Shock Newsflash Horror! The Morgan Foundation and Geoff "Wild-Shirt" Simmons have done it again! They have just released another tell-all critique of corporate emissions trading shenanigans! A sequel in the franchise they started in April 2016 with the report Climate Cheats. As we know, 'Cheats I' outlined this sad course of events:
- the 'flood' of low-cost and low-integrity Russian and Ukrainian emissions reduction units into the NZ emission unit market
- which then crashed the domestic emission unit price
- which allowed NZ emitters to meet emissions trading obligations for next to nothing
- which allowed the Government to own surplus (but dodgy) units
- which meant Paula Bennett could claim 'form over substance' compliance with climate charge targets out to 2020
- not withstanding the real increases in both gross and net NZ emissions of greenhouse gases.
Weighing in at a thankfully concise 16 pages, the wonderfully named 'Who’s the Real Cheat Here? Climate Cheats II: The Dozen Dirty Businesses' starts with a simple question. Which companies had the most dodgy Russian and Ukrainian emission units? Well, here they are.
Simmons and co then note that Minister Bennett has refused requests to cancel the surplus dodgy units the Government holds, giving the excuse she is 'seeking advice' (That would seem to be a perpetually applicable excuse!). So they ask 'who owned and used dodgy emission reduction units?' The dirty dozen corporates, of course.
The report then discusses three types of liability (physical, liability and transition) that may fall on companies who used the emission reduction units. To paraphrase, Simmons is thinking 'did they really think this would never come back and bit them?' And he is making the point that if Government is failing to act ethically, then why don't we shine a spotlight on our corporate citizens and ask them to shoulder some of the responsibility for the dodgy unit fiasco?
Simmons assigns highest culpability to New Zealand Steel and Fonterra. Because they are emitters who received generous free allocations of NZ units but who also owned dodgy emission reduction units. Referencing a blogger (meaning me!), the report notes New Zealand Steel booked $4.4 million Australian dollars of profit from emissions trading that is probably from arbitrage trading of their free NZ units while also owning dodgy units.
Five forestry companies are on the dozen list. Some sympathy is due to some of them as the unit price crash devalued their allocations of units. But none is due to any foresters who carried out 'forest re-registration arbitrage' in the ETS. This was exiting and re-entering the same forest in and out of the ETS several times. For each ETS 'exit', the forester would 'square-up' the refund of carbon liabilities with emission reduction units costing several cents each. For each 're-entry' to the ETS, the forester would be given an allocation of free NZ emissions units worth a few dollars each. The result being instant no-effort windfall profits. The Government took far to long to clamp down on this practice.
Finally, energy companies get their turn in the spotlight. BP, Chevron, Z Energy, Contact Energy and Genesis Energy all owned and used some dodgy international units. Did these companies price their products to NZ customers on the basis of the higher NZ unit prices or the lower dodgy unit price? The Morgan Foundation approached the energy companies for comment which is in an appendix. All give worthy statements saying they followed the rules and of course they put customers first. However, Mobil shows up the fine words of the others. Mobil never owned any dodgy international units and managed to supply fuel just as competitively as the others.
Climate Cheats II concludes by suggesting that the companies who owned dodgy international units and lowered their costs (as well as those who made windfall profits) have two options to put things right.
- They could voluntarily cancel NZ units to match the dodgy units used
- They could alternatively pressure Paula Bennett to cancel the surplus units the Government holds.
With NZ emission unit prices now hovering between $17 and $18 per tonne, the latter option will hurt much less than the former.
In summary, it's hard not to like a Morgan Foundation report that references me! But leaving that bias/good taste aside, Climate Cheats II is a concise readable summary of the abject state of New Zealand's emissions targets and trading policies and practices. As Kevin Anderson would say, we need to see clearly where our rose-tinted spectacles have brought us. Climate Cheats II mostly does that.
However, if anything, the report, by focusing on the top dozen owners of the dodgy international units, underplays the persuasiveness of the ownership and use of those international units. Most entities with emissions trading accounts owned some dodgy units. In 2013, more than 400 entities (out of 496 account holders) owned some share of the almost 35 million emission reduction units in private hands. You can check this with this Google sheet of Kyoto Units obtained from the Emission Unit Register at the EPA.
Finally, I have one concern which is perhaps more about how 'Climate Cheats II' will be received rather than what message it has. It seemed to me that the media response to initial splash of 'Climate Cheats I' (they loved the emotive framing - 'fraud!' - 'cheating!') really missed the fundamental point that I think both reports support, and that other assessments of the ETS support, that an emissions trading scheme that has no cap on emissions, that earns no revenue and that isn't economy-wide, is an excuse and rationalisation for doing nothing and not an effective mitigation policy at all.