From corporation-watch at countercorp.org Mon Jun 8 06:43:24 2009 From: corporation-watch at countercorp.org (Corporation Watch) Date: Mon, 8 Jun 2009 03:43:24 -0700 Subject: [Corp. Watch] ExxonMobil still dodging responsibility for worst U.S. industrial disaster Message-ID: <047F9377-421A-471D-9E3F-9DD9EDE9DAFB@countercorp.org> [NOTE: The opening-night film at the 4th Annual Anti-Corporate Film Festival (www.countercorp.org), "BLACK WAVE", documented the legacy of the Exxon Valdez oil spill] Still Digging Up Exxon Valdez Oil, 20 Years Later By Bryan Walsh (Time magazine, June 4) -- Twenty years since the Exxon Valdez tanker ran aground in southeastern Alaska on March 24, 1989, spreading an 11- million-gallon crude-oil inkblot into Prince William Sound, the formerly pristine coastal waters once again appear clean and untouched. Birds like the arctic tern and the endangered Kittlitz's murrelet can be seen skimming the astonishingly beautiful Alaskan coastline while sea otters backstroke through the cold, clear waters of the Sound. It is a remarkable turn-around since the Exxon spill, the worst man- made environmental disaster in U.S. history -- the immediate shock of which killed hundreds of thousands of shorebirds that made their home in the Sound, along with sea otters that choked on the crude. And over the long term, populations of orcas, killer whales, herring, and other species would be injured by the accident. Today, the coast is clear and clean. But clean is not the same as pristine. Decades ago, some of the spill found its way to a beach on Knight Island in the Sound, a site that scientists studying the accident designated "KN-102", but which during the multi-year cleanup would earn another name: Death Marsh. Here on Death Marsh, Mandy Lindberg, a scientist with the National Oceanic and Atmospheric Administration (NOAA) in Alaska's Auke Bay, turns over a shovel of sand and broken rock to reveal a glistening pool of brackish oil. The crude can be tied chemically to the Exxon Valdez, and more oil can be found beneath the beach at Death Marsh and at a number of islands around the Sound. "I wouldn't have possibly believed the oil would last this long," says Lindberg. "Studying the spill has been a great learning experience, but if we had known in the years after the spill what we know now, we would have been looking for oil much earlier." What scientists like Lindberg know now is that the legacy of the Exxon Valdez is still visible -- physically, on the beaches of Prince William Sound and in the animal populations in these sensitive waters that have yet to rebound fully. Using funds from the original spill settlement between Exxon and the state of Alaska, scientists from NOAA have carried out major studies that show oil still remains just beneath the surface in many parts of the Sound -- close enough for animals to be affected by it. "The oil may not leak out in quantities that are immediately visible, but that doesn't mean it's not there," says Jeep Rice, a NOAA scientist who has led the studies. "We thought the clean-up would be a one-shot deal -- but it's still lingering." Rice and his colleagues picked a sample of 90 random sites at beaches around the Sound and dug about 100 small pits at each site -- more than 9,000 in all. They found oil in over half the places they sampled, despite the fact that only 20 percent of the beaches that had been hit hardest by the spill, like Death Marsh, were included in the study. Altogether, the NOAA scientists estimated that about 20,000 gallons of oil still remain around the Sound, usually buried between 5 inches and 1 foot below the surface. Those 20,000 gallons, out of at least 11 million spilled, might not seem like much, and scientists initially assumed that whatever oil was left behind during the original clean-up would eventually break down naturally. But it turns out that crude oil -- especially when it is spilled in a cold region like southeastern Alaska -- lingers in the environment for decades. And as long as the oil is there, it can harm the animals that might come into contact with it. Sea otters, for example -- the face of the Valdez spill -- dig millions of foraging pits in beaches around the Sound, enough to come into contact with oil numerous times. Although the population of sea otters in the area has recovered since the spill, the return has been slow, and researchers suspect the oil might be the reason. "The pattern shows evidence that they're still being exposed," says Rice. "It's not enough to kill them outright anymore, but it's a chronic exposure -- and in an environment like this, when species live close to the edge, that could make a difference." Scientists are still digging into the Sound's beaches, trying