finance agency calculated the bank spewed 147 tons of carbon into the atmosphere when it flew in attendees for a conference in Washington in October 2003.
Looking to set a cheap and practical example on the worldwide issue of carbon emissions, the Washington, D.C.-based organization went halfway around the world to a tiny village located in the remote jungles of southern India.
In the ironically named village of Powerguda, the villagers had recently begun to collect and sell to a local mill the seeds of a native tree called the Pongamia pinnata. The seeds produce a natural oil that can be used as an alternative to diesel fuel. And unlike diesel and other fossil fuels, pongamia oil produces little carbon emissions when burned.
By providing the raw material for an alternative to relatively dirty diesel, Powerguda was effectively reducing the overall carbon load in the atmosphere—at least in the eyes of the World Bank. And it was this theoretical tiny reduction in worldwide carbon emissions that the Bank decided to buy to offset the carbon emissions resulting from its conference.
The price tag to the World Bank: $645. For that the bank got the village's entire potential carbon emission savings for the next 10 years.
The World Bank and others believe the Powerguda deal—while tiny and relatively insignificant—could help provide a new blueprint for governments and businesses trying to comply with the spirit of the Kyoto Protocol, the controversial manifesto meant to address greenhouse gas emissions on a worldwide basis. The treaty goes into effect early next year, after being approved this month by Russia.
The production and burning of fossil fuels are by far the leading manmade contributor to greenhouse gas emissions worldwide, emissions that are widely believed to be the primary cause of global warming. For example, an environmental group recently estimated that ExxonMobil Corp. and the products it makes have been responsible for roughly five percent of the world's manmade carbon dioxide emissions since 1882.
Just how effective the Kyoto treaty will be in reducing greenhouse gas emissions is highly uncertain, however. The United States produced nearly 40 percent of such emissions in 1990, the year participants have agreed to use to measure emission reductions. After an earlier nonbinding defeat in the Senate, it withdrew completely from the treaty in 2001 soon after the Bush Administration took office.
The Kyoto Protocol aside, however, the Powerguda deal also is one of the more unusual examples of a rapidly developing, nearly unregulated worldwide market for carbon emissions -- a market which some experts say is already nearing $500 million worldwide.
The idea, which is called people-to-people carbon trading, is a fairly simple one. Businesses that spew carbon into the atmosphere, such as electric utilities, can offset part of their emissions by buying carbon credits from places such as Powerguda, which produce little or no such emissions. The theory is that the free market can be used to help hold such emissions steady on a global scale.
The World Bank has been one of the most proactive proponents of a global carbon emission market, despite the organization's multi-billion dollar portfolio of fossil energy projects scattered worldwide. In the last few years, it has set up several carbon emission finance funds to facilitate carbon trading, including the Prototype Carbon Fund, the Biocarbon Fund, and the Community Development Carbon Fund.
Dr. Emmanuel D'Silva, a former Bank staffer, came up with the idea that the Bank establish a template by buying carbon reductions through the Powerguda deal and similar transactions.
Specifically, the bank paid the accidental Good Samaritans of Powerguda $645 for the 51 tons of pongamia oil (equivalent to 147 tons of carbon dioxide emissions) that the village is expected to help produce over the next ten years.
Normally, for carbon reductions to be traded on the market, they have to be approved, validated, verified and certified by a third party endorsed by the United Nation's Clean Development Mechanism Executive Board. But such transactions can be very expensive, costing anywhere from between $50,000-$200,000, according to D'Silva.
In the World Bank/Powerguda case, however, the carbon reductions were verified by a German carbon emissions dealer called 500ppm. Incorporated in 2001, the 12-person company earlier ran a program for World Bank employees to calculate and offset their individual emissions. Company general manager Ingo Puhl, himself formerly with the World Bank, compared it to "a health club," with anywhere from $3 to $12 in pay check deductions offsetting an individual's calculated carbon output. The money was then used to seed other emission reduction and development projects like the one in Powerguda. The company has posted on its Web site a portfolio of carbon reduction projects, mostly in developing countries, that individuals and companies can invest in to offset their carbon emissions. Its name, short for parts per million, represents the target level for emissions in the atmosphere needed to minimize the level of climate change.
