Select Page

Random Note – International Carbon Trading

Reading Graham Lloyd’s (The Great Green Gamble, The Australian, 9/1) on international carbon trading reinforces the belief that Malcolm Turnbull is unleashing his inner banker and that this is what the climate debate has always been about from the very beginning.

First, create a villain, (co2) and then develop a scheme to commoditise and monetise the villain on the high minded, moral pretext that you are saving the planet.

Lloyd’s column puts flesh on the bones of the climate scam and the carbon trade and as it crystallises and comes more into focus we can see that it’s up there with the 17th century tulip trade, Bitcoin, Bernie Madoff and CDO’s (Collateralised Debt Obligations) that helped trigger the world financial crisis.

The comparison with the tulip trade is closer to the mark than we may think because the Dutch described tulip contract trading as “windhandel” (literally “wind trade”), because no bulbs actually changed hands and was simply trading in thin air.

Sound familiar? It is exactly the same with the carbon trade. Nothing changes hands, it is another smoke and mirrors boondoggle which in this case, literally, trades in thin air or thin co2.

As pointed out by the Chief Scientist, none of this expensive moral posturing over climate and even reducing Australia’s emissions to zero if it were possible will make a scrap of difference to world temperatures.

READ ON — (cut and paste and full column below)

“…It was dubbed the fraud of the century. A multi-billion-euro carbon trading sting which a French judge described as “unprecedented in the history of financial crimes”.

Investigators say a group defrauded billions of euros by purchasing emission allowances on the European market from abroad, using a complex network of shell companies and offshore accounts in Latvia, Cyprus and Hong Kong.

Because the allowances were purchased outside Europe, they were not subject to the European Union’s 19.6 per cent value added tax. According to French reports, frontmen acting as brokers then resold the allowances in Europe, taxes included. But instead of handing the VAT over to the correct authorities, gang members pocketed the cash to use in future trades.

The money was laundered before it was reinvested by placing it in a bank in China, where it was then handed over to businesses or transformed into playing chips at casinos.

The great French-Israeli carbon tax heist fits neatly into Interpol warnings about carbon trading markets issued in 2013.

“Unlike traditional commodities, which at some time during the course of their market exchange must be physically delivered to someone, carbon credits do not represent a physical commodity but instead have been described as a legal fiction that is poorly understood by many sellers, buyers and traders,” Interpol warns…”

FULL COLUMN BELOW

The Great Green Gamble

It was dubbed the fraud of the century. A multi-billion-euro carbon trading sting which a French judge described as “unprecedented in the history of financial crimes”.

Investigators say a group defrauded billions of euros by purchasing emission allowances on the European market from abroad, using a complex network of shell companies and offshore accounts in Latvia, Cyprus and Hong Kong.

Because the allowances were purchased outside Europe, they were not subject to the European Union’s 19.6 per cent value added tax. According to French reports, frontmen acting as brokers then resold the allowances in Europe, taxes included. But instead of handing the VAT over to the correct authorities, gang members pocketed the cash to use in future trades.

The money was laundered before it was reinvested by placing it in a bank in China, where it was then handed over to businesses or transformed into playing chips at casinos.

French businessman Arnaud Mimran was sentenced last year to eight years in prison and fined €1 million ($1.5m) for his part in the 2008 swindle.

His co-mastermind, Israeli Sami Sweid, was gunned down in a motor scooter drive-by shooting before the trial commenced. Other gang members have fled to Israel in a bid to escape French justice.

The great carbon trading tax heist came in the heady days immediately before the global financial crisis, which swamped the world’s financial markets and crushed the nascent European carbon market.

It is one of many crimes that have dogged an industry which claims to have been founded on the highest of ideals: to help save the planet from climate change.

And it is one of the reasons that federal government attempts to allow Australian businesses to access international carbon dioxide emissions permits have been savaged by former prime minister Tony Abbott and his supporters.

Debate about the use of international permits rests on a series of assumptions: that action on climate change must be taken, that co-ordinated international action will be more cost-effective than countries acting alone, and that the international carbon trading community has finally got its act together.

The great French-Israeli carbon tax heist fits neatly into Interpol warnings about carbon trading markets issued in 2013.

“Unlike traditional commodities, which at some time during the course of their market exchange must be physically delivered to someone, carbon credits do not represent a physical commodity but instead have been described as a legal fiction that is poorly understood by many sellers, buyers and traders,” Interpol warns.

“This lack of understanding makes carbon trading particularly vulnerable to fraud and other illegal activity.

“Carbon markets, like other financial markets, are also at risk of exploitation by criminals due to the large amount of money invested, the immaturity of the regulations and lack of oversight and transparency.”

The international police agency listed the potential illegal activities including the tax scam played out in the French-Israeli heist.

The warning list comprises of:

  • Fraudulent manipulation of measurements to claim more carbon credits from a project than were actually obtained.
  • Sale of carbon credits that either do not exist or belong to someone else.
  • False or misleading claims with respect to the environmental or financial benefits of carbon market investments.
  • Exploitation of weak regulations in the carbon market to commit financial crimes, such as money laundering, securities fraud or tax fraud.
  • Computer hacking/phishing to steal carbon credits, and theft of personal information.

However, despite the worrying criminal concerns, the biggest failings of the European carbon market have been by design.

Over-allocation of permits at a time of weakened economic activity following the global financial crisis saw prices plunge to a fraction of what was considered necessary to force businesses to change their greenhouse gas emitting ways.

Nonetheless, the industry has regrouped with revised rules, fresh markets and the first signs of a new attempt at international co-operation.