to get a better sense of how much oil might be left and whether it will be possible to finish the clean-up. And there are still other questions that need to be answered. The Sound's valuable commercial herring fishery collapsed completely a few years after the spill -- there are just 10,000 tons of the fish left today, down from a peak of 150,000 tons before the accident -- and researchers are trying to figure out what impact the oil might have had on the species' decline. "We'll never be able to fully link the herring to the oil, but we want to know why the species won't come back and whether it's worth spending the money to help it recover," says Rice. Exxon-funded scientists have released their own studies, which question the NOAA team's findings and claim that there is little oil left in the Sound. But Rice's studies have held up under peer review -- and this reporter personally saw oil buried in a handful of beaches. Ironically, the Exxon spill has greatly enhanced scientists' understanding of the effect that crude oil can have on a vulnerable marine environment: it is more toxic to life than we thought, and harder to clean up. "Even the best clean-up will fall short," says Craig Tillery, a deputy attorney general for the state of Alaska -- whose Bristol Bay and Chukchi Sea are being considered for offshore oil and gas exploration -- and a member of the Exxon Valdez Oil Spill Trustee Council, which funded the NOAA studies. "You have to make sure this never happens." From corporation-watch at countercorp.org Tue Jun 9 16:05:26 2009 From: corporation-watch at countercorp.org (Corporation Watch) Date: Tue, 9 Jun 2009 13:05:26 -0700 Subject: [Corp. Watch] Fearing trial, Shell settles case on its role in activists' deaths Message-ID: <8D8856DE-41BE-4234-A2F5-1C7422DD5B82@countercorp.org> [NOTE: The opening night film at this year's Anti-Corporate Film Festival (www.countercorp.org), "Sweet Crude", documented the ongoing struggle of people in the Niger Delta region of Nigeria to resist the crimes, abuses, and devastation caused by international oil companies such as Shell, and seek justice and compensation for past activities] Settlement Reached in Human Rights Cases Against Shell Oil On eve of trial, agreement provides $15.5 million for compensation to Nigerian human rights activists, establishes trust fund (Center for Constitutional Rights, June 8) -- Shell Oil agreed to settle human rights claims charging the company, its Nigerian subsidiary, and the former head of its Nigerian operation with complicity in the torture, killing, and other abuses of Ken Saro-Wiwa and other non-violent Nigerian activists in the mid-1990s in the Ogoni region of the Niger Delta. The settlement provides a total of $15.5 million to compensate the 10 plaintiffs, including family members of the deceased victims; establish a trust intended to benefit the people of the Ogoni tribe; and cover a portion of plaintiffs' legal fees and costs. "The case has been pending for many years, and this settlement puts an end to what would likely have been yet another long round of appeals," said co-counsel Agnieszka Fryszman. The settlement is only on behalf of the individual plaintiffs for their individual claims, and does not resolve outstanding issues between Shell and the Ogoni people. Plaintiff Ken Saro-Wiwa, Jr., son of Ogoni leader Ken Saro-Wiwa, explained: "In reaching this settlement, we were very much aware that we are not the only Ogonis who have suffered in our struggle with Shell, which is why we insisted on creating the Kiisi Trust." The Kiisi ("Progress" in the Ogoni language) Trust will allow for initiatives in Ogoni for educational endowments, skills development, agricultural development, women's programs, small enterprise support, and adult literacy. "The fortitude shown by our clients in the 13-year struggle to hold Shell accountable has helped establish a principle that goes beyond Shell and Nigeria," said Judith Chomsky, one of the attorneys who initiated the lawsuit. "Corporations, no matter how powerful, will be held to universal human rights standards." "This was one of the first cases to charge a multinational corporation with human rights violations," added Jennie Green, the staff attorney for the Center for Constitutional Rights (CCR) who initiated the lawsuit in 1996, "and this settlement confirms that multinational corporations can no longer act with the impunity they once enjoyed." CCR, EarthRights International (ERI), and private law firms filed three lawsuits on behalf of relatives of murdered Ogoni activists and other injured Ogonis who were fighting for human rights and environmental justice in their homeland. The plaintiffs charged Royal Dutch Shell, its subsidiary Shell