Earlier this week, Transparency International Indonesia launched the organisation’s new report, “Keeping REDD+ Clean”, at their office in Jakarta. I was invited to give a presentation and this post is based on the presentation.
TI asked me to talk about developing a monitoring instrument to address the risks of corruption in REDD. I requested changing the title to “Corruption and REDD at the international level”. I did so for two reasons. First because I have no experience of setting up monitoring instruments for corruption in Indonesia or anywhere else and second, because it made more sense for me, as the only international speaker, to speak about international corruption and REDD. I also felt that this might help towards filling a gap in Transparency International’s “Keeping REDD+ clean” report, which states that,
The manual’s scope does not extend to corruption risks at the international level. Rather it is deliberately focused on processes that occur in country, to facilitate the participation of national and local groups in informing national policy, planning and project implementation.
But if national policy involves carbon trading, then it is essential to look at the risks of corruption internationally.
The presentation is in four parts. The first part gives a very brief introduction to corruption in the forest sector in Indonesia, a look at how the media reports on corruption in Indonesia and in the UK, and some thoughts about the history of aid to the forest sector. The second and third parts look at the stories that are most often reported about corruption, REDD and carbon trading internationally: from carbon cowboys to billions of euros worth of fraud in the EU Emissions Trading System. The fourth part is the most important part, taken from a 2009 paper written by Larry Lohmann of the UK-based Corner House: “Regulation as Corruption in the Carbon Offset Markets: Cowboys and Choirboys United”. Lohmann argues that the problems of carbon offset markets are not “carbon cowboys” or “bad apples” but the architecture of the markets themselves:
To continue to claim that carbon offset markets can be regulated is to legitimise continued corruption and to undermine popular struggles against it, as well as to harm the causes of climate action and climate justice.
CIFOR has produced two major reports looking at corruption in the forestry sector in Indonesia. In 2009, CIFOR investigated the Reforestation Fund from 1989 to 2009. A report by Ernst and Young (that is still not publicly available, as far as I am aware) documented losses of US$5.2 billion during a five year period. About half of this money was lost after receipts from the Reforestation Fund (Dana Reboisasi, DR, in Bahasa Indonesia) levy had entered the Ministry of Forestry’s accounts.
A second CIFOR report looks specifically at preventing the risk of corruption in REDD in Indonesia. Written in 2011, this report concludes that while some improvements have been made in addressing corruption, “At least in the short term, REDD+ will operate in a forest governance context that offers many opportunities for corruption.”
While I was writing this presentation, I googled the words “corruption Indonesia”. Here’s a selection of the articles that came up. Obviously, Transparency International Indonesia doesn’t need reminding about any of this. Practically every day there is a report in the newspapers about corruption of one sort or another in Indonesia. I particularly like the last two. Reuters reported on 16 August 2012 Indonesia’s President Susilo Bambang Yudhoyono as saying that corruption threatens economic growth. Two days later the Jakarta Post reported that two anti-corruption judges had been arrested for bribery.
Then I googled the words “corruption UK”. Here’s a selection of the articles that came up. While in Indonesia, the media covers corruption in Indonesia, in the UK the stories are about corruption elsewhere. These articles are about corruption in China, Pakistan, India and Russia. Only the middle story, about Prime Minister David Cameron’s recent trip to the Gulf as a salesman for BAE Systems, suggests that corruption might be an issue in the UK.
(Obviously, this isn’t a scientific review of media coverage of corruption in the two countries, and it may say more about google than anything else, but I think it’s interesting nevertheless.)
Another aspect of corruption and the forestry sector is the history of aid to the forest sector. Over the years international aid agencies have poured billions of dollars into the tropical forest sector. Where did this money go? Did the aid agencies achieve what they set out to achieve? Aid agencies prefer not to delve too deeply into their pasts because they run the risk of uncovering some unpleasant facts about their own operations. These same aid agencies are now promoting REDD. When staff at the World Bank, for example, talk about REDD, they don’t mention the Bank’s support for the Indonesian government’s Transmigration programme which resulted in massive deforestation.
That’s all I will say about corruption and REDD in Indonesia. Now we get to the fun part, the carbon cowboys. Not long after REDD was included in the Bali Roadmap at the UN climate meeting in 2007, carbon cowboys started popping up claiming to have huge REDD-type projects. For some reason, most of them seem to be Australian. Brett Goldsworthy is one example. He claimed to have a project in the Democratic Republic of the Congo covering an area larger than the area of forest in the country. It turned out that the projects were pretty much fictitious and Goldsworthy is a one-man band operating out of an office in a shopping centre in a suburb of Sydney.