In the case of Powerguda, the reductions were not required to be certified, as they were one-time sales. In other words, they cannot be traded further in the international market. 500ppm received a commission of $120 for the transaction, according to World Bank staffer Nalin Kishor who was involved in the deal.
As there are no international rules yet governing the trading emissions market, the price of carbon was arbitrarily fixed by the parties involved in the transaction at less than $5.00 per ton of carbon dioxide equivalent.
For the Powerguda villagers, the $645 was a welcome bonus in addition to what they had been making by selling pongamia seeds to a state-owned oil mill. The villagers agreed to invest the "carbon" money in a pongamia nursery, even though the village cannot sell its carbon rights again. However, with more than enough oil to meet its own minimal power needs, the villagers are able to sell the surplus oil as a diesel-fuel additive to local bus fleets. The blended fuel provides a reduction in carbon emissions with only a small loss of energy at a competitive price.
Powerguda isn't the only remote village in that part of India to sell off its carbon reductions. In April 2003, Chalpadi, another tribal village in the Adilabad district, sold 900 tons of carbon reductions for $4,164 spread over ten years to 500 ppm. In 2001, the village had installed a community power generator, which runs on pongamia oil and produces electricity to light up local homes.
Some other villages have followed suit.
In February this year, 42 individuals from four countries (Australia, Britain, India, and the United States) pooled $740 to buy the equivalent of 174 tons of carbon dioxide credits from Kommuguda village, also located in the Adilabad district. This was the first such individually supported offset experiment in India, D'Silva said in a communication to GoodNewsIndia.
"The idea for the experiment came from the inquiries of a number of individuals who were fed up with the lack of interest shown in global warming by several governments and wanted to know what they could do to help as individuals," said D'Silva, who brokered the deal. "Offsetting carbon emissions from private vehicles was a good way to encourage individuals to take responsibility for their own actions," he added.
Indeed, inspired by the Powerguda example, five more villages have jumped on the carbon bandwagon, according to D'Silva.
As for the World Bank, it was, at least on the face of it, a classic demonstration of how to kill two birds with one stone. For $645, the Bank managed to set an example on people-to-people carbon trading while gaining some cover for one of its contributions to the problem of global warming.
Many developed nations appear to want to meet a large chunk of their Kyoto targets through what are called flexibility mechanisms, a set of options that allows them to balance their carbon ledgers through some sort of emissions trading market. It's likely they would seek out the cheapest options, even if they might be less effective or ethical.
But just when the rules of this tricky and complicated game were beginning to be framed, the United States, the biggest artificial emitter of carbon, decided to pull out of the Kyoto Protocol.
Even so, other developed countries—together with international financial institutions such as the World Bank—have been busy forging a global emissions trading market within the framework of the Kyoto Protocol.
And despite the Bush Administration's decision to abandon the Kyoto Treaty, the U.S. already has a carbon emissions trading regime called the Chicago Climate Exchange. The European Union is expected to begin trading emissions early next year.
Carbon emissions trading firms like 500 ppm and CO2e, part of Wall Street powerhouse the Cantor Fitzgerald Group, appear to be profiting handsomely by brokering deals such as the one between the World Bank and Powerguda. The sales pitch—you can continue to emit carbon so long as you are willing to invest in poor people's livelihoods that reduce carbon emissions.
Notably, in one of the projects located in Brazil, 500ppm offers individuals and companies the opportunity to invest in the purchase and sustainable maintenance of a nature reserve.
In all, the project is projected to produce 56,895 tons of carbon dioxide emission reductions per year, according to the company's promotional materials, which also claim that those reductions will be independently verified.
Critics, however, worry that such carbon-offset deals might lead to less plant diversity and endanger the food security for poor people, as is already beginning to happen in the Adilabad district, where, D'Silva admits, village after village is setting up pongamia plantations.
As of now, person-to-person carbon emission deals are not debited from a country's total carbon account, like the more expensive deals sanctioned by the U.N.
So why should organizations, companies or individuals bother if the whole exercise is primarily symbolic?
Two reasons appear likely.
For a sensitive individual suffering pangs of guilt about not being able to give up a luxurious lifestyle, it serves as a fairly cheap and public salve for the conscience. For an organization or company, it is an effective and practically cost-free advertisement for its image as a socially responsible entity.