Petroleum Development Company (SPDC, or Shell Nigeria), and SPDC executive Brian Anderson with complicity in extrajudicial killing, crimes against humanity, torture, and other human rights claims. Plaintiffs in the case include the relatives of Ken Saro-Wiwa and five other the executed activists. Ken Saro-Wiwa's brother Owens, and Michael Tema Vizor, both brought claims for torture and detention that resulted in their exile from Nigeria. Further claims were brought by Karalolo Kogbara, who lost her arm, and on behalf of Uebari N-nah, who was killed in attacks on Ogoni civilians. "This settlement is only a first step towards the resolution of still outstanding issues between Shell and the Ogoni people," said human rights attorney Paul Hoffman, trial counsel in the Wiwa cases. Oil operations in Nigeria have been chief among Shell's assets for many decades. Critics charge Shell with aiming for the lowest possible production cost, without regard for the resulting damage to the surrounding people and land, and wreaking havoc on local communities and the environment, including the on-going practice of flaring oil- related gas. In the early 1990s, the Ogoni people, led by Ken Saro-Wiwa, began non- violent protests against Shell's practices. Shell grew increasingly concerned with the heightened international prominence of the Ogoni movement, and paid Nigerian security forces that they knew were engaging in human rights violations against the local communities. The military government violently repressed the demonstrations, arrested Ogoni activists, falsely accused nine of them of murder, and bribed witnesses to give fake testimony. The nine, including Ken Saro- Wiwa, were denied a fair trial and then hanged on November 10, 1995. "The courts repeatedly rejected Shell's efforts to dismiss this case, setting important legal precedents for the continued prosecution of corporations in breach of international law," said Marco Simons, ERI legal director. "This reinforces the plaintiffs' demands that corporations such as Shell safeguard human rights and the environment." From corporation-watch at countercorp.org Wed Jun 10 18:07:51 2009 From: corporation-watch at countercorp.org (Corporation Watch) Date: Wed, 10 Jun 2009 15:07:51 -0700 Subject: [Corp. Watch] Entertainment duopoly to become monopoly Message-ID: Ticketmaster, Live Nation: Obama's Anti-Trust Test By Janet Morrissey (Time magazine, June 10) -- Irving Azoff, chief executive of Ticketmaster Inc., doesn't mince words when he talks about the amplified negative press that's surrounded his company's bid to merge with Live Nation Inc. since the deal was announced in February. "It's really good that some of the press and some of the consumer groups out there that have hated the fact that there's been service charges on tickets and have hated Ticketmaster for the last 20 years have been able to spin all you people," he said sarcastically. "But quite honestly it's a line of bull crap." Tell that to Bruce "The Boss" Springsteen, Mr. Azoff. "The abuse of our fans and our trust by Ticketmaster has made us as furious as it has made many of you," the Boss said after a ticket fiasco in New Jersey in February steered buyers to a secondary market the company owns where tickets were being hawked at up to five times face value. Springsteen was so ticked off, he went on to cast his vote against the merger, fearing a music monopoly. Azoff says the critics, whether famous, furious or both, are missing the point of the merger: that it would produce greater efficiencies in the music business, which theoretically would benefit ticket buyers and artists. The proposed mega-marriage of Ticketmaster and Live Nation, if approved by regulators, would combine the country's largest ticketing company with the nation's biggest concert promoter. Since the $2.5 billion all-stock deal was unveiled in February, a throng of players ranging from angry independent concert promoters to frustrated music fans has been drumming the Department of Justice to block the deal, claiming the merger will create a conglomerate that will shut out competition and lead to higher ticket prices. "This is deemed by many to be the first test case in the Obama Administration," said Marc Schildkraut, a former assistant director with the Federal Trade Commission (FTC) and now a partner at Howrey Simon Arnold & White. There hasn't been this much hoopla over an entertainment deal since the Sirius XM Satellite Radio merger in 2007 during the Bush administration, Schildkraut said. Although the Sirius-XM deal ultimately got approved (and the combined company has muddled along), President Barack Obama vowed to put some spine back in anti-trust enforcement. He named Christine Varney, a strong antitrust