New Holland Disease?

Dutch Disease is the term used by economists to describe the situation now being faced by Australia (aka New Holland). The Sydney Morning Herald (link below) describes some of the effects the mining boom is having on the rest of the economy - where most people work. The demise of BlueScope is covered in a related article from The Conversation, 'Once upon a time, when Australia had a steel industry …’, which has the great line, "governments ... wedded to day trading for policies".

Dutch disease is a concept that purportedly explains the apparent relationship between the increase in exploitation of natural resources and a decline in the manufacturing sector. The claimed mechanism is that an increase in revenues from natural resources (or inflows of foreign aid) will make a given nation's currency stronger compared to that of other nations (manifest in an exchange rate), resulting in the nation's other exports becoming more expensive for other countries to buy, making the manufacturing sector less competitive.

The current situation in Australia appears to be a textbook example.

Climate for Corruption

No this is not a post about those fiendishly clever climate change conspirators pulling a fast one on Claude or Ligna Coal Magnate.

The small Maldivan Newspaper Haveeru caught my eye, or rather my Google news feed, with the following interesting article about the potential for corruption in carbon markets and climate mitigation schemes.

Transparency Maldives launches Global Corruption Report on climate change

Haveeru Online, June 26.

MALE, June 28 (HNS) – Transparency Maldives Sunday launched the Global Corruption Report: Climate Change compiled by Transparency International.

Transparency International officially inaugurated the report, first of its kind to comprehensively explore major climate-related corruption risks, in April of this year at Dhaka, Bangladesh.

International watchdogs identify that improper or poor governance paves the way to corruption especially in the area of climate change governance, as huge amounts of money flow through new and untested financial markets and mechanisms.
The Global Corruption Report: Climate Change focuses on this issue along with making climate governance work, strategies for reducing carbon emissions, building effective adaptation to climate change, actions for sustainable climate governance and recommended actions for governments, businesses and civil societies.
The report stresses the importance of protecting from corruption the estimated US$700 billion budget allocated for mitigation efforts by 2020. It also highlights the inequality of the current processes for individuals and groups most directly affected by climate change.

Well not nearly as much as the US spends on oil wars but more than the ADF wastes (ie a lot).

“The quality of climate governance – the degree to which policy development and decisions are participatory, accountable, transparent, inclusive and responsive, and respect the rule of law – will determine how well it addresses inherent corruption risks,”

However, it is noted that organisations and personnel in developing countries most affected by climate change lack the skills and expertise needed to observe and track the projects undertaken.

By 2009, the registered number of observer organisations to the United Nations Framework Convention on Climate Change (UNFCCC) from the United Kingdom, Canada, and the United States reached more than 400 while from the developing countries, India, China and Brazil were only able to recruit just more than 10 organisations.

“According to a recent study in the North Africa region, however, almost 70 percent of the potential investors interviewed considered regulatory risk, including corruption, to be likely – and a serious impediment to investment,” it says.
“As a critical mechanism for mitigation, carbon markets need safeguards to reduce the risk of corruption, as well as to ensure their sustainability and capacity to reduce greenhouse gas emissions.”

Transparency International notes that adaptation to climate change requires large-scale infrastructure development like flood control systems in Bangladesh, which received a 2.4 score on the Corruption Perception Index (CPI) of 2010.
“None of the 20 countries most affected by climate change scored higher than 3.6 on the Corruption Perception Index,” the report stresses.

From the introductory page at Transparency International

Carbon markets: Managing public assets transparently In international carbon trading schemes, individual governments can sell carbon credits when a country’s emissions are below their pollution targets. In an opaque market, the government mismanagement of credits can go unnoticed. Media investigations in Slovakia revealed that the government sold carbon credits at half their value to a company with links to officials in the ministry that made the sale. They made neither the contract nor the price public. The sale represented an estimated €75 million in lost revenue for the people of Slovakia.

What needs to be done

If climate governance is not prepared for corruption, corruption will undermine climate governance. The GCR does not just raise the alarm, it provides a risk map of ways to make climate change measures more effective.

Recommendations include:

• All conferences and meetings where climate change targets are set should be open to the people they impact and transparent at the international and local levels
• Experts monitoring and verifying projects must be independent and not paid from the budget of the project they are overseeing
• All climate measures should have strong, well-resourced oversight bodies
• Civil society must monitor government commitments to reduce emissions and be involved in development and oversight of national plans for mitigation and adaptation.

Downloads

Global Corruption Report: Climate Change (full download)

Parts 2 & 3

Part 4

Part 5

Part 6

This report appears to have been released earlier and may be having regional releases.

