Corruption in climate governance – why is it an issue for Europe?

The European Policy Centre, in cooperation with Transparency International (TI) hosted a Policy Dialogue on Corruption in climate governance – why is it an issue for Europe? on May 18th. The dialogue considered the contents of TI’s “Global Corruption Report on Climate Change”. This post is part summary of what was said at the event, and part critique of some the points made.

Audience members talk to the panel after the event. Image cc. Rachel Tansey

Climate governance can be understood as the rules and compliance mechanisms governing climate change mitigation and adaptation, as well as related political decision-making, financing, the functioning of carbon markets and access to natural resources, all of which face corruption risks.

Transparency International: Looking at the Integrity Risks in Climate Governance

Corruption was defined by TI as ‘the abuse of entrusted power for private gain’. Climate related funds, like the UN Clean Development Mechanism, will be dealing with vast quantities of money. Figures were quoted by Lisa Elges, TI’s Climate Governance Programme Organiser, of 30 billion to be fast-tracked by 2012 and 100 billion per year by 2020, as well as the money trades in carbon markets, which in 2009 amounted to an annual trade of 120 billion. These enormous amounts of money are in funds whose regulatory frameworks (relating to how, and for whom, the money should be spent) are unclear and complex.

Thus, Elges argued, there are integrity risks, in developing and developed countries, relating to how these funds are gathered and dispersed. The former are most affected by climate change and tend to have weaker governance and very high perceptions of corruption, but the latter still face integrity risks in terms of the allocation and reallocation of public financing. The challenges for both include measuring, monitoring, reporting and verification, both in terms of goals (like GHG reductions), and how the climate finance is actually being spent.

At EU level there is deep concern over lobbying practices being heavily weighted to private sector interests and the consequent effect this has on policy development. Elges said that business and industry make twice as many submissions to the Commission as environmental organizations. Green washing, where companies present themselves as climate friendly when they’re not, was also noted as a concern. TI concludes that strict and robust compliance systems are needed for all the actors involved in delivering on climate change, as well as greater transparency in the lobbying process.

The European Investment Bank: Friend or Foe?

Senior Climate Specialist from the European Investment Bank (EIB), Andrea Pinna, expressed EIB’s support for the TI study. He went on to remind the audience that climate change introduces a new factor of inequality – the least responsible – the poor in developing countries – will be hit soonest and hardest. This is a problem, and the majority of flows will have to address this inequality. He then talked about the need to attribute new values to resources that before had none – the atmosphere, forests, biodiversity . Yet, Pinna continued, there is a danger that by creating a value for, say, forest, that value will be captured by companies, at the expense and even displacement of people living in, and whose livelihoods depend on, for example, forests.

Call me cynical, but I didn’t expect to hear this from a senior representative of the EIB. I think it is testimony to an emerging norm. Don’t get me wrong, his words may be largely rhetoric, and the EIBs investment choices do not always live up to these ideals. Yet the fact that the EIB supports climate change and corporate justice publicly in what they say shows that these ideas are making headway. It also reflects the success of years of advocacy on the part of a number of NGOs – including QCEA. What is promising about this (at least according to political theories of norm life-cycles) is that as actors continue to pay verbal homage to ideas, they gradually become accountable to them, by other actors and eventually by themselves.

The role of international financial institutions (IFIs) is very important in our response to climate change, as IFIs will provide $40billion for mitigation and $6 billion for adaptation, per year, by 2020. The EIB is facilitating carbon markets/mechanisms in low and middle income countries, investing in low-carbon technologies, development and adaptation programmes both in Europeand in developing countries. According to Pinna, the EIB has a target for 25% climate action lending by 2012. They have created definitions to screen the process of deciding what counts as climate action, which assesses the carbon footprint of projects.

Sounds good doesn’t it? Well, call me a skeptic, but if you saw a food product on a shelf that advertised itself as *25% FAT FREE!*, would you buy it? Or would you think, eurrrgh, that means it is 75% fat! A crude analogy perhaps, but if only 25% of projects the EIB funds have to meet strict climate action or greenhouse gas emissions reductions criteria (i.e. have to show they are not directly  – or indirectly – frustrating the aims of climate targets), then that means that 75% do not. True, the EIB has a vaguely defined commitment to mainstreaming climate change considerations, but  evidently this “mainstreaming” does not prevent them from funding projects like fossil fuel infrastructure, motorway extensions, airports expansions, inefficient or polluting industries.

