Tag: climate

Lift the veil of corporate secrecy on public projects and save the taxpayer

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Reference:”http://theconversation.edu.au/profiles/vivek-chaudhri-164″

The $1.4 billion cost blowout reported by the NBN Co last week has focused attention once again on the seemingly regular occurrence of large government infrastructure projects being delivered late and over budget.

Whether we look at the much touted Public Private Partnerships (PPP) frameworks championed by state and federal governments of all persuasions, or in the NBN Co. case, a government monopoly engaging with the private sector, the cost to the taxpayer invariably appears to be greater than first estimated.

Why might that be? Is it that we are systematically poor (in one direction) at estimating future costs? Or do political realities and parameters change? That there is a lot of risk and uncertainty in the world around us is certainly true, but why must it always be the case that the taxpayer is left with the “bill”?

Surely there must be something wrong with our government’s existing tendering and contracting processes that leads to this repeated occurrence. And there is. An alarmingly lack of both good governance and contract design, principles that we expect of the corporate sector, are only cursorily considered in the public sector.

Let’s deconstruct the problem a bit further. The most efficacious delivery of large infrastructure (and other government projects) will almost always involve some private sector engagement. The challenge is to garner that engagement on terms that create societal value.

The tendering guidelines that most public sector entities adopt recognise the value in harnessing competition. Recourse to elementary microeconomics suggests that competition amongst potential bidders “for the market” (that is, to win the right to have some monopoly power) will result in the same efficiency outcomes as competition “in the market”. The problem, in almost all real world contexts however, is what economists refer to as an “asymmetry of information”.  If one side of the market – in this case the bidders (or worse yet, only some bidders, so we don’t even get the real positive effects of competition) – have information about the likely outcomes (costs/benefits etc) and the other side (the government) doesn’t, then we would expect the informed party to appropriate more of the rents.

Which is exactly what we observe when cost blowouts occur.

So, how can we resolve this inherent and systemic problem? Firstly, competition for the market (that is the terms on which government tenders are constructed) needs to be much more transparent.

Potential bidders need to be able to have equal access to information and the “commercial in confidence” veil needs to be tempered for the public good. Simply having many bidders involved in a tender, if they are not privy to the requisite commercial information, will not yield competitive outcomes.

Too often, government tenders satisfy a very rudimentary definition of competition, without significant thought in the design of the tender to ensure real competition takes place. Efficient, well designed government tenders are about good governance.

Secondly, and more importantly, we need to be much better at contract design where there is a large deal of uncertainty about future outcomes. The way much of the government contracting currently takes place, despite the political rhetoric to the contrary, is that the residual or contingent risk always sits with the state.

This need not necessarily be the case. Getting the right balance of incentives that mitigate any cost over-runs, and ensure a viable commercial return to the private sector requires much more detailed tender and contract design than currently takes place. Payments for outcomes that capture risk and uncertainty are a staple of financial markets and business to business interactions.

Yet, government to business interactions seem to be devoid of the same detailed considerations. Not surprising, then, that time and time again, our political masters tell us that they have negotiated a great deal with the private sector, only to find that the realised costs are often way more!

The risky uncertain world in which governments attempt to deliver infrastructure and other social projects with private sector involvement necessitates a complete revamp of our tendering and contracting methods.

We need to design systems that harness competition by mitigating the risks of asymmetries of information, and contracts that allow for risk and uncertainty to be shared.

Unfortunately, to date, political expediency has trumped sound economic analysis and design. There is unlikely to be too much consternation from the private sector as a result of the latest cost blowout in a government tendering process, but an informed citizenry ought to be demanding much better from its political masters.

Because if we don’t we will continue to be left with the bill. And it will always be more than we were initially told it would be.

Now it is Co2Land org to have its say, if we look overseas we see that government (say UK) encourages business development and innovation is rewarded. So is the problem a fetish over branding?

Real, Additionality, RECs

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Observing CTi’s Carbon Offsets 2 day Masterclass offering, it occurred that a US based mob was on about getting real about ‘real’ carbon offsets. Curiosity lead to checking out the reporting standard AS/NZS ISO 14064, finding it is silent on the word or term ‘real’ and completely avoids the topic of additionality, was fascinating given that you can’t even conceive of an offset without the concept of additionality!

