Towards a dirtier world

9 August 2012, The Africa Report

Would anyone like to buy some triple A derivatives that simultaneously prove to everyone that you are a truly caring person?

I have found a piece of land with a secure lease over which I can guarantee zero risk, from both alternative owners and users, squatters or other persons with which I intend to make myself some extra cash. It requires that I can activate some guilt in you as a reader and potential customer however, for your consumerist lifestyle, laziness in sorting the recycling, and/or urge to go on carbon guzzling aeroplanes on holiday.

Have you thought of your children, and your children’s children and the fact that they will need to be wearing moon suits to keep themselves cool on a planet the temperature of an oven and ultra violet sufficient to fry an egg on the top of your head? Have you thought of the volume of a large multi-story car park and, if you are lucky and privileged, that you will live your full term and completely fill it with rubbish. How selfish. So, are you feeling a bit like you need to give something back? You do.

Well, I can offset your guilt by offering you the perfect care product. It will show you believe in your children’s future and that you are a part of the wider humanity which emerged with the age of Aquarius and the singing of songs sponsored by coca cola. And the product I have for you can be sold on, traded, or subdivided and sent to relatives at Christmas and Eid. It is, a very symbolic and well designed, registered, approved, accredited (by my professional friends of course) carbon offset derivative!!!

You see I have registered the trees in my back garden, estimated the amount of carbon they will store and retrieve from the environment for the next 2000 years, can guarantee that every owner after me will think this is a fab idea (and not cut them down), and so can totally promise that if you go on holiday you can buy an offset from me and be totally guilt free! And in return I promise to leave my garden just as it is – scruffy, unweeded and dominated by a couple of trees that stop the lawn growing properly. In fact I will just sit here and read the paper as I always do. Do we have a deal?

I will not tell you that one of the trees is getting a bit too big and that one day soon it may have to be removed as a hazard, as I don’t want to tell you in advance that you may end up with a ‘non-performing’ offset. I don’t want to worry you, and in any case, if I don’t tell you, you won’t have to tell the next buyer and so on.

Historians can note the similarities to the cause of the South Seas bubble and the compromised swamp on which one of the first financial ponzi schemes was built.

If I lived in the right country – a designated poor one – rather than in Manchester, England, I could really do this with World Bank support. So if you are thinking, but that makes no sense, I have still guzzled my carbon going on holiday (well the aircraft did anyway) and this mad women’s garden was there before, is still there, and maybe will be for a while, so just what has been ‘offset’. Well this is the carbon offsetting scam, for those of you who don’t yet know. It is based on the entrepreneur taking courses in story writing and fairy tales, on being extra creative and making up a counterfactual narrative about how they would pollute the environment a lot – by cutting down the valuable carbon capturing trees, by puffing out more noxious gases, by expanding their pipeline into dangerously clean wetlands, by stopping a river flow, by killing some fish, or some frogs, – if, and this is the most important bit for the sincere smile, the dry handshake, the labelled suit and the shared private school, the powers that be at the Clean Development Mechanism (CDM) offices of the UNFCCC don’t give them a lump of taxpayers money to not do so. These are called Certified Emissions Reduction, or CERS.

My bits of paper are called Self Certified Ambient Manchester Surroundings high performing carbon offsets, or SCAMS. I may not have the authority of the World Bank, but the private market is filled with smart company representatives with shiny brochures in brief cases, with pictures of windmills, blue planets, oceans and waving green fields on the front. I have a camera…. And we all know about Manchester and ambient (music at least, if not confounded environmentally by the rain for most of the year). I am going to register a special purpose vehicle for my SCAMS in a tax haven, right now, and there are at least 8 to choose from under British sovereignty so I should get a nice competitive tax planning solution for your profits too.

But seriously – NOT

Now let us pretend to take this stuff seriously – oops, but we have to – it’s really true! Well not my spoof, but the real things, carbon offsets, do actually exist, and CERs (official tradable ones) are really made (up) in this way. Someone takes a forest, or a wetland, or ‘blue carbon’ (in the sea) or ‘yellow carbon’ (as in the desert) [Actually I did make that one up again – I am having such trouble keeping the fact from the fiction, but then I don’t actually own any trees either, but who is going to check?] and frames it as a carbon offset product. This means that a believable narrative has to be assigned that without it gaining CERs something terrible might happen to its current ability to store and capture carbon [like me saying I would chop down my hypothetical trees]. And then it needs certifying and validating by a designated national authority (which can be more or less corrupt, but hey when you are only validating a narrative the ‘truth’ has already flown away with the dirty air in any case!].

The scheme has been working so well (sic) that in the recent World Bank publication Toward a Green, Clean, and Resilient World for All (sic, sic, sic..) of 2012, we are told that the age of financialised carbon is here to stay and well be greatly expanded. Any owners of SCAMS step forward. After all, ‘If the environment is considered as productive capital, it makes sense to invest in it, and environmental policies can be considered as investment.’ (cited by Patrick Bond, 2012). The question must be in whose (non)sense is this sense?

More carbon, more carbon, more carbon offsets

The World Bank group is increasing dramatically the scale and scope of the carbon markets and financialisation of pollution by increasing the supply of ‘credits’ to apparently ‘offset’ increases in emissions. That is to offset the derivative guilt thereof, since the actual emissions will go ahead. But the ‘credits’ they are financialising (trees, oceans, blue sinks, green sinks, ESPs, categorised using concepts such as ‘blue carbon’ and ‘soil carbon’) are already there: most of ‘Nature’ has in situ use value for humans and non-human species, but without exchange value. The Bank proposes to give more of it exchange value by making/designing derivative commodities denominated in carbon capture and then financialising them using pseudo-scientific calculative entities or ‘calculative devices’ (Sullivan, 2012; Bracking, Igoe, Sullivan and Woodhouse, 2012; Callon and Muneisa, 2005). This produces the illusion of shrinking global consumption of carbon stores, while actually increasing consumption of them (as Patrick Bond shows in his graph, 2012).

