C-Questor Carbon Markets and Climate Change News Letter

World Agenda: Oil-for-Food scandal 'a warning for all at Hopenhagen'
James Bone in New York

Delegates to the climate change conference in Copenhagen should remember the dread words “Oil-for-Food”.
World leaders plan to design global “Cap-and-Trade” system — which could grow to $2 trillion (£1.22 trillion) — to limit greenhouse gas emissions in a last-gasp bid to reverse global warming. Environmental critics such as James Hansen, the Nasa scientist considered the “grandfather of global warming”, have made conceptual objections to Cap-and-Trade, which they dismiss as ineffectual.
But even if the system is created, there are enormous pitfalls.
Key parts of Cap-and-Trade have a “corruption” warning written all over them in red flashing lights, because they are to be run by the United Nations.

A Cap-and-Trade system caps emissions by granting permits to polluting industries. Polluters who do better than their quota will be able to sell their emissions credits on a global market. Polluters who go over their limit are also able to “offset” some of their emissions by purchasing an equivalent quantity of emissions reductions — or “offsets” — from a clean-energy project in the developing world, such as a new wind farm in China or methane-capture at a landfill in Brazil.
Negotiators envisage putting a UN agency in charge of certifying these emissions reductions, and that is where the potential problem lies.
The UN already has an offset system known as the Clean Development Mechanism (CDM), set up by the Kyoto Protocol. Based in Bonn, the CDM has approved 1,938 projects with about 328 million metric tonnes of annual carbon offsets, called Certified Emissions Reductions, or CERs. The current value of the CDM offset market is a relatively paltry $6.5 billion, with Britain buying about 28 per cent of the total. But that amount could soar if a deal is sealed following “Hopenhagen”.
The Clean Development Mechanism sounds like a solid system: projects have to be certified by a board of governors elected by the governments involved. But it has already been criticised for certifying projects that do not cut greenhouse gases below “business as usual” (cuts that, in the jargon, do not provide “additionality”.)
Michael Wara, a Stanford law lecturer and leading critic of the mechanism, testified to Congress this year: “There has been and will continue to be substantial crediting of business-as-usual behavior within the CDM.
“This crediting of counterfeit emissions reductions is likely to be a hallmark of any real offset programme. The crux of the problem is the inability in practice to tell which of the many applicants for carbon offsets are telling a genuine story regarding emissions reductions, and which would have installed cleaner technology even in the absence of the carbon market.”
The lesson of the Oil-for-Food scandal is that such a system almost begs decision-makers to make politicised, if not outright corrupt, rulings.
From 1996 to 2003 the UN supervised the sale of $64 billion of Iraq’s oil and its use of the money to buy humanitarian goods such as food and medicine. Saddam Hussein was able to corrupt the humanitarian programme through and through.
Dozens of politicians and influential business leaders around the world received pay-offs from Iraq in the form of vouchers to sell underpriced Iraqi oil. The head of the UN programme was charged with corruption for allegedly taking cash bribes from the brother-in-law of the former UN Secretary-General, Boutros Boutros Ghali. The company that employed the son of Kofi Annan, the UN chief at the time, won a key inspection contract from the UN. The list goes on and on.
Years later it emerged from a defector that the Russian UN overseer entrusted with pricing Iraq’s oil was actually a serving Russian military intelligence officer who diverted almost half a billion dollars to top Russian officials.
Even where UN officials were elected, corruption surfaced. The elected Russian head of the UN’s powerful budget oversight committee was convicted in a US court and sentenced to four years in prison.
The UN record bodes exceedingly ill for the expanded offset system foreseen by the Copenhagen leaders. Third World governments have an obvious interest in promising emissions reductions that they do not deliver; UN officials will be under intense pressure from those governments to certify the promised emission reductions. Indeed, these official might also — perish the thought — get bribed by the firms that stand to benefit.
It’s a recipe for what Saddam might call the Mother of All Scandals.