The Dirty Dozen: Morgan Foundation’s Climate Cheats II – Who’s the Real Cheat Here?

Geoff Simmons and the Morgan Foundation have done it again! They have just released a sequel to ‘Climate Cheats’, the fantastically-named ‘Who’s the Real Cheat Here? Climate Cheats II: The Dozen Dirty Businesses’.

Simon Johnson (aka Mr February) reviews ‘Climate Cheats II’ and concludes that while it’s about time we had more transparency over Government and corporate shenanigans with emissions trading, we mustn’t forget that these are symptoms of the root problem – the uncapped design of the New Zealand emissions trading scheme.

Newsflash shock 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 to the franchise they launched in April 2016 with the report Climate Cheats. As we know, ‘Cheats I’ outlined this sad course of events:

  • a ‘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 large numbers of 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 et al 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 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 certain Hot Topic post Did NZ Steel make windfall arbitrage profits from the ETS, 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 too 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.

  1. They could voluntarily cancel NZ units to match the dodgy units used
  2. 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 their 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.

If anything, the report, by focusing on the top dozen owners of the dodgy international units, underplays the pervasiveness 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.

13 thoughts on “The Dirty Dozen: Morgan Foundation’s Climate Cheats II – Who’s the Real Cheat Here?”

  1. Good one Mr February.

    It strikes me that any government decisions that continue to give legitimacy to Russian ‘hot-air’ credits and takes an approach of ‘form over substance’ may be challengeable. Our Interpretation Act 1999 provides that “the meaning of an enactment must be ascertained from its text and in the light of its purpose.” The purpose of the Climate Change Response Act 2002 includes running an ETS “that supports and encourages global efforts to reduce the emission of greenhouse gases” and that “reduces New Zealand’s net emissions … to below business-as-usual levels”. (s3(1)(b))

  2. So what were you expecting from a Prime Minister who is `derelict in his duty` to the people of NZ on this matter and in effect has left us leaderless. I could say a lot more but don`t need to, the evidence is obvious.

  3. Tom, isn’t there a lot of wriggle room in the purpose section of Climate Change Response Act? That section 3(1)(b)(ii) “reduces New Zealand’s net emissions … to below business-as-usual levels” in particular. I can just imagine Tim Grocer or Nick Smith or Paula Bennett saying “the net emissions that are increasing would have increased even more if not for the ETS” and therefore the ETS in fact “reduces New Zealand’s net emissions … to below business-as-usual levels”. It all depends on what “business-as-usual levels” are defined as.
    Then look at s 3(1)(b)(i) “assisting New Zealand to meet its international obligations under the Convention and the Protocol;”. That also dosn’t mean reducing emissions consistent with a 2 C budget. It just means card tricks and shuffling of emission units and offsets and creative carbon accounting like carrying forward the surplus assigned amount units past 2020.

  4. In the end, the truth of all this will catch up with those who defend lies under a growing pile of bs.

    The end-game of this can be seen with the Republican Party in the USA. The leading figures of this party have for too long thought that popular right-wing memes would be enough to “win”. But in the end it matters if you are constantly factually wrong. The right wingers in the US have been wrong on a plethora of matters, from climate change denial over the ridicule of “alternative energy”, gun control, public healthcare, public education and a sizeable list of other matters. In the end, having to pretent to be right becomes a self defeating position as the lies have to become ever more ridiciolous and the “leaders” of this mess become ever more dependent on the “support” of just the wrong kind of people. Trump has demonstrated what then happens when all you have left to support you are the hooligans and blowing the tune that makes them happy is all you have left as the rest of the audience is long left the room…

    Same here. John Key and his fellowship will have to be very careful indeed. The truth about Climate Change is dawning these days even to some of the harder cases of the denialists. And playing stupid with shenanigans such as dodgy credits will simply become a politically very toxic strategy. Key will need to distance himself and his party from this past and start afresh if he wants to remain in power and win the hearts and minds of the public . The public is not stupid and honest people are digging up the evidence. And thank you Mr. February for the good work.

    1. Thomas, I tend to agree about these Republican Party memes becoming ever more bizarre, and the public are realising this. For example Donald Trump thinks climate change is a Chinese Conspiracy to Weaken America.

      I think even his own supporters may be silently thinking they are supporting a nutbar. There’s hope for us yet.

        1. The argument is made Andy, that being dug in for a trench war on the wrong side of the demarcation line between objective fact and a bunch of lies is a position that eventually becomes indefensible and leads to the political collapse of the entrenched party. And I am sure Andy, you will find it hard to argue with this.

          The implosion of the Republican party in the USA is a very good example. And the argument is further made, that this sets an example of what will befall those on the right side of the political spectrum closer to home, who also believe that they can get away with a strategy based on lies with regards to carbon trading in shonky credits but will find out to their detriment that they will eventually have to front up to a public who will not take this banana-republic mentality anymore.

          1. There was only one party in NZ that campaigned against the ETS, namely ACT, who claimed that if a scheme was necessary, a simple carbon tax would be better

            I have no sympathy whatsoever. The ETS is a piece of ill thought legislation that was going to fail at the outset, and opened the door to scammers and rent seekers

            You and your socialist mates made this nightmare, not “right wingers”

            [Snipped: keep it polite. GR]

            1. You seem to have an astonishingly fallible memory, Andy. A carbon tax was the first proposal for emissions made by the last Labour govt – but that idea was effectively killed by National and the farming lobby. The subsequent ETS was supported by National, and had they not gutted it as soon as they got into power (with the connivance of ACT), and then comprehensively mismanaged it, it might have served its purpose a whole lot better. The “nightmare” can be sheeted home to John Key and Co.

            2. Precisely Gareth. The general idea of a carbon tax that would give an advantage to emission cutting businesses over emitters was not a bad concept at all. It was the corrupt implementation of the idea by National and Act that led to the fiasco.

  6. These carbon trading units appear to be rather like junk bonds.

    However my instinct is to ask what results emissions trading schemes have actually achieved? I couldn’t find anything much on NZ, but Wikipedia has a good article on the European emissions trading scheme.

    Under the section evaluating the performance some company has done an audit and found very poor results and noted the money would have been better spent on more direct controls on emissions. Unfortunately the source article is pay walled.

    It’s hard to believe NZ would be much different. I really think NZ should consider a transition to a carbon tax, and more direct controls, and support of electric cars. The ETS is essentially very complex, and this complexity means numerous things can go wrong, or be rorted.

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