But Goldman is not the only one with skin in the game.
By Don Quijones, Raging Bull-Shit.
In 2010 Ecuador made the world an offer it couldn’t — or at least, shouldn’t have been able to — refuse. For the measly price of $3.6bn, it promised not to exploit the Ishpingo-Tiputini-Tambococha oil block in the Yasuni national park, a 675 square mile patch of pristine Amazon rainforest that is home to barely contacted indigenous tribes, thousands of species of trees and nearly 1bn barrels of crude oil.
According to Ecuador’s President Rafael Correa, the deal was a “bargain” for the international community, with the oil under the jungle floor alone estimated to be worth more than $7bn.
Under the terms of a unique, legally binding trust fund set up by the government and the UN, the oil and timber in Yasuni would never be exploited. Instead, donor countries, philanthropists, and individuals around the world were invited to pay the country money in compensation for not rolling out the red carpet for the oil majors and timber giants.
The idea of rich countries paying poor countries not to exploit their forests in return for financial compensation quickly took root and was hailed by many environmentalists as one of the most radical and forward-looking proposals to emerge in the global sustainability debate. Unfortunately, their enthusiasm was not shared by foreign donors and after three years the plan was put on ice indefinitely when it emerged that only 13.3 million dollars had been raised. That works out at roughly ten thousand dollars a day and a pitiful fraction (around 0.3 percent) of the 3.6 billion dollars requested by Correa.
But why did the project fail so spectacularly? According to Correa, the main reason is the world’s “hypocrisy.” Some critics, however, have hit back at Ecuador’s president, accusing him of taking the proverbial urine by asking, in the first place, for billions of dollars in return for just putting some land “to rest”.
However, these critics overlook or ignore three vital points. Firstly, the land we are talking about is a veritable Garden of Eden, estimated to contain more biodiversity than the whole of the North American continent. As such, it is immensely valuable (some might say priceless) just as it is. Secondly, the rich world, in particular the European Union, already spends billions annually on subsidies to encourage farmers to let some of their fields lie fallow — why couldn’t the same approach work with Yasuni? And thirdly, three-and-a-half billion dollars is a piffling, indeed almost insulting, amount of money in today’s terms.
Compared, say, to the trillions of dollars, euros, pounds, yuan and yen thrown at the international banking sector in recent years, 3.6 billion dollars is chump change. In the U.S. alone, more than nine trillion dollars have been handed (with virtually no strings attached) to the too-big-to-fail banks and hedge funds that helped trigger and continue to exacerbate our current economic depression.
In the U.K, the total figure is closer to 1.5 trillion pounds (roughly equivalent to a whole year’s gross domestic product) while in Spain Bankia alone has received 23.5 billion euros – 10 times the amount requested by Correa – yet remains one of the world’s biggest banking basket cases.
The Real Agenda
So, if money wasn’t the issue – as it clearly wasn’t – then what was?
Perhaps the failure of the Yusani project had something to do with who was asking for the money. After all, during his six years as president Rafael Correa has hardly endeared himself to the movers and shakers of the financial and political world.
On taking office, in 2007, one of the first things his government did was to write off a substantial part of Ecuador’s sovereign debt – debt it renounced as “odious,” meaning public debt that is incurred for purposes that do not serve the best interests of the nation. Naturally, such a provocative gesture did not go down well with the country’s international creditors or global financial enforcers such as the IMF. Correa’s government has also sued U.S. oil giant Chevron for dumping toxic waste in the Amazon and recently came “this” close to granting asylum to the NSA whistleblower Edward Snowden.
Yet while Correa may be a persona non grata in the gentleman clubs of the world’s richest capitals, there is, I believe, an even more important reason why the Yusani project failed to attract investors – and that is the scheme’s complete lack of profit or ownership incentives.
You see, while the big wigs of the climate change movement may have the annoying habit of preaching to others about the need to “save the planet” and to “do their bit”, they seem only interested in doing their own bit when there is moolah – and lots of it – to be made along the way. And that is precisely where carbon trading comes in.
The Carbon Credits Cash Cow
Since the Kyoto Protocol entered into force in 2005 carbon exchanges have proliferated around the world – from London to Chicago, to Nairobi and Shanghai. Such exchanges are an attempt to control greenhouse gases by making polluters pay. At least that’s what their plaudits say. In reality, they have become a massive cash cow for market participants.
And the biggest beneficiaries of this market for thin air? Yeah, you guessed it: big industry and big finance. For it is they, the über-lobbyists of our age, who helped design the legislation in the first place.
