The fire sale at Fish River

There it was on page 13 of The Australian Financial Review of May 2, 2013: “Fish River Carbon Credits on Sale Now.” Imagine my excitement. It was like receiving an invitation to Earth Hour from Greenpeace; or whining with Catherine Blanchett about how to save the planet – while increasing one’s Velocity points.

Fish River, an 180,000-hectare former pastoral property about 200km south of Darwin, was bought for $13m on August 20, 2010. $8.6m came from the Federal Government’s Caring for Our Country program, $1.4m from the Indigenous Land Corporation and $3m from “conservation non-profit groups”.

According to Dr Dawn Casey, ILC’s Chairperson, investor interest in the Corporation’s Fish River Fire Project – the “first indigenous project to earn carbon credits” — has been “very positive” (AFR letter, “Indigenous carbon market sparks interest”, May 6).

A need to close the deal by COB Friday, May 10, on FRFP’s first tranche of 25,884 Australian Carbon Credit Units (ACCUs) could have been why the ILC’s response was tardy. Or was it my questions?

I had asked for sufficient data to enable due-diligence assessment of its public offering – one, incidentally, not under Australian Competition and Consumer Commission nor Australian Securities and Investments Commission scrutiny. (ASIC’s May 2012 Regulatory Guide 236 deals solely with carbon market participant licensing.)

ACCU: 1. A unit issued to a person by the Clean Energy Regulator (Regulator) by making an entry for the unit in an account kept by the person in the electronic Australian National Registry of Emissions Units. 2. An ACCU can be issued only to a person if the person has a Registry account and a Registry account can only be held by a ‘fit and proper person’. 3. Each ACCU represents one tonne of carbon dioxide equivalent net abatement (through either emissions reductions or carbon sequestration) achieved by eligible activities.

Perhaps my expression-of-interest did not comply with this buyer-eligibility criterion – “compatibility with Indigenous values”? Or was there a concern I might not be – or represent – “a genuine buyer”?

Perhaps I should not have asked whether the FRFP CC Term Sheet included commentary on (policy, political, technical, audit, market, trading, etc,) risks? (It did not.)

Whatever the reason, it was a relief to hear Dr Casey express confidence in the process – and hence the Canberra Carbon Cargo Cult Club’s creativity.

But after the euphoria, suspicions linger. Is Fish River – like the Club menu – full of red herrings (and rogue piranhas)? Are carbon cowboys (or their next of kin) the only folk permitted to cast a line there?

Carbon Cowboys: 1. An individual or company offering landowners “millions of dollars” for carbon credits, or proposing a deal that seems too good to be true. 2. Syn., carbon baggers. 3. “These people are looking to make a ‘quick buck’ and may entice landholders into projects and responsibilities to which they don’t fully understand or consent.” (Source: ILC website)

Just six months earlier, on November 2, 2012, the ILC, North Australian Indigenous Land and Sea Management Alliance (NAILSMA) and environmental group, The Nature Conservancy – now led by President and CEO Mark Tercek, a former managing director and investment banker at Goldman Sachs) – issued a triumphant media release: “Burning project opens the door for new Indigenous carbon economy”.

The FRFP was promoted as not only a win-win venture – one that would enable Indigenous groups “to maintain their cultural connection with country and protect the land, while undertaking strategic fire management as a sustainable enterprise”. It also was the prototype for an ambitious network of similar projects across northern Australia.

The launch marked the culmination of a government-driven process, one embraced by the National Indigenous Climate Change Forum in Alice Springs,  March 30-31, 2011.

The Forum communique wanted, “proactive participation of Indigenous peoples in this [Carbon Farming Initiative] action on climate change”. It was “paramount and must be in a way that meets our needs and aspirations.”

“To bypass the rights and expertise of Indigenous peoples in responding to climate change, thereby not generating genuine carbon reductions on 22 per cent of Australian indigenous-owned and controlled land,” would prevent Australia developing “a truly effective response to the impacts of climate change.”

I also asked for copies of the FRFP first project offsets report (February, 2013) and unqualified reasonable assurance audit opinion (March 18, 2013), together with any project-risk reports.

The ILC was not, it replied, “in a position to provide the POR or audit opinion.”

While it had undertaken a full analysis of project risks, it was a confidential “internal document”.

ASIC, it said, was not involved in auditing or regulating the FRFP CCs. (Its role in carbon markets is explained here.) Information on the actual audit process, however, was available at the Clean Energy Regulator’s website: here and here.

The ILC also was “looking to maximise price, based on the FRFP’s unique Indigenous and environmental co-benefits. Some buyers may be keen to market their association with the project as a benefit of the sale.”

ASIC’s role

ASIC’s role is to supervise carbon-market activity and regulate entities and individuals providing financial services in regulated greenhouse gas emissions units.

It presumably monitors public statements and activities of ASX-listed and unlisted “carbon farmers", traders, alternative energy companies and other entities. One hopes so, for the game of human (and animal) emissions monetisation now underway one day could have a sufficient sub-prime momentum to constellate a Carbon Crash.

Meanwhile, investors should be informed about all the risks implicit in “carbon” products now coming into the market.