Green schemes are 'wide open to major corruption'

The Independent, Sunday, 1 May 2011

Corruption is threatening global steps to combat climate change, a new report from Transparency International (TI) warned yesterday. Billions of pounds will be plundered and wasted, it says, unless stronger measures are introduced against embezzlement and misappropriation.

The organisation warns that 20 nations most vulnerable to climate change – where millions in grants and aid will be targeted – are judged to be among the most corrupt in the world – and stronger oversight is needed to ensure the funds are properly spent.

"Corruption holds nothing sacred, not even our planet's future," said Huguette Labelle

Although you don’t have to be corrupt to perceive the world through a cash register – greed will suffice.

"Failure to properly govern climate change measures now will not only lead to misallocated resources and fraudulent projects today, but also hurts future generations," …

"Where huge amounts of money flow through new and untested financial markets and mechanisms, there is a risk of corruption," [the report] says.

Carbon markets, the main financial tool for combating climate change, have already been hit by fraud, the report points out. In January, the European Union's carbon market was shut down after it was attacked by cyber-hackers. More than three million carbon credits were stolen from government and private company accounts.

The system has also been hit by repeated tax frauds. One scheme to meet all of Europe's power needs from concentrated solar power plants covering 1 per cent of the Sahara desert was undermined after experts said bureaucratic complexity and corruption in north Africa raised the risks and costs of investment there. After an investigation by Spanish officials, it was discovered that more than one in 10 of its solar parks was falsely registered as operational, despite making no contribution to the energy grid.

Illegal logging, an industry estimated to be worth more than $10bn a year, is fuelled by corrupted customs and other officials, the report says. Some countries have already claimed carbon credits for fictitious forest plantation projects. In Kenya, deforestation is exacerbated by corruption among under-resourced forest guards. TI estimates that in 1963 Kenya had about 10 per cent forest cover; by 2006, it was less than 2 per cent.

But its not just developing nations.

All countries are vulnerable: Britain is criticised for its failure to deal with so-called "greenwashing" marketing techniques used by companies to misrepresent how environmentally friendly their products are.

Also highlighted is America's failure to curb the influence of the "brown lobby" – the 2,000 registered oil, gas, coal and electricity lobbyists who spent an estimated $400m in 2009 compared with the green lobby's $22m.

And from Reuters – Africa,

Corruption must be cut to protect climate –report

Reuters, April 30 2011

MARKETS

Carbon markets, the main financial tool for combating climate change, continue to be shaken by fraudulent activity.

Over the past couple of years, the European Union's $134 billion emissions trading scheme has been blighted by the re-sale of used carbon offsets, hacking, theft and continuing value-added tax fraud. [ID:nLDE70J1KT]

The integrity of the U.N.'s Clean Development Mechanism (CDM), which encourages emissions cutting schemes in poor nations, was dented after some project developers were accused of exploiting the system. [ID:nLDE6AI1A3]

"Creative accounting can lead to the double counting of emissions by companies of their own reported mitigation efforts, (...), thus nullifying the environmental integrity of the emissions reductions," the report said.

Corruption risks also exist in political decision-making and climate financing and through the mismanagement of public funds, the report said.

We need only remember this fiasco…

                                                            … in a supposedly well regulated economy to see what flies are attracted to a shit load of money.

[UPDATE]

In a good move to avoid political interference in clean energy decisions in Australia,

New body to control clean energy grants

The Age, July 5, 2011

RESPONSIBILITY for handing out about $1 billion in clean energy grants will be taken out of government hands under a compromise with the Greens as part of a carbon price deal to be announced on Sunday.

The Age has learned that clean energy programs such as the $1.5 billion solar flagships program - designed to help build Australia's first large solar plants - will be removed from Energy Minister Martin Ferguson's control and run by an independent statutory body.

The new statutory body running clean energy grants is expected to take over responsibility for some of the $5 billion clean energy initiative announced in 2009, including the remaining $730 million in solar flagship funding.

And the West Australian also reports,

Rules to rein in carbon cowboys

July 2, 2011

Trade in international pollution permits will be strictly limited under the Gillard Government's climate change package to prevent so-called "carbon cowboys" from scamming the multibillion-dollar scheme.

In a significant departure from Labor's abandoned carbon pollution reduction scheme, international permit purchases are likely to be restricted to high quality sellers such as the European Union and the US State of California. The concern under the CPRS was that low-quality carbon abatement could be bought by Australian polluters from places such as equatorial Africa and South-East Asia through hard-to-verify and dubious projects such as tree plantations.

It is understood the Government agreed to "qualitative and quantitative controls" under its emissions trading scheme at the insistence of the Greens who opposed unlimited access to international permits under the CPRS.