CO2Land org now ponders: If ‘real’ cannot be a guarantee of a good project outcome. It follows that the use of the word or term ‘real’ can be seen as a initial or promised activity increase and not be seen as a guarantee of an increase in the carbon offset (it could be real activity and still lead to a decrease of carbon offsets). So if I say it was real at the time I acted; it was an act in good faith only. The issue with the word ‘real’ is it literally means the activity is a cause of change.

This lead to thinking of the impact this has on the Carbon Farming Initiative as legislated when the Gold Standard and Carbon Fix require that projects be “real”, but no international standard could explain what they mean by using the terms.

Now lets talk of the other mob: In their story –

Getting real about “real” carbon offsets,  by Michael Gillenwater –it was said:

“The qualities of a good emission offset project are one of the most common refrains you hear in the carbon offsets community. You can probably repeat most of them by memory: real, additional, permanent, verifiable, etc. Different programs or protocols might add other points about leakage or accuracy, or conservativeness or some other offset quality principle. But common to almost all programs and standards and protocols is the criterion that offset projects or credits must be ‘real’. Here is a question for you: What does it mean for an offset project to be real? What would an unreal offset project be? How could we tell if it was unreal, and is this something we should be concerned about?”

They go on to look even closer at the word or term ‘real’:

If you check out the Offset Quality Initiative and how they express the term ‘real’ and explain it the word should be done away with entirely as it is not meaningful, or at least ambiguous, and those that use the term are employing vacuous language. They claim the problem for ‘real’ is it most likely used to describe itself is real, and used this way one cannot ban imaginary projects, and one may ‘forward credit’. That is you can issue a credit before emissions have been achieved.

They continue that where ‘real’ is covered with a contrived definition and includes the concepts of completeness and accuracy in accounting, and leakage. It does so as no more than use ‘real’ as a synonym!

Now how do the markets act responsibly on handling this issue:

  • The Clean Development Mechanism (CDM) rules states that offset projects must be “real” in various places, but the definition is absent.
  • The Verified Carbon Standard (VCS) does attempt to handle this and goes with the imaginary friend test: All the GHG emission reductions and removals and the projects that generate them must be proven to have genuinely taken place. Much better description than using ‘real’ – no room for weasels in this one.

CO2Land org looked a little harder (we don’t want this post to be no more than ‘hot air’) and found:

  • Specifically ISO 14064-2 (project accounting) does not include ‘Real’ because during development of ISO 14064-2 ‘Real’ was regarded as a programmatic rule/criteria, which is outside the scope of ISO 14064-2.
  • ISO 14064-2 is a standard rather than a program
  • ISO 14064-2 (Clause 5.4) specifies the following requirement in regards to additionality: “The project proponent shall select or establish, justify and apply criteria and procedures for demonstrating that the project results in GHG emissions reductions or removal enhancements that are additional to what would occur in the baseline scenario.”
  • Additionality is incorporated into ISO 14064-2 is based on the core principles of ISO standards in general, i.e. that ISO standards not be a barrier to trade (WTO-TBT – anyone following development of ISO 14067 (product) will know this is a major issue). As such, ISO standards must be policy-neutral (extended to include program-neutrality). This is of course very important for market confidence.
  • ISO 14064 deals with the concept of additionality by requiring that the GHG project has resulted in GHG emission reductions or removal enhancements in addition to what would have happened in the absence of that project. It does not use the term “additionality”…Thus the project proponent may apply additionality criteria and procedures, or define and use boundaries consistent with relevant legislation, policy, GHG programmes and good practice.”
  • Although the concept/requirement of additionality is within the requirements of ISO 14064-2, the simple reason why the ‘term’ additionality is not present within the requirements of ISO 14064-2 is because of certain sensitivities/perceptions/politics of certain parties involved in the development of the standard –

And, the following references helpful in gaining a more complete understanding:

CO2LAND armed with this information focused more on Australia, and with raised eyebrows takes note ‘real’ is long-overdue for a critique of the ‘real world’ of concepts and terminology defining emissions offsetting and accounting policy and practice. In fairness what becomes obvious is domestically and internationally in Australia have had to deal with the vagaries of the debates and arguments over the development of both an international REDD mechanism and revision of accounting rules for land use, land use change and forestry (LULUCF) by Annex 1 countries.

