By Julio Godoy
COLOGNE, May 4 2007 (IPS)

The Community Development Carbon Fund (CDCF) of the World Bank and SAGUAPAC, a Bolivian sanitation and waste water management treatment cooperative, signed an agreement at the Carbon Expo here Thursday to reduce 20,000 tonnes of carbon dioxide equivalent by the year 2015.

The deal was achieved under the framework of the Clean Development Mechanism (CDM), a market mechanism created by the Kyoto Protocol to reduce greenhouse gases (GHG) emissions in developing countries, and help to stall global warming and climate change.

According to Warren Evans, director of the Environment Department at the World Bank, “this project will reduce methane (emissions), a powerful greenhouse gas, from urban wastewater treatment managed by SAGUACAP, converting it through combustion to carbon dioxide, and by that reducing the impact on climate.”

Methane’s contribution to global warming and climate change is considered per tonne to be 21 times higher than that of carbon dioxide (CO2). The Kyoto protocol, the international treaty that came into force in February 2005, setting mandatory emissions caps for industrialised countries, lists six greenhouse gases, including methane and CO2, and measures them in comparison to the latter’s global warming potential.

The measurement unit of this potential is called CO2 equivalent.

The deal between the World Bank group and the Bolivian cooperative is a typical CDM transaction foreseen by the Kyoto Protocol. CDM is supposed to allow industrialised countries with a GHG reduction commitment to invest in emission reducing projects in developing countries as an alternative to what is generally considered more costly emission reductions in their own countries.

The 20,000 tonnes of carbon dioxide bought by the World Bank are to be transferred as pollution rights to enterprises in the industrialised world, which would use them to fill the difference between their actual pollution and the caps imposed upon them by governments.

CDM and two other emissions trading schemes created by the Kyoto Protocol, the Joint Implementation and Emissions Trading, have helped to develop a worldwide carbon market with emissions rights. In 2006 this market accounted for transactions worth 30 billion dollars, according to figures released by the World Bank this week in Cologne.

Such development has led international environmental policy advisors and financial and corporate analysts alike to call the market with carbon emissions rights a big success.

Yvo de Boer, executive secretary of the United Nations Framework Convention on Climate Change, said in Cologne that “the Kyoto Protocol’s clean development mechanism (CDM) is stimulating investment in developing countries, reducing emissions and giving signatories to the protocol some flexibility in how they meet their emission reduction targets.”

Dirk Forrister, managing director of Natsource Europe, a financial fund dealing with emissions rights, who was in Cologne attending the Carbon Expo, said that “the carbon emissions right market is still young, but it is already a success.”

He said that the market has attracted enormous amounts of capital from private and state institutions to be invested in environmental policy protection.

But others believe that the carbon trading scheme has become a goldmine for private corporations without really helping reduce greenhouse gases emissions.

They say the carbon market has developed into just another financial market, in which a virtual commodity is dealt with, apparently disconnected from the real world.

Jan Mariyappan, a financial analyst based in London told IPS that “the carbon market has become very volatile,” meaning that prices for emissions rights develop erratically, following sometimes inexplicable whims of brokers, buyers and sellers.

One of the main components of the world carbon market is the European Union Emissions Trading Scheme (EU ETS), which in 2006 amounted to 24.3 billion dollars, 80 percent of the global trading volume.

The EU ETS consists of carbon emissions rights – actually permits to pollute – given by European governments and the EU to private companies, especially large factories and power stations, based on estimations on what the firms’ annual carbon dioxide emissions would be.

But since the credits were given out, and not auctioned off, as environmental experts demanded, the firms did not pay for their pollution, but could instead make money by selling the rights.

Official EU data released in April 2006 confirmed the environmentalists’ fears. The carbon emissions rights were artificially inflated, allowing firms benefiting from the scheme to sell all their credits to pollute.

This imbalance between offer and demand, compounded with concerns about the EU’s regulatory shortcomings, led to a collapse of carbon emission rights prices, and to harsh criticism from private financial institutions. A March 2007 report from Deutsche Bank Research noted that “many EU nations are still a long way from delivering on their Kyoto Protocol commitments to reduce carbon dioxide emissions.”

Other critics say that the trading scheme has rewarded companies that pollute disproportionately, especially oil, natural gas and electricity generators.

For one thing, the pollution credits given to the companies by their respective governments were booked as assets to be valued at market prices. This has been the case in the electricity sector in Germany, where providers, according to the environmentalist group WWF, inflated their costs through the emission rights, and thus their tariffs, at the cost of the consumers, and without providing any benefit for the environment.

“The profits for the five German energy providers could soar to more than 75 billion dollars for the period 2005 to 2112,” Matthias Kopp, one of the authors of the WWF research on the case told IPS. “The profits are completely legal.” But not in the sense the Kyoto Protocol conceived the emission rights and the trading scheme for.

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