Climate Change: Buying and selling pollution, who gains?

Khadija Sharife
By Khadija Sharife

Khadija Sharife is a correspondent for African Business magazine, among others, and a commissioning investigative editor at Forum for African Investigative Reporters (FAIR). Affiliations include researcher for the Environment Justice Trade and Liabilities (EJOLT) project at the Center for Civil Society (CCS) based in South Africa; researcher with the Tax Justice Network; Africa project fellow at the US-based World Policy Institute; assistant Africa editor of "Capitalism, Nature, Socialism", and author of Tax Us If You Can (Africa), among co-authored works. Her work has appeared in African Banker, New African, Al Jazeera, Forbes, BBC, Le Monde Diplomatique, The Economist, Harvard International Review, London Review of Books, and others.

Posted on Monday, 5 December 2011 17:46

In late 2010, the carbon offset scheme – REDD: the United Nations Collaborative Programme on Reducing Emissions from Deforestation and Forest Degradation in Developing Countries, was caught red-handed in Liberia.

The multi-billion deal was proposed as a carbon offset initiative between UK-based Carbon Harvesting Corporation (CHC) and Liberia’s Forest Development Authority (FDA). The initiative was approved by the UNFCCC in Bonn and set to receive revenues – £2.4 billion from the UN’s CDM carbon credit scheme.

According to the Committee’s report investigating the fraud, corruption, misinformation and illicit nature of the deal: “several persons were involved in the scheme of bribery and corruption regarding the CHC contract, but most of them carefully concealed their activities that direct evidence is hard to obtain against them.” It was found by the investigating panel Committee that not only did the FDA board deliberately fast-track the deal, provide misleading information, and skim over the proposal by CHC, but there existed ‘criminal conspiracy’ to violate various Liberian national laws for the purposes of profit.

This was but one example of many – from Kenya to Indonesia – where REDD has been called ‘the most mind-twistingly complex endeavor in the carbon game’.

“The fact is that REDD involves scientific uncertainties, technical challenges, heterogeneous non-contiguous asset classes, multi-decade performance guarantees, local land tenure issues, brutal potential for gaming and the fact that getting it wrong means that scam artists will get unimaginably rich while emissions don’t change a bit.”

This statement does not belong to an environmental activist – many of whom misunderstand the fundamental pillars of REDD – but rather a member of the carbon market establishment, Marc Stuart, co-founder of Ecosecurities, the UK-based corporation that specialises in carbon offestting and trading.

The ‘science’ behind the transformation of market-created pollution to market solution was initially devised by economist John Dales in his 1968 essay ‘Pollution, Property and Prices’, when he proposed that pollution could be traded if packaged as transferrable property rights that could be bought and sold. This was to be realised in a market where pollution had a financial value in the form of allowable quotas.

While Stuart identified the innate faultlines of the REDD system, this did not serve to prevent his company from investing in, and making millions from, carbon trading initiatives like REDD. And the danger is greater than the ‘knowns’ – displacement of indigenous peoples, corruption and others.

The process of financialising ecosystems assets ie: turning nature into tradeable capital, was formulated by the same actors involved in the derivatives markets. The founder of the Chicago Climate Exchange – Richard Sandor, also founded the derivatives and futures markets, and the primary financial corporations involved in tangibly developing the market – Goldman Sachs, Morgan Stanley, Barclays, BNP Paribas, etc. “I guess in many ways it’s akin to subprime. You keep layering on crap until you say, “We can’t do this anymore,” said Stuart.

As this Barclays Bank page boasted (the page has now been removed): “Unrivalled primary origination team: One of our team is a member of the Methodology Panel to the UNFCCC CDM Executive Board.”

Wikileaks disclosed a cable authored by the US embassy in Mumbai to the US’s Secretary of State, describing the UN’s validation and registration process of CDMs as ‘arbitrary’, quoting K. Sethi, the chairman of the CDM board, admitting that the authorities “takes the project developer at his word for clearing the additionality barrier.”

why are the solutions proposed to halt and reverse climate change, placed firmly in the hands of financiers and key state polluters

Previously, The Africa Report’s Typewriter blog reported on the documented criminality underpinning Europe’s Emissions Trading Scheme (ETS) – accounting for 97 percent of global carbon market volume, and the cornerstone of the EU’s environmental policy ie: 90 percent of transactions were categorized as fraudulent.

The Kyoto Protocol, intensively lobbied by the US, as a ‘climate change’ text which contained flexibility mechanisms enabling the industrialised nations to elide emissions, further evidenced the main promoters as revolving door actors with vested interests: though the US did not ratify the Protocol, Al Gore – the main lobbyist, was a key element in Sandor’s CCX. Gore founded, along with David Blood (former CEO of Goldman Sachs Asset Management) an entity called Generation Investment Management that would quickly acquire almost 10 percent of the world’s largest carbon credit portfolios – using similar financial regulatory management models.

The current head of the UNFCCC – Christina Figueras, until her appointment in 2010, was a vice-chair of the Carbon Rating Agency (CRA) and senior advisor to C-Quest Capital, a leading carbon trading firm founded by Ken Newcombe. Newcombe is arguably one of the top ten architects of the carbon market.

According to his biography: Newcombe has “over 30 years of experience in developing financially viable sustainable energy and forestry projects around the world for entities including Goldman Sachs, Climate Change Capital and the Carbon Finance Unit of the World Bank Group.

At the World Bank, he started the first public-private partnership Carbon Fund, which went on to pioneer the global carbon market. He also managed the growth of the World Bank’s carbon finance business to a total of eight carbon funds and a billion dollars under management…. ”

Meanwhile, the founder of CRA, Lord Stern, a former World Bank economist and climate change advisor to Tony Blair’s government, who advocated that ‘decarbonisation’ should be a market activity, is head of Ideacarbon, a firm providing financial and other advice to ‘buyers, sellers and hedgers’.

Yet, with no automatic information exchange, corporate country-by-country reporting (CbC), or mandatory sanctions against the normalized viral use of secrecy jurisdictions as the central base for entities (ranging from multiple subsidiary units by hedge funds, development finance institutions, accounting firms, to banks and other financial entities) regulating the notoriously opaque market is a dangerous illusion.

As with other CDM initiatives, REDD is touted as a ‘market solution to market pollution’ – a principle proposed by CCX at the very founding of the nascent UNFCCC – the Rio Earth Summit. It is also a principle that developing nations are forced to bank the future on.

In the process, just as natural resource exploitation enabled corrupt leaderships at the helm of rent-seeking African regimes, to benefit from unearned revenue, so too does financialising pollution locate value in permits that now represent another form of rent.

The question must be asked then: why are the solutions proposed to halt and reverse climate change, placed firmly in the hands of financiers and key state polluters, who consistently elide investigation of the macroeconomic system at the root cause of both the economic and environmental crisis?

The simple introduction of automatic information exchange – documenting source, pit-stop and recipient nations of capital flows, would ensure that even a representative democracy like South Africa – losing an estimated 23 percent of GDP or R450 billion to capital flight in 2007 – would be better placed to address the root causes of climate change in Africa: continued and embedded dependence on capital-intensive extractive industries for development revenue.

But this closing out of real solutions should come as no surprise: Lex de Jonge, current head of the CDM executive board described the CDM system, “at its best, is a zero sum game, because its credits are used to offset reduction obligations of Annex 1 countries.”

And in this zero sum game, there may be much activity at the COP17 – like those that have passed before. But COP seems bound to succeed mainly for the global banksters eager to maintain the status quo: profit from pollution, whatever the consequence.

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