Dealing with this is not as making the concept closer to simplicity and ‘naturalness’ in terms used as much of the confusion stems from failure to separate out responsibilities for project managers, national/sub-national regulators and for the international community. In short the levels of responsibility presume everyone else should be responsible for everything. Then everything ‘real’ becomes perverse. Source: Alistair Graham
Tasmania, Australia
7 August 2012

Previously CO2Land org has written of the perils of the REDD issues, and that things are going to avoidably get more complex, and Alistair Graham also believes we best get our house in order for the, relatively easier stuff in the non-LULUCF sectors.

Then rock my socks along comes Judith Hull (talking of work with Environment Canada) and commented, August 13th, 2012:

“Michael – In response to your August 9 note on my short comment, I would emphasize that isolating one criterion is always problematic. Clearly baseline setting with functional equivalence is key. We used the ‘real’ criterion to flag that just a cut in production would not be eligible. A project to make that production more efficient (even if total output were to decrease) may well be eligible. Judith”

Is it ‘real’?

Now look at confusion on RENEWALBLE ENERGY CERTIFICATES (RECs):

There are a few other terms bandied about incorrectly.

1) RECs are not offsets. Yet routinely you hear they “have offset their carbon emissions with RECs.” That is wrong on several levels. Yes, it is inconvenient that the word offset can be a verb or a noun. But get it right. RECs can be said to “compensate for” or perhaps “balance” the GHG emissions from electricity consumption, but leave offsets out of the conversation.

2) While we’re hammering RECs, if a facility/organization is buying RECs they are not “powered by wind.” There is no orange extension cord connected to a wind turbine. RECs connect load to renewable power by a contract, not a wire. To say “powered by wind” creates false images in lay peoples’ minds.

3) If a facility/organization is buying offsets or RECs sufficient to equalize all their GHG emissions, they have not attained “climate neutrality.” They have attained “GHG neutrality.” The definition is “no net GHG emissions.” That definition does not define a state of the climate, it defines a state of emissions.

It is wrong to connect climate with RECs – RECs like green power energy are project outcomes.

 

REC References:

 

 

Widening Circles of Influence

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Previously a discussion was underway that highlighted the word carbon was restrictive when describing farming practices.  To recap: Policy tends to favour the use of Carbon as a market instrument, and farming practices are formed around production and the increase or decrease in methane gas in that practice. Therefore policy and operations do not have a linear relationship in effectiveness. Part of the reason for this is one measure is an imposed constraint, and the other affected by natural occurrences or balances.

Thinking further on the word carbon, is it time to come up with another term for improving practices in agriculture, and keep that separate from markets and livestock descriptors?

CO2Land org has noted that the Rodale Institute (www.rodalinstitute.org ) is also thinking along these lines and they are going further in advocating organic farming. They have used the term ‘ Regenerative Agriculture’ and say it is to remind us of the true importance of farmers in our society.  In a direct quote from the Institute:  “We remember that agriculture is the foundation of all civilization, that when you improve agriculture, you elevate the whole society. And we affirm that agriculture is an absolutely essential part of any world-wide effort to improve our environment and health”.

Therefore ‘Regenerative’ might be a more correct description for agriculture in general as the sustainable approach could be measures of regenerating the soil, regenerating the health of ourselves, reducing reliance on or eliminating chemical fertilizers, pesticides and herbicides.

With a focus on regenerative agriculture other benefits will come in the form better practices for the local environment, less organic waste, better recycling and improved economic performance. Also if we are nearing the tipping point of environmental change through anthropogenic activities these improving practice tools will better equip us for a better adaption strategy for our own survival.

CO2Land org can also see that changing in this way could make for higher profit, build on many sustainable practices already underway such as compost and cover crops, tillers and no-till. The main difference will be improved stewardship over the land.

You got to be joking – CFI penalised!

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In a public post on Linkedin, 11 Aug 2012.  A group seen as the most active in promoting Carbon Farming Initiative (and have done so well before the legislation package) thought it was a practical joke that the CFI was compromised, and that even with bipartisan support that a renegade state would do such a thing (look for the weasel).  CO2Land org suggests you follow up with Louisa and Michael Kiely on this macabre development.