advocate, to head the Justice Department's antitrust investigations. "Obama was very vocal during the campaign about reinvigorating the antitrust laws," concurred Olivier Antoine, an attorney in Crowell & Moring's anti- trust group, who represented Sirius in the Sirius XM merger. The new merger will combine Ticketmaster's ticketing and artist- management business with Live Nation's concert promotion, network of concert halls, and fan-club operations. The new entity is expected to save about $40 million in annual costs and have greater bargaining power to woo artists and sell out concert halls more efficiently. "Forty percent of the tickets to music events go unsold," said Azoff, whose Front Line artist-management group within Ticketmaster represents such artists as the Eagles and Guns N' Roses. "The goal of this [combined] company is to better market and bring third parties to help us fill some of those unsold seats." Michael Rapino, chief executive of Live Nation, said this is no time to be getting in the way of business. "Every day, we are watching great American companies fail," he said. " These economic times require bold, fast action to innovate and grow." What's there to like about this merger? The combined company will effectively cut out middlemen, such as independent concert promoters, business managers, lawyers, agents, and venue owners who want a piece of the pie, and allow artists to deliver services "quicker, faster, better and cheaper" to its fans, said Luke Froeb, associate professor at Vanderbilt University's Owen Graduate School of Management and a former senior economist with the FTC and Justice Department. From a stock perspective, Citigroup analyst Mark Mahaney sees significantly bigger growth than Ticketmaster would enjoy on its own. The anti-trust concerns are two-fold. First, there's the so-called "horizontal impact", which refers to when a company buys out a rival to eliminate competition. In this case, the merger will stop Live Nation's recently launched ticketing company from cutting in on Ticketmaster's turf. Live Nation dumped its ticketing contract with Ticketmaster in January after signing a 10-year contract to license ticketing software from Europe's CTS Eventim to run its own ticketing business. The move took a toll on Ticketmaster, which saw its profits dive 78% in the first quarter, partly due to the lost Live Nation business. Second, there's the "vertical impact", which refers to the company's expansion into all parts of the live-music industry, from managing artists to selling beer and hot dogs at venues. Rivals worry that the merged company's far-reaching and powerful tentacles will favor the company's own acts, venues and promotion company and shut out competing concert halls, managers and promoters. "They'll be the concert promoter, the ticketing company, the merchandise company, the agent, the manager -- they'll be everything," said Jerry Mickelson, co-owner of concert promoter Jam Productions. "It would be one-stop shopping. What's an act need me for?" A promising musician, for example, would find the options limited. "A young artist coming up who wanted to play in the buildings owned and managed by Live Nation could be told they need to use Live Nation's management company. What would be the restriction on that?" asked Jon Landau, Bruce Springsteen's manager. "It puts too much power into the hands of too few people in our profession." It didn't help Ticketmaster's merger prospects when it found itself in hot water over the Springsteen ticketing controversy in February. Fans were told that tickets had sold out minutes after they went on sale, and were automatically diverted to Ticketmaster's re-sale company, TicketsNow, where they were forced to pay scalper prices for the tickets. "That was just an outrageous event," said Landau. The Boss himself rallied fans against the Ticketmaster merger. "The one thing that would make the current ticket situation even worse for the fan than it is now would be Ticketmaster and Live Nation coming up with a single system, thereby returning us to a near monopoly situation in music ticketing," he said in an online post. Ticketmaster chairman Barry Diller ultimately apologized and blamed computer glitches for the ticketing mishap, but industry heavyweights snickered. "That stuff has gone on all the time. When he said it was a computer glitch, I nearly fell off my chair," said Randy Phillips, CEO of AEG Live, the country's second largest concert promoter. "I could not believe it," Phillips said. "I mean, these are sophisticated businessmen -- my God, a computer glitch?" Not surprisingly, Phillips opposes the merger and has even suggested he may cancel his seven-year contract with Ticketmaster if the