The World Bank are also moving increasingly to the ‘fund of funds’ model where they withdraw from direct investment in credits but give more money to offshore private equity funds. (see Bracking, Hulme, Lawson and Wickramasighe, 2010: 7, 21). This reduces the public accountability of expenditures and the chance of any benevolent impact, environmental, economic or social (Bracking and Ganho, 2011).

Contours of redesigned carbon market:

Size: The World Bank currently holds $2.7 billion of carbon funds (Reyes, 2012) and wants to dramatically grow their portfolio (World Bank, 2012: 61). It says there is a supply constraint when there is actually the reverse! (who makes this up and why? See Rayner, 2012 on social construction of ignorance in science and environmental policy). The World Bank’s answer to a (fictitious) supply constraint is to pump money into ‘carbon market infrastructure’ in order to expand pecuniary products from nature. This raises a nasty problem: the vast amount of nature is still (un) financialised, so increasing notional supply only facilitate more consumption of nature, when we already have over consumption, and want the opposite! The policy result is the opposite of the avowed intent of the policy makers. But don’t think they are just dumb – there is more going on here, since key corporate players are making a load of money from this fiction.

Delivery: The funds the World Bank will use: Carbon Partnership Facility, Forest Carbon Partnership Facility, Partnership for Market Readiness, BioCarbon Fund Tranche 3 (BioCF T3), Carbon Initiative for Development (CI-Dev), IFC’s Cleantech venture capital portfolio. Also EIB/EU shared outlets (cf Bankwatch, 2012: endnote 1).

Perverse effects: These funds are on-lent into private equity funds offshore (at between 5 – 40% of total value, or leverage ratios of 1:3 to 1:8 approx.) which are mostly profiled as mixed infrastructure funds (see Hildyard, 2010 on these). In this way the carbon credit bonds end up cross-subsidising what would otherwise be declining in value co-investments in fossil fuel ventures. Profits from fossil fuels are otherwise declining in value because of protests globally – witness the success of Greenpeace UK in making Lloyds of London withdraw its reinsurance support from arctic drillers after pressure over the costs of risks. The IFC risk technologies have re-valued the risk of litigation and disruption at much higher rates over the last few years for fossil fuels. Infrastructure fund managers want to capture public subsidies designed to ‘green’ their portfolios while terminally extracting from their historic fossil fuel based investments while offsetting their rate of declining profitability. And all with a taxpayer subsidy if they can get it!

The nature of the challenge

In other words, arguably, the move away from fossil fuels is being arrested in pace because of regulatory capture of the UNFCCC by Bretton Woods and aligned big capital. This regulatory capture has caused a haemorrhage between the avowed policy intent of supranational environment policy institutions, and the already observable policy consequences of this type of financialisation. In other words they are there to stop us polluting ourselves into oblivion, but instead of doing something about global warming they are promoting polices that don’t work to stop global warming – but do work to emit more carbon into the atmosphere while making carbon traders and dirty industry shareholders a load of cash! This leaves everyone who does care about the environment, and not just through consumer activated guilt, the challenge to design a political response which doesn’t leave activists themselves captured within a financialisation paradigm which can not deliver us the results we want. Moving from analysis to praxis, and from conference spectacle to policy delivery seems like an almighty challenge. But this way of delivering environmental policy using financial instruments can only lead to a dirtier world for all.
So, again, anyone want to buy any SCAMs? Don’t let it bother you that I don’t actually own any trees – most of the big offset projects are not traditionally owned by those putting them on the market either – but by millions and millions of displaced persons. Displaced by fictional ‘conservation’.

References

Bond, P (2012), “Inclusive Green Growth or Extractive Greenwashed Decay?”

Bracking S and Ganho, A (2011), A review of development impact evaluation systems used by development finance institutions in Europe, Norwegian Church Aid

Bracking, Igoe, Sullivan and Woodhouse, (2012), Concept Note on a Theory of Value, University of Manchester, mimeo

Bracking, Hulme, Lawson and Wickramasighe, 2010), Future Directions for Norwegian Development Finance, Commissioned by NORAD

Callon M, Muniesa, F, (2005), “Economic markets as calculative devices” Organization Studies, 26, 8, ps. 1229-1250

CEE Bankwatch Network, (2012), A call to phase out fossil fuels lending by the European Investment Bank

Hildyard, N (2010), The Private Sector Turn: Private equity, financial intermediaries and what they mean for development, Cornerhouse

Rayner, S (2012), “Uncomfortable knowledge: the social construction of ignorance in science and environmental policy discourses”, Economy and Society, 41, 1, 1 pp. 107-125

Reyes, O (2012), personal e-mail.

Sullivan, S (2012, forthcoming), Financialisation, Biodiversity Conservation and Equity: Some Currents and Concerns, Third World Network

World Bank (2012) Toward a Green, Clean, and Resilient World for All: A World Bank Group Environment Strategy 2012-2022

Endnote 1: Thanks to Oscar Reyes, Institute for Policy Studies, who provided me with the summary of Funds in this paragraph and an earlier discussion to this note.