 

Louisa Kiely You are joking? Surely not. I’ll get to the bottom of this and let you know. http://ow.ly/cRQbh

Ben Keogh Go get them Louisa – perhaps the ACCC could investigate over price gouging. The MPSC should declare how they have valued the sequestration potential – I am sure I could come up with some realistic figures if required. Perhaps Mr Meyers should avoid the CFI and keep producing methane form cattle if that what the MPSC want. I look forward to your updates.

Terrence Trinca Louisa, I blogged a similar story in CO2Land org. The story Vic Coalition at odds with Fed Coalition – CFI compromised. The gist is Carbon farming could cost farmers, instead of making them money, and is the result of the Victorian Government tripling rate bills. Quoted: “The Victorian Government does not recognise carbon farming as a legitimate farming activity under land tax and valuation acts and has ruled out changing the laws”.

Co2Land org also finds it astonishing that innovation continues to be stifled for no other reason than a few with the power are prepared to demonstrate and or promote illusionary superiority at the expense of genuine development opportunities. In this case even at the expense of as much as 60% abatement that the aligned political body is promoting as part of Direct Action plans.

The solar thermal proposal for Port Augusta

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An Australian willing to encourage the adoption of alternative generation with entrepreneurial flair is backing a solar thermal power station for Port Augusta, in South Australia.

The site is very well suited for the proposal and this includes days and hours of available daylight, the need for the energy and accessibility.

The ABC broke the story, 9 August 2012, entitled Dick Smith urges federal funds for solar thermal trial. The story line follows that Dick Smith will be in Port Augusta to address a local meeting. He will also undertake another part of a documentary he is making on energy in Australia.

Of his support for a trail of this type of energy source (in his words the energy future), he is quoted as saying: “The solar thermal proposal for Port Augusta is a good one – there’s money coming from the carbon tax that we’re supposed to be looking at alternative energy and this would be an ideal way of doing it”.

CO2Land org is hopeful the change promised by the trail would be a very good demonstration of positive impacts of carbon price introduction. If the indications are correct the need for funding for the proposal will be a interim need and within a relatively short time the economics will see the power source being a sustainable alternative to conventional source reliance.

 

renewable energy sector’s ‘holy grail’ – DECC UK Subsidy

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In a show of support for innovation, in the UK the Department of Energy and Climate Change is introducing a subsidy for energy storage in the September 2012. The subsidy is part of that government’s willingness to create a market mechanism to help firms become more competitive.

Energy Live News interviewed Ian Ellerington, Head of Innovation Delivery at DECC and he said: “We see that in the long term electricity storage is going to be important so through the innovation programme at DECC we’re going to be supporting electricity storage through a scheme of grants that I’m hoping to announce formally in September this year”. Later he added: “We’re going to be giving assistance to companies to demonstrate technologies so they can get funding and bring their costs down to make them more competitive and I would hope that suitable market mechanisms can be found.”

CO2Land org is aware many companies in Australia have sought similar assistance here, and often move offshore to get the opportunity to prove there products out of Australia. This could be one such opportunity through the UK package. You may have noticed through posts on electric vehicles that we in Australia are dubbed as having a grid network that makes alterative electrical power transport more polluting than similar petrol driven vehicles, and you might agree if it was possible to fit energy storage support into the energy grid it would be a real boost to the renewable industry, it could make the energy system more cost effective, and if storage can be part of that then it would be good to have the commercial mechanism in place to take advantage of the benefits that can be realised.

It follows that energy storage is seen as the renewable energy sector’s ‘holy grail’ for the role it can play in storing energy from renewables, for example by storing electricity produced at periods of high wind or during the day time from photovoltaics and then used as a high demand management response tool. Good move, as the component of peak demand where price is high is about 20% of the time and when renewable power struggles to make a contribution to base load. It also follows that about 5% of the time energy prices are traded at levels that would break most supply companies if sustained and is one of the reasons we pay higher bills than we could have otherwise.

Source: Energylive News (www.energylive.com) Energy Storage Subsidy to be announced in Autumn.

Vic Coalition at odds with Fed Coalition – CFI Direct Action compromised.