The Turnbull government signalled its intention to allow Australian businesses to buy international permits to cover their carbon dioxide emissions liabilities when releasing the final report of last year’s review of climate change policies on December 19.

“As flagged in 2015, the review considered the role of international units and as a result the government has now given in-principle support for their use,” according to Energy and Environment Minister Josh Frydenberg.

“The final decision on the timing and appropriate quantity and quality limits will be taken by 2020 following further consultation and detailed analysis.”

Industry has welcomed the move.

Australian Industry Group chief executive Innes Willox says business has been advocating for access to international credits as a cost-effective way to achieve Australia’s commitments under the Paris climate change agreement.

“It makes absolutely no sense to rule out this option by insisting that our commitments can only be fulfilled within our borders,” Willox says.

David Byers, interim chief executive of the Minerals Council of Australia, says it is “an important step forward in developing a long-term sustainable approach to climate change policy’’.

Byers says access to international carbon units will give Australia more avenues for reducing emissions, including supporting carbon abatement projects in developing countries, such as reducing deforestation, combating illegal logging and restoring coastal and marine environments.

“This will ensure our emissions reduction efforts are environmentally effective and economically efficient, helping to meet Australia’s Paris commitments at the lowest cost,” Byers says.

“This is critical for securing long-term investment in the Australian resources sector.”

Abbott says his position on international carbon credits remains the same as it was when he was prime minister and Liberal Party leader.

“I don’t support carbon trading which is a carbon tax under a different name and I certainly don’t support overseas carbon credits being available to Australian businesses,” Abbott tells The Australian. “That just means that Aussie consumers end up shovelling our money to foreign carbon traders and we all know the potential for rorts there.”

Abbott’s concerns are shared by many green groups, which have reached the conclusion they were comprehensively outmanoeuvred by big business on carbon trading in the past. Their preference is now for strict carbon pricing at such a high level that it forces companies to change behaviour.

There are signs, however, that carbon trading is returning to international favour. After years of painful negotiation, the European Parliament and EU governments have agreed to reforms to put the market on a more solid foundation. Excess permits have been cancelled and a reserve system introduced to stop the market becoming saturated.

China has launched an emissions trading system that brings together existing regional schemes covering the power sector. Electricity accounts for almost half of China’s emissions, which means the new market is already bigger than the entire EU scheme.

A new Carbon Pricing in the Americas initiative was launched in Paris in December. It may eventually link emissions trading schemes in Canada, Colombia, Chile and Mexico, and include individual US states such as California and Washington. In total, there are now 42 national and 25 sub-national jurisdictions putting a price on carbon dioxide emissions, eight of which were launched last year.

Some commentators are saying that for the first time it looks as if a “global coalition for carbon pricing”, which was advocated at the 2015 Paris summit by former French president Francois Hollande, is a real possibility.

But not everyone thinks a linked global trading system is a good idea.

In an article in Nature magazine last March, Jessica Green from New York University argued a global network of cap-and-trade systems would deliver greater complexity and fewer emissions cuts. At this point, Green warns, carbon trading is more a political fix than an effective way to mitigate climate change.

“Without stringent caps and careful management, cap-and-trade systems have scant effect on net emissions,” she says.

Green argues that policymakers should first limit links to other markets. Carbon trading policies should be designed to avoid over-allocation and ensure rising prices. And policymakers should eliminate loopholes that limit the environmental effectiveness of cap and trade, she says.

“The worst possible outcome of linked markets is a set of policies that appear to address climate change but allow emissions to continue to rise,” Green says.

In theory, linking markets together should promote trading, smooth financial flows and lower the overall cost of reducing emissions. But Green believes the reality is more complicated.

“Initial attempts to join up trading schemes in Europe and in California and Quebec have led to price crashes and volatility, not stability,” she says.

Opening the way for international permits would certainly undercut the carbon farming market nurtured by the federal government’s Emissions Reduction Fund. The price of carbon abatement under the ERF achieved an average price of $13.08 per tonne, much higher than international prices but still considered too low to build a significant domestic offsets industry.

David Hone, chief climate change adviser for Royal Dutch Shell, says price volatility has been a curse for the international market. Over 20 years more than 8000 projects had been registered, representing some $US300 billion ($382bn) of clean energy and emissions reduction investment under the Clean Development Mechanism of the Kyoto Protocol. About 1.6 billion certificates are now virtually worthless.

“One estimate claims that the CDM has had a material impact on global emissions, with reductions of nearly 500 million tonnes of carbon dioxide in 2014, or 1 per cent of global emissions,” Hone says. “But the CDM has been fraught with problems, the most dramatic being a substantial fall in demand for the emissions reductions that it offers.”

This had led to the collapse of many project developers, the failure of hundreds of projects and a backlog of certificates that could still be issued for further trading.

“A great deal of time, money and political capital has been invested in getting the CDM to where it stands today, so not surprisingly there is some ill feeling over its demise and some attempts to recoup losses before moving on to something new,” Hone says.

Fraud and incompetence has made carbon trading a buyers’ market, which makes international permits attractive to companies wanting to offset emissions at least cost. The buyers’ market makes cheap international permits an obvious attraction for companies seeking a least-cost way to cover their emissions liabilities as the Paris Agreement goals tighten.

Australia’s political focus is firmly driven by runaway electricity prices. International permits may have a role to play. 

But the withdrawal of the US from the Paris Agreement makes a truly international market more difficult to achieve. Fraud and cross-border swindles can only add further heat to the climate change conundrum.