Although Tony Abbott sounds increasingly like he is running for the Republican nomination in the US rather than as opposition leader of Australia, viz;

Opposition Leader Tony Abbott, who yesterday blasted the Government's planned carbon tax as "socialism masquerading as environmentalism"…

Grain$ of truth

Updated (8/3/11) news links at end.

Early Warning had a post recently decrying the proposed emergency policy of the Spanish Govt. to increase the biofuel content in their petrol.  One follow up post  then used US data for ethanol production to extrapolate the impact of US production to global food prices.  Thus linking the unrest in North Africa and around the gulf states with the increased cost of food due to biofuels (as indicated by corn ethanol).  But root causes of the increased cost of food are more complex than that.

Stuarts prime beef seems to be with the corn to ethanol conversion: many authors have argued that the conversion efficiency is poor - but it is probably the final act of a greater tragedy. Outside of the Americas, is corn a primary human staple? Even within the US its prime function seems to be as energy source for feed lot produced beef and a major ingredient in the US staple of fast foods (including supermarket ready meals).

While I agree that biofuels may be problematic, lumping all cereal crops together and then assuming that because 40% of US CORN production is going to ethanol that that is the cause of the rise in food prices seems to overly and dramatically simplify the issue.

Various international agencies have pointed out that the rise in GLOBAL food prices is a complex issue, with different causes in different regions.

The Overseas Development Institute has a report out that says (my emphasis added):

Rising food prices: Cause for concern

Policy conclusions
Food prices have been rising since the early 2000s • but spiked in early 2008. Even if they start to decline later this year, the next ten years will see food prices at levels above those seen in the early 2000s, thanks to higher energy costs, demand for biofuels, growing demands for staples as populations grow, and for higher value foods, such as livestock products, as incomes rise.

• Prompt assistance is needed for countries facing surging food and energy import bills and for low-income households

• Low stocks threaten the functioning of agencies such as the WFP and prompt calls for land to be switched back into food production, from biofuels throughout the OECD, and from “set-aside” in the EU.

• In the medium term, economic and agricultural growth can offset the damage, but this will require more determined efforts to boost food production.

• Beyond action, a better understanding is needed of the 2008 price spike, to ensure that such events are rare. Increased variability of weather from climate change makes future price spikes more likely. If more can be learned from the current shock, then dealing with future ones may be easier.

Why have food prices risen so much in recent years?
The prices of staple foods on world markets have fallen substantially in real terms over the last 50 years, with wheat in 1999 at less than a quarter of its 1950 price. Since the early 2000s, however, food prices have been rising. Within the 12 months up to early 2008, the FAO food price index rose by 57%. The causes of these price rises are both short- and long-term.
The former include, above all, low harvests in some exporting countries — notably Australia where drought has hit wheat production — against already low world cereal stocks. Speculation in commodity prices by investors looking for a better option than stocks and shares may also have contributed. Some countries, alarmed by mounting prices, have imposed taxes, minimum prices, quotas and outright bans on exports of staples that have exacerbated world price rises.

The oil price rise also feeds through to the demand side: once oil prices rise above US$60 a barrel – it is currently well over $100 – most forms of biofuel compete with oil and gas, so that foods may be diverted to energy production. This is reinforced by targets in both USA and the EU, and by subsidies to refiners in the USA.

The main effects will of course be on the poor (US not included) where 1/3rd to 1/2 of household income may be spent on food. However the higher food prices may also stimulate reinvestment in farm production, which in lower income countries is labour intensive, thus partially offsetting the effects through increased employment. Thus this report suggests that, yes, biofuels have an impact, but that low harvests, speculation and “panic” (ie restricting exports) all played a part. The politically motivated farm subsidies of the US are a particular problem.

How do you deal toughly with your banker?

The title above is taken from a comment made by Hillary Clinton in an otherwise routine article from The Age derived from the Wikileaks archive.

Clinton grilled Rudd on dealing with China
The Age, December 5

US Secretary of State Hillary Clinton grilled then Prime Minister Kevin Rudd on how best to deal with the growing economic power of China, a confidential cable released by WikiLeaks states.
Ms Clinton said the US wanted "China to take more responsibility in the global economic sphere, create more of a social safety net for its people, and construct a better regulatory framework for the goods China manufactures."

"The Secretary also noted the challenges posed by China's economic rise, asking: `How do you deal toughly with your banker?'," the cable stated.

While commentary has focused on Rudds comment about using force should "things go wrong" - I don't recall ever seeing the situation about the US dollar so bluntly stated officially. It seems, all those years ago, that Robert Newman may have been on to something (@ 2:30 in video).

Posted by SP