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More barbed wire fences: At odds with the Federal Coalitions Direct Action Policy, the Victorian Coalition has a position that farmers need to be very careful of, it is effective now, and does impose imposts on farmers under Carbon Farming Initiatives. In an exclusive, Kate Dowler ( August 8, 2012 through weeklytimes Now) said Carbon farming could cost farmers, instead of making them money, and is the result of the Victorian Government tripling rate bills. Quoted: “The Victorian Government does not recognise carbon farming as a legitimate farming activity under land tax and valuation acts and has ruled out changing the laws”.

The impacts:

  • Carbon farming, as the main activity on a land title, could attract commercial council rates, instead of lower farming rates.
  • The Victorian Coalition’s move results in the federal Coalition’s Direct Action policy being ineffective in encouraging carbon sinks.
  • Treasury has advised farmers state and local governments did not “recognise carbon farming as a primary production activity for the purposes of land tax or council rates”.

Also quoted is Environmental Farmers Network spokesman and Ararat farmer Peter Forster: ”The news was very concerning…This is outrageous and means farmers trying to do the right thing (enter carbon farming Initiative programs) are going to be disadvantaged… People are already reluctant to go into carbon farming – this will be the nail in the coffin.”

The piece also quoted: Agriculture Minister Peter Walsh “confirmed carbon farming was not classified as a farming activity and flatly ruled out reviewing it…He said recognising it could distort the market and produce ‘a managed investment scheme debate all over again…Prime agriculture land should be used for food and fibre production and people should be “very careful” about entering carbon schemes”.

The Victorian Minister then added when asked what he thought of the federal Coalition’s policies for carbon abatement; Mr Walsh repeated, “People need to be very, very careful about going into carbon farming”.

CO2Land org in a previous story on coalition positions and government outreach said you may be even more confused and equally reluctant to modify land use practices because of the politics – who can blame you – It may be time for the resilient to overcome the Neanderthals.

You can’t sit on a fence, a barbed wire fence at that, and have one ear to the ground

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While reflecting on the days of Joh Bjelke-Peterson, those who had a life in Queensland then would be familiar with 3 particular characteristics that the Premier himself attributed: Running along a barbed wire fence with a foot on either side: ‘it doesn’t work and it’s not very comfortable’; you need to celebrate Queensland difference and treat outsiders with contempt; talking to the media he would ‘feed the chooks’ and watch them fight over the crumbs.

Then while lamenting another of his quotes ‘You can’t sit on a fence, a barbed wire fence at that, and have one ear to the ground’, a friend passed on a piece reported through Queensland Country Life (Story by Lenore Taylor 07 Aug, 2012) called Soil Carbon Sweetener:  The story is how the Coalition is planning to pay farmers to store carbon in their fields for, not 100 years under current plans, but 25 years. This is a measure still claimed to be capable of solving 60 per cent of Australia’s total efforts towards long-term greenhouse gas reduction.

Offered is a critic of the coalitions plan:

For:

  1. Reducing the time you lock-up your land if you choose 25 Years (optional).
  2. If a better solution were found for greenhouse reduction the problem would have gone away (but carbon process might be rebadged as some other national imperative).
  3. Farmers can still take relatively easy steps to increase the quantity of carbon stored in soils by different agricultural practices, tilling methods and by deliberately introducing a charcoal-like substance called biochar.

Against:

  1. Very low carbon prices proposed in the ”Direct Action” plan.
  2. Reduced long-term liability would transfer to federal government the needs and rights to find replacement programs after each 25-year contract expires (Government could simply impose more stringent liabilities more regularly) so less certainty of the liability.
  3. Scientists are still working on how to measure the amount of carbon stored and understanding how it might be reversed by drought or fire.
  4. Uncertainty would continue and an example is that some forestry projects have been allowed to offer temporary 10-year credits as part of the international clean development mechanism, and these credits have a low demand and not allowed to be traded in the European Union trading scheme. Australia is heavily reliant on offshore credits for its schemes to work.

The promises:

1. The Coalition has budgeted in its $10.5 billion ”Direct Action” policy, the Opposition Leader, Tony Abbott, has said not a dollar more would be spent over the 10 years of the scheme. He is silent on the need for review periods, as was the practice of when he was a cabinet minister in a previous coalition government.