In “The Great Bubble Machine” Rolling Stone reporter Matt Taibbi documents how the hyper-connected Goldman Sachs has managed to manipulate and profit from every financial bubble since the Roaring Twenties. And now they’re doing it all over again with the creation of a carbon trading bubble:
The bank owns a 10 percent stake in the Chicago Climate Exchange, where the carbon credits will be traded. Moreover, Goldman owns a minority stake in Blue Source LLC, a Utah-based firm that sells carbon credits of the type that will be in great demand if the bill passes. Nobel Prize winner Al Gore, who is intimately involved with the planning of cap-and-trade, started up a company called Generation Investment Management with three former bigwigs from Goldman Sachs Asset Management, David Blood, Mark Ferguson and Peter Harris. Their business? Investing in carbon offsets.
But Goldman’s not the only one with skin in the game. Thousands of institutional and private investors around the world are finding ever more inventive ways of creaming off public funds, while doing nothing to improve the environment.
In 2010, for example, a vast “carousel fraud” in the EU Emissions Trading Scheme was revealed to have cost the public more than €5 billion in lost VAT revenues. Also, big companies like steel producers ThyssenKrupp and Salzgitter were outed as fraudulent carbon profiteers when, in December 2010, even pro-trading World Wild Fund for Nature demanded (unsuccessfully) that “the EU put a halt to the use of fake offsets.”
In fact, so pervasive was fraud on the European Climate Exchange – the world’s largest carbon exchange – that it was temporarily closed down in 2011. Connie Hedegaard, the EC climate commissioner, claimed (tongue apparently not in cheek) that the scheme was a victim of its own success:
“Over the last years, the market has reached a size which makes it a potential target of fraudulent practices” (according to a World Bank report, the international carbon trading market grew from 11 billion dollars in 2005 to 144 billion dollars in 2011).
Hedegaard added that, as the market matures and grows further, “it is critical that it continues to be subject to appropriate and effective regulatory oversight.”
Hedegaard conveniently ignores the fact that in our current economic paradigm national governments or regulators are neither willing nor capable of governing or regulating any financial or commodity market – at least not in the “public” interest.
Gaming the System
In the absence of effective regulation of carbon exchanges, massive levels of corporate lobbying have ensured that convoluted cap-and-trade proposals are filled with generous giveaways and concessions to big business, as Michelle Chans reports in her paper on carbon exchanges, “Ten Ways to Game the Carbon Market”:
The larger and more complex the carbon trading system is, the more difficult it will be to regulate and the easier it will be to game. In theory, carbon markets can be small, restricted to regulated entities, and limited to simple spot trading of permits. Instead, leading cap-and-trade proposals are much more complex, relying on hard-to-regulate derivatives, Wall Street speculators, questionable offsets, strategic reserves, price ceilings and other factors that can be manipulated.
The result is a failed market rife with fraud, corruption, cronyism, waste and abuse. As the Scrap the EUETS Campaign warns, vast sums of public money (that is, our money) are effectively being squandered on setting up carbon markets that are unable to achieve a public purpose:
Taxpayers are being forced to cover the cost of the legislation, regulation and much of the quantification that carbon markets require, as well as the cost of enforcement against fraud, theft, corruption, and tax evasion.
Industries covered by the ETS gain subsidies for continuing to pollute, while governments allocate tax monies to compensate for excess emissions or to make up for the generous hand-out to ETS companies. It is estimated that Spain, for example, will need to buy more than 159 million offset credits abroad to achieve its Kyoto commitments. At a time when citizens are shouldering severe impacts from the economic crisis and ‘austerity’ packages, scarce public money is being frivolously diverted toward corporate and banking sectors that created many of the problems in the first place.
The Commodification of Nature
Perhaps most worrisome, the logic of pollution trading is now being applied to other arenas, such as biodiversity and water crises, resulting in the commodification and financialisation of more and more of nature’s capacities, functions and cycles. The result is yet more corporations profiteering at the expense of the environment and the populations who depend on it.
As environmental activists lament a golden opportunity missed to safeguard one of the world’s most valuable natural assets, our leaders continue to pledge their support to a multi-billion dollar market predicated on the lack of delivery of an invisible substance to no-one. Rather than money for old rope, carbon trading is money for no rope.
Whether you believe in the basic premise of man-made global warming or not (personally speaking, my jury’s still out), it’s clear that environmental sustainability is one of the greatest challenges facing humanity. If we, as a species, are to avoid the fate of the Easter Islanders we must find a way of putting a cap on our limitless consumption as well as learn to prioritise long-term, genuinely sustainable development over short-term economic growth.
And to begin that journey, we must first scrap the global emissions trading scheme that is diverting scarce public funds from just and effective policies — such as promoting a zero-waste culture — to the cavernous pockets of some of the world’s biggest polluters and financial fraudsters. By Don Quijones.
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