World Bank Hydro Project Exposes Blatant Abuse of Climate Funds

If the World Bank and an Indian power utility have their way, the Rampur hydropower project in Northern India will increase global CO2 emissions by 15 million tons, at a cost of $164 million to unsuspecting energy consumers in Sweden.
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If the World Bank and an Indian power utility have their way, the Rampur hydropower project in Northern India will increase global CO2 emissions by 15 million tons, at a cost of $164 million to unsuspecting energy consumers in Sweden. The project is a textbook example of how hydropower companies and other investors, with support from the World Bank, are gaming the system of climate finance.

Rampur is a 412-megawatts hydropower project on the Satluj River in the Indian state of Himachal Pradesh. Satluj Jal Vidyut Nigam Limited (SJVN), an Indian hydropower company originally created by the World Bank, signed an agreement with the local government to implement the project back in 2004. The Indian Prime Minister laid the foundation stone in 2005. The World Bank approved a loan of $400 million for Rampur in 2007. Throughout this process, the hydropower company SJVN assured the public and its lenders that the scheme was a "least cost" project and would remain financially viable even under adverse hydrological conditions. At no time did it indicate that the project depended on carbon credits to go forward.

Several years into project construction, the board of the Clean Development Mechanism (CDM) is now considering an application to award 15 million carbon credits for the Rampur project for the 2012-2022 period. If approved, these credits would currently have a value of $164 million. The Swedish Energy Agency has offered to buy the credits in a deal that was arranged by the World Bank. Carbon credits from the CDM allow Northern polluters who are obliged to reduce their emissions under the Kyoto Protocol to keep polluting if they fund emission reductions in the global South. A key condition of the CDM is that carbon credits are only awarded if a project would not go forward without them, so that continued pollution in the North is balanced by reduced emissions in the South.

In order to qualify for support from the CDM, SJVN now argues that its least cost project would not go forward without carbon credits. Since the project is already 70 percent complete, this is obviously a blatant lie. If the CDM board accepts the scam, Swedish polluters can emit 15 million tons of CO2 more than they are entitled to under the Kyoto Protocol, and SJVN will sugarcoat its profits with an extra $164 million. Swedish energy consumers and the planet's ecosystems will foot the bill.

Rampur is not an exception. Developers in India and other countries are gaming the CDM system with gusto. A new Wikileak document confirms that investors regularly apply for carbon credits for projects that would go forward anyway. According to a cable from the US consulate in Mumbai to the State Department, an Indian banker explained that "no bank would finance a project which is viable only with carbon revenues because of the uncertainty of the registration process." The banker "admitted that project developers prepare two balance sheets to secure funding: one showing the viability of the project without the CDM benefit (which is what the bank looks at) and another demonstrating the non-viability of the project without the CDM benefit." A carbon trading consultant added "that CDM benefit is a bonus and noted that most of the projects are implemented even before being registered to earn carbon credits. Excluding 'business as usual' projects from qualifying is 'killing' Indian projects, he added."

My former colleague Payal Parekh has compiled some telling excerpts from the cable to the State Department in her own blog. The cable confirms what independent climate experts such as Axel Michaelowa, Barbara Haya and Himanshu Thakkar have argued for a long time. CDM Watch, International Rivers and the South Asia Network on Dams, Rivers and People have appealed to the CDM board to call SJVN's bluff and deny registration of the Rampur project.

The Rampur case sheds light on the dubious role which the World Bank plays in abetting the scams that Wikileak exposed. The CDM board wouldn't consider Rampur's application for carbon credits if the financial institution didn't talk out of both sides of its mouth. The Bank claims that its projects are financially viable when it lends to them, and pretends that they are not when it arranges carbon credits for some of the same projects.

The World Bank currently manages 13 funds that are involved in carbon trading, and will become the interim trustee of the Green Climate Fund which is currently being negotiated. It argues that its expertise make it a perfect broker in the climate finance sector. Yet as the Rampur project demonstrates, the Bank has so many fingers in this pie that it cannot be trusted as an honest broker. International Rivers and many other NGOs have argued for a long time that the CDM system is broken. The world needs an effective funding mechanism that brings about the massive reduction in greenhouse gas emissions that we all depend on.

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