Another Australian, David Nilsson, turned up in Peru two years ago with promises of billions of dollars for Indigenous Peoples if they handed over the rights to their forests to Nilsson. He claims to have three million hectares of forest in Peru, and is trying to raise money in Australia on the back of this. He doesn’t have three million hectares, but he does have a history of similar sorts of scams.
Boiler room scams are another aspect of fraud relating to carbon offset trading. A boiler room is an office where staff use high pressure sales tactics to to sell dubious investments (such as voluntary carbon credits) by telephone. Here are five examples of websites belonging to companies selling carbon credits. The websites often have claims about how much carbon credit prices may rise:
The London Carbon Credit Company claims to be working with the Clinton Foundation. Two months ago D. James Baker at the Clinton Foundation told me that, “This matter is a known fraud”. But on its website, London Carbon Credit Company still claims to be working with the Clinton Foundation.
Worldwide Commodity Partners Limited has a very impressive website, featuring Barclays Bank logo and a picture of the Bank of England. It has no relationship with either bank and its office is a mail forwarding service. In addition to quotations about how wonderful the carbon market is, these website almost always have a section to fill in: name, email address and phone number. The last is important so that the company can ring you up to sell carbon credits.
Carvier Limited came to my attention when it offered three million credits from Brazil. The director of the company is Barinua Nwipko. In June 2012, another of his companies, Tamar (London) Limited was ordered into receivership. The Nwikpo family own 74% of shares in another company called Tullet Brown which was also ordered into receivership.
Enviro Associates appeared in a BBC investigation that was broadcast this week. Luke Ryan of Enviro Associates was filmed, offering carbon credits for sale for £5.50. “So you could be buying at £5.50 now, but in a year’s time it could be [worth] £10, £11, £12, £13,” he said.
CO2 Prospects were quick off the mark. Two weeks after registering in the UK, they were offering REDD credits at a “massively reduced fixed rate” over a period of 10 years. The project is in Para, Brazil. In November 2011, Simon Dempsey of CO2 Prospects told me that,
We are currently at first draft PDD and CCB Validation stages, with final draft PDD anticipated in the final week of November/first week of December 2011, with full VCS and CCB Validation for the project expected to be complete by April 2012.
There is still no information available about the project on either VCS or CCBA’s websites.
A common response to this sort of fraud or corruption is to recommend establishing standards which can then be independently assessed. Consumers should know to buy only products that have been certified as being genuine. That sounds fine, but also here, there is scope for corruption.
Rainforest Alliance is a US non-profit green certification company. It certified Gibson guitars, among many other companies. Meanwhile, Gibson’s Chairman and CEO, Henry Juszkiewicz, was on Rainforest Alliance’s Board. From 2006-2011, Gibson gave more than US$300,000 a year in cash and donations of guitars to Rainforest Alliance. This story came to light after US authorities raided Gibson Guitars in Tennessee under suspicion of using timber that had been illegally logged.
Meanwhile, in the EU ETS, fraud has resulted in the loss of billions of Euros. Pollution allowances were over-allocated, giving the polluters very large windfall profits. Carousel fraud has resulted in the loss of €5 billion from the ETS. In 2010, a “phishing scam” took place and in 2011, 475,000 carbon credits were stolen from the Czech Republic’s carbon credit registry.
While these are all entertaining stories, the real corruption story lies elsewhere, argues Larry Lohmann of the Corner House. These stories help reveal the potential for fraud and corruption in carbon offset markets, but Lohmann argues that regulating offsets is impossible. The problem is “not that the tools for regulating the offset market need further development or that they are not being used correctly,” Lohmann writes. “The problem is that no such tools exist.”
Lohmann’s focus is not on the bribes that corporations might pay to ensure that they are awarded REDD concessions, for example, but on the systemic problems that are inherent in carbon offset markets:
The central “abuse of public office for private gain” in the carbon offset trade does not stem from individual corporations getting special treatment from individual public officials in return for bribes. It derives, rather, from the way that public officials across the world acquiesce in the use of fake mathematics and science to benefit a fossil fuel-dependent corporate structure as a whole at the expense of public welfare. It is less the antics of market players than the attempt to construct an unfeasible market that is corrupt, and corrupting.
Fortunately, there is a simple answer to this problem. “Any reasonably thorough investigation into the corruption built into the carbon offset markets show that they require not purification, but elimination,” Lohmann writes.
My presentation can be downloaded here (pdf file, 2.1 MB).
Full disclosure: Transparency International Indonesia paid me a small honorarium after the presentation.