April 10 (Bloomberg) -- The World Bank's support for projects that reduce carbon-dioxide emissions in developing countries encourages polluting industries and fails to promote renewable energy, the Institute for Policy Studies said.

The manager of $2.1 billion in 10 carbon funds has invested most in ventures that remove climate-warming gases during industrial processes at coal, chemical, iron and steel companies, said Janet Redman, author of today's report. That created an ``incentive'' to maintain the status quo, she said.

``This does nothing for increasing access to clean energy, the development of the low-carbon economy or sustainable'' solutions, Redman, a researcher at the Washington-based policy consulting group, said in an interview yesterday. ``It leaves behind the bank's mandate as a public institution.''

Rising global temperatures driven by human emissions of greenhouse gases are causing Arctic ice to melt and rainfall to decline in parts of Africa and the Mediterranean, a United Nations report on climate change concluded last year.

The World Bank's Carbon Finance Unit has so far committed $1.6 billion to projects that cut greenhouse gases blamed for global warming. The projects generate emission credits for each ton of pollutants avoided. These certificates can be used as air- pollution permits by European companies that can't, or refuse to, trim their emissions by an equal amount.

Choices Defended

Those investments have ``helped to develop a burgeoning carbon market, providing a new source of financing for development that is benefiting many developing countries,'' the Washington-based bank said in a statement.

The World Bank, itself funded by governments and companies, has backed two projects in China that target hydrofluorocarbons, or HFCs, a type of pollutant from industrial operations that is 11,000 times more potent than carbon dioxide in trapping heat- warming gases. The two projects account for 56 percent of the bank's carbon investments, according to a World Bank report.

The international lender pursued HFC projects in 2005 when China was not participating in carbon markets, said Joelle Chassard, who manages the Carbon Finance Unit. The projects have helped open opportunities in China for other investors.

``There would be a problem if we were to keep on doing these types of projects,'' Chassard said in an interview. ``We did not do the HFC projects in China purely to get'' emission credits, she said.

UN-managed projects to curb pollution could bring $100 billion annually to developing countries, Yvo de Boer, executive secretary to the UN Framework Convention on Climate Change, said earlier this year.

Carbon Dependence

While trading greenhouse-gas credits is meant to spur gains in the global battle against climate change, it essentially offsets air pollution among emitters and avoids fundamental change in industries and lifestyles, according to critics of trading such as the policy institute.

Today's report accuses the World Bank, whose mission is to back economic and social projects in developing nations, of profiting from carbon trading while perpetuating the world's dependence on carbon-based fuels such as oil and natural gas.

The bank should get out of carbon trading altogether and focus on investing in renewable-energy projects such as wind and solar generation, Redman said.

``Carbon trading is really not the most effective way of lowering greenhouse-gas emissions,'' Redman said. ``By outsourcing emission reductions, you may or may not be doing anything to help lower the risk of climate change.''

Kyoto Treaty

The Kyoto treaty, an emissions-limiting agreement, provides for industrialized countries to invest in carbon-cutting projects in China and India. Credits from the projects provide ``low-cost emissions reductions,'' to help industrial countries meet greenhouse gas targets, Elliot Diringer, director of international strategies at the Pew Center on Global Climate Change, said in an interview.

``There is nothing wrong with wanting to destroy HFCs,'' Chassard said. The Kyoto process ``is meant to invest in climate- friendly investments, not solely in renewable energy.''

Credits from projects to destroy industrial HFCs in China are now taxed at rate of 65 percent, with the revenue placed in a renewable-energy fund, said Joanna Lewis, senior international fellow at the Pew Center on Global Climate Change.

The tax was created following criticism that the projects do little to ``create sustainable development benefits,'' Lewis said in an interview.

Carbon Market

The world market for greenhouse-gas trading rose 80 percent in value last year to 40.4 billion euros ($64 billion) as the trading volume of UN-managed credits tripled, according to Point Carbon, an Oslo-based research and publishing company. The market helps drive investment into cleaner energy options in developing countries, Diringer said.

``No one is looking at the credit market as the solution,'' Diringer said. It's ``part of a large portfolio.''

Negotiations are under way to extend the Kyoto accord, which does not include the U.S., beyond its expiration in 2012. The U.S. Congress is debating legislation that would cap greenhouse gases and create a market for emissions credits.

To contact the reporter on this story: Jim Efstathiou Jr. in New York at jefstathiou@bloomberg.net.

Last Updated: April 10, 2008 10:39 EDT