Claims of the views of farmers:

  1. Michael Kiely (Carbon Farmers of Australia), said “farmers were very pleased to be offered a ‘more realistic’ 25-year timeframe, but would still need to be paid a lot more than $10 a tonne to take the offer up…I’d rather get $100 a tonne because I understand what it means”.
  2. Norman Marshall (Australian Soil Management), said his company was ”finding it very difficult at the moment to convince farmers that changing their soil management was worth their while….If the Coalition introduced 25-year credits ”at around the $10 mark … that should do it”.

Other influences that could destabilize any scheme:

  1. Andrew Macintosh (ANU) said “the Coalition was ignoring more promising sources of land use greenhouse abatement from reforestation or reductions in land clearing for agricultural purposes”.
  2. Farmers need to be very careful of the ramifications of any future government using the review to impose at the stroke of a pen greater imposts or take all rights away from farmers in earlier timeframes. This will effect succession planning in particular.

CO2Land org first looks at all the approaches and notes that each political approach is a form of modified feudalism – you just take the number as 25 or 100 years. By this is meant, you are in effect indentured and your children and possibly their children are bonded to the will of the lord and taxes. The second look is a considered intrepid analysis of where we could say nature will make all things right. With this in mind you could be resolute in saying while carbon-reducing land use changes are to remain in place for 100 years under greenhouse gas reduction schemes, I will do nothing and the guiding hand will fix all. If it was that simple! No, it is not because regardless of what your view on anthropogenic climate change, the reality of the necessity of economics will drive the need to change. Not participating in a scheme will not be an option in either side of politics.

Carbon Training International will be road testing their newest short course on the 16th & 17th August 2012

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Carbon Training International will be road testing their newest short course on the 16th & 17th August  – “Source, Evaluate & Purchase Carbon Offsets” (national course code CTICM402A).

We are invited to be participants and chosen from across industry and from a cross section of the market to be involved to QA the program and the content. This includes industry professionals who work across the value chain, including finance professionals, suppliers and end users.

Co2Land org has been asked to extend the invitation for its readers to participate and we have a great deal of respect for the chief presenter – Bill Mcghee.

The program outline and the registration details are available on the webpage setup for the Carbon Offsets Pilot course

Carbon Trade Exchange is assisting with additional candidate recruitment & providing the trading platform for the course.

If you want to know more contact Rob Nicholls:

  Robert Nicholls

Managing Director

Carbon Training International

GPO Box 3414, Sydney, NSW 2001, Australia

m: +61 (0) 403 806 779

www.co2ti.com

build a carbon-responsive workforce

 

Do you wait for government approval or go it alone?

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Scenario: You have an idea to save the earth; it ticks all the right boxes – manageable, positive environmental impacts, economics drivers.  Then your problem becomes, it takes a government department to act in its pedant fashion a solid 12 months to determine you have a sound proposal; that the Minister will be interested and then forward through the Ministerial process for the policy announcement. So what is the cost? Personally, two major risks: Your funds dry up waiting and waiting has a cost; someone might leak out your proposal and a pro-active body will develop and package your idea.  Why would they do that – package your idea?

The next step of government once Ministerial approval is given is call for Expression of Interest (EOI) or a tender (RFT or RFQ), or if fortunate called as a select process (select meaning limited responses canvased).  Once called your package is most at risk – it is most likely the call will be a contestable program.  Yes, you may have guessed the problem; your idea is used as the basis of the call and offered as a framework for the development proposal. This means those that, during the 12 months hiatus, proactively developed your idea can now offer it to tender with many more questions fully answered or they may be better able to offer additional value of the proposal.

Why does this happen? Because in this country government cannot be seen to proactively encourage any industry to be innovative at the early adopter stage.  But, I hear you say taxpayers money is involved and at risk. But, we say that is not true, it is the innovator that is taking the risk, all that is required of government is encouragement and ensuring a sufficient procedure is in place for ethical behaviours.  If you look hard at current policy and find pleasure in the ‘bell curve’ it becomes very easy to see that current policy follows the pareto rule but it is skewed to mature or big brand programs only.  This inclination does make an absolute mockery of term ‘strategic direction’; it follows that known acceptable programs tend to be tactical in the response pattern and is likely to be reactionary and not proactive.