From July 1, 2012, ‘regulated emissions units’ are deemed to be “financial products” (FPs) under the Corporations Act 2001. Hence an FRFP ACCU would be considered a “financial product” under ASIC’s RG 236.47, as it applies to: (a) carbon units (see RG 236.51–RG 236.53); (b) Australian carbon credit units (ACCUs) (see RG 236.54–RG 236.61); and (c) eligible international emissions units (EIEUs) (see RG 236.62– RG 236.68).

Public disclosure obligations imposed on other FP issuers presumably apply to a government agency such as the ILC. For example, ASIC’s RG 168 Disclosure: Product Disclosure Statements (and other disclosure obligations).  

Information must be presented in a clear and effective manner. There must be no misleading or deceptive conduct or statements. Disclosure should be relevant and complete. Each risk should be clearly identified and described and “industry participants should not assume that consumers understand the risks involved in complex product offerings.”

Given ASIC’s above FP requirements, it should re-access whether there may be a disclosure issue with regard to ACCU creation.

Should, for example, the ILC have been required to release publicly (before the FRFP CC offer closed) not only its first project offsets report (February, 2013) and unqualified reasonable assurance audit opinion (March 18, 2013), but also its full risk analysis — and possibly other material?

Carbon Farming Initiative

How did we end up here? The Commonwealth made a commitment to distribute the (now rapidly shrinking) spoils of its multi-billion dollar “carbon price” regime in what, according to Minister Combet, was a “socially fair and responsible way”.

The FRFP is merely one of the novel projects government agencies have dreamed up to legitimise carbon-cash transfers, especially to the nation’s underclass.

A sum of $5.2 million was committed to an Indigenous Carbon Farming Fund (ICFF) to develop “low-cost methodologies” that “help to create real and lasting opportunities for Indigenous Australians.” The ICFF included $17.1 million to “help Indigenous communities establish or participate in carbon-farming projects”.

A six-person Domestic Offsets Integrity Committee  was established to assess proposals and support the “environmental integrity of (CFI) carbon offsets”. The Minister decides whether they qualify for the government’s so-called Positive List.

There is, however, no ASIC representative on this Committee. Could the process benefit from ASIC’s presence and due diligence?

Should creation of a controversial new class of financial products be left to the discretion of a minister and a committee of government-selected agricultural alchemists and other experts, some of whom may have conflicts-of-interest? 

Should this group decide whether a methodology measures up against the nebulous concept of “environmental integrity”, whether it will have any measurable impact on the regional – or global – climate, and so on? Should a minister alone determine whether, for example, manure – or savanna- can be transmuted into money, into carbon-cash?

Minister Combet has approved four methodologies: destruction of methane generated from manure in piggeries; capture and combustion of landfill gas; environmental planting and savanna burning.

How many foot-soldiers will be in the carbon army required to ensure compliance with all the approval, implementing, accounting, measuring and managing edicts meant to ensure the integrity of projects like Fish River?

Memo to investors: All grandiose schemes – with their administrative complexity, flawed assumptions, arbitrary rules, perverse outcomes, rising costs, partial scrutiny, etc – come to a bad end.  Caveat emptor.

ACCC’s role

ACCC’s Australasian Consumer Fraud Task Force, fortunately, is only a telephone call – or website – away.

Its SCAMwatch lists the usual suspects: credit card scams, pyramid scams, miracle cures, “unexpected” prizes, upfront payment scams, charity scams, romance scams, psychic and clairvoyant scams.

A new one joined the list last year. Be “on the look-out for carbon [dioxide] price scams”. No mention, however, of climate alarmist, carbon cowboy or carbon-credit scams. ACCC focuses solely on “carbon price scams”.

It does not concern itself with the veracity of statements about allegedly “dangerous” climate change, even if made by related parties or groups with a financial incentive to promote certain policy outcomes; nor with the misleading images of “carbon pollution” that have proliferated in cyber-space.

It is not unlawful to claim – controversially – that a “carbon price” is justified because “our world faces real and urgent threats from climate change like rising sea levels. Our country faces very direct threats too: worse bushfire conditions and droughts, more days of extreme heat, increased cyclone intensity, bleaching of coral reefs."

Similar dubious claims, half-truths and exaggerations – especially by activists, “clean energy” promoters and players in domestic and international climate politics – ironically attract little or no regulatory interest because they are outside ACCC’s jurisdiction.

Unlike Italy, Australia apparently has no equivalent statute on procurato allarme, or instigating public alarm; no Codice penale italiano Art. 658 – Procurato allarme presso l’Autorità.

But I digress. To reiterate: is there a disclosure issue with the Fish River Fire Project Carbon Credits?

Should potential FRFP CC investors been given more information than a glossy brochure promoting an “innovative and unique solution to meet your carbon liability”, and – from the government – this helpful disclaimer?

Neither the Commonwealth of Australia, nor any of its officers or related bodies, can make any representation as to the future nature, characteristics or performance of ACCUs. Nor can it provide any specific advice concerning ACCUs.

As for the expert scientific report(s) that allegedly validate claims that early dry season savannah burning “has been scientifically proven to dramatically reduce greenhouse gas emissions that would otherwise be generated each year by uncontrolled late dry season wild fires,” despite accurate quantification of such emissions being described as “problematic”, that is another story.

© Michael Kile,  May 2013

Disclosure Statement: Michael Kile does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article. He has no relevant affiliations, except as author of the Devil’s Dictionary of Climate Change. He does not trade, or intend to trade, carbon units, Australian carbon credit units or eligible international emissions units.