International Emissions Trading Association: Don’t kick a horse when it’s down

Henry Derwent, CEO of International Emission Trading Association, a business organisation which promotes emissions trading, told the audience that “Carbon pricing is the most economically, and probably politically, effective way for business to take account of environmental damage and climate emissions”.  Derwent recognised shortcomings in the EU ETS as implemented so far, including weak governance regarding the over-allocation of permits, the clarity and reliability of rules, the protection against fraud, the lack of business trust, and international suspicion.

However, Derwent argued that the urgency of the climate crisis means that we may have to put up with imperfect levers, levers that carry dead weight, because the net loss is worth the net gain. We shouldn’t pile more issues (it would seem he means issues like transparency and accountability) on climate policy’s shoulders. It’s hard enough as it is, Derwent remarked, without including every other issue that we have thus far failed to resolve.

The EU ETS: Is the Commission putting all its eggs in one basket, a basket with a big hole in? As the eggs fall through, the obliging hands of industry are happy to reach out and catch the windfall profits and surplus permits. Image cc. Rachel Tansey

Unlike Derwent, I find it a more compelling argument that the urgency of the climate crisis means that we cannot afford to get it wrong, to waste our time, or to continue to put the bulk of our efforts into a mechanism which evidence suggests is not working and is seriously flawed. Unless of course, by “working” one means making some polluting companies very rich, by supplying them with a surplus of valuable permits to pollute, at the same time as finding scant evidence that the mechanism has led to any measurable emissions reductions.

Indeed, according to Corporate Europe Observatory:

  • The EU Emissions Trading System (ETS) has failed to reduce emissions;
  • A surplus of around 970 million of these allowances (permits to pollute) from the second phase of the scheme (2008-2012), which can be used in the third phase, means that polluters need take no action domestically until 2017;
  • Power companies gained windfall profits estimated at €19 billion in phase I, and look set to rake in up to €71 billion in phase II… This has mostly resulted in higher shareholder dividends, with very little of the windfall invested in transformational energy infrastructure.

For Derwent however, emissions offsetting and trading is necessary because the vast amount of money needed for climate change adaptation and mitigation means some of it must come from the market. It is not possible, Derwent stated, to secure enough money from public funds – even if we were to add aviation taxes and a Tobin tax, it would take too long and we’d have too long to wait.

Political leaders, under pressure from business and industry, with growing unemployment and ever tighter public purses, want to meet their climate targets and emissions reductions as cheaply as possible. From this political fact, Derwent described the reasoning that leads to emissions trading. The costs of emissions reductions are different in different places (as, he said, the IPCCC’s third assessment report recognises). This is grounds for trade, and therefore offsetting. Derwent was at pains to insist that thinking along the lines of “I have a responsibility to reduce my emissions, but I don’t want to. Can’t someone else do it more cheaply, more easily, or at a time less inconvenient than this is to me?” is not just the “purchasing of indulgence”, and therefore morally suspect. Either, Derwent told the audience, you want the reductions to be cheaper than if you do it yourselves, or you don’t. And evidently you do. And if you never trust the “reductions” of others that you’re offered, then you’ll never get anywhere.

The European Commission: Fingers crossed

 Mary-Veronica Tovšak-Pleterski, Director for European and International Carbon Markets at DG Climate Action of the European Commission, spoke in the wake of EU ETS security breaches that led to 3 million euros worth of emissions permits being stolen earlier this year. She discussed the Commission’s efforts to strengthen the EU carbon market, and the changes being made in the 3rd trading period, which include a single EU wide cap, product based benchmarks and the auctioning of allowances. By 2013, half of the permits should be auctioned – as opposed to given away, for free, by the Commission, which has been the case so far(!). Despite progress with the establishment of a single EU-wide ETS registry, Tovšak-Pleterski told the audience that there is no such thing as full protection from IT risks and fraud. What’s more, she said, it is a sign of the size and importance that the EU ETS should attract criminals (Hurrah!?).

The session would not be complete however without the voice of business, and in the Q&A that ended the event, the Commission was told that they need to create a regulatory framework that enables investment. The industry representative emphasised that it needs to be attractive enough for business… after all, the industry spokesperson reminded us, “business is not in any business other than business”.

Transparency International’s final words were that when it comes to climate governance, new institutions are being set up and old ones are being changed. TI is trying to identify best practices in this process, to imagine what good governance of funds could look like, and to identify areas that could lead to corruption in the future – theirs is a long-term, proactive approach. And their approach does not neglect the important question of who benefits, and who does not benefit, in how this system is being developed.

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About Rachel Tansey

Rachel was a QCEA Programme Assistant on Sustainable Energy Security between November 2010 and November 2011.

One comment

  1. Pingback: Missing the point… EU ETS pits itself against energy savings | qceablog

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