deal goes through. All of this puts a cloud over Ticketmaster's merger plans. "I think [the merger] would be a catastrophe for the entertainment business," said Rep. Bill Pascrell, a New Jersey Democrat who demanded congressional hearings into the matter. "Given Ticketmaster's recent mishandling of Bruce Springsteen's tour and other shows," Pascrell said, "it is clear that this company's questionable business practices warrant sharper scrutiny." Earlier this week, Rep. Pascrell introduced a bill, named the Boss Act, that calls for ticketing companies to disclose how many tickets are being withheld in primary public ticket sales and a 48-hour waiting period before tickets can be sold in the secondary market, among other things. Azoff said he supports efforts to clean up the ticket-reselling business, which he calls "the Wild, Wild West of the business" and hints that Ticketmaster may sell its TicketsNow resale entity if the merger goes through. "The furor about the secondary market really has nothing to do with this merger," he said. Azoff said he would ultimately like to see the merged entity offer dynamic pricing, whereby front-row seats are offered in the primary market at prices well above the average -- possibly up to $1,000 -- while nosebleed seats are sold below the average price for as little as $20 a pop. Aside from Springsteen, most artists are reluctant to bad-mouth the merger. Experts speculate artists fear retaliation and recall the losing battle Pearl Jam fought against Ticketmaster in the mid-1990s. But Ticketmaster has its fans -- Smashing Pumpkins' Billy Corgan sent Congress a letter gushing support for the proposed merger. The letter was an about-face for Corgan, who in the past was critical of Ticketmaster's system and opted to use Jam Productions instead of Live Nation for some of his tours. However, Corgan is now a client of Azoff's Front Line artist- management company within Ticketmaster. Can the merger result in lower ticket prices for the public? Phillips said Live Nation has a history of being "aggressive" with pricing. "We walked away from bidding on Fleetwood Mac because we thought the guarantee was too high and what we'd have to charge the public would be too much," he said. Mickelson noted that Live Nation's new ticketing company introduced service fees that were even higher than Ticketmaster's: "A Coldplay ticket at a Ticketmaster building had a $15 service charge, and the same Coldplay ticket at a Live Nation ticketing venue had a $21 service charge." Still, vertical mergers historically tend to benefit consumers, according to Antoine. "Anytime you have a vertical merger, it creates efficiencies," he said. "Whether this is helpful to the artist or consumer or ticket buyers is another debate." "Putting all that power together may be good in some way for the companies in the long run," said Landau. But "I don't believe it's going to be good for the artist and I don't believe it's going to be good for the public." Azoff, who has been in the business for 43 years, believes the merger is necessary for the future of the music industry. "I've spent most of my life in this business. My son, daughter, and son-in-law work in this business. It is our family passion," he said when addressing a Congressional committee. "I want it to thrive for generations to come." A decision by the Justice Department is expected by the end of the summer. From corporation-watch at countercorp.org Thu Jun 11 17:01:52 2009 From: corporation-watch at countercorp.org (Corporation Watch) Date: Thu, 11 Jun 2009 14:01:52 -0700 Subject: [Corp. Watch] Corporations impede progress to maintain profits Message-ID: AT&T Plays Dumb as iPhone Romance Hits Rocks by Timothy Karr (Huffington Post, June 10) -- AT&T can't decide whether it loves or hates the iPhone. But for many iPhone users there's little doubt: They hate AT&T. The upcoming release of the new iPhone comes with some nasty strings attached. While Apple upgraded the device to deliver innovative features -- like multimedia messaging (MMS) and "tethering," which allows you to connect computers to the Internet via the device -- AT&T has blocked customers from using them. And many of the more than 5 million iPhone's devotees in the U.S. aren't happy. This anger became palpable Tuesday and Wednesday as it spilled over onto Twitter, driving the issue to the top of the social network's trending topics. A Slap in the Face "[I] cannot believe how AT&T is shafting current iPhone and future iPhone customers," wrote Javs42. "First with the upgrade pricing, then the MMS & tether support." Many blamed AT&T's exclusive contract with Apple. "Apple please don't extend the contract w/ AT&T," DanMcneely pleaded. "This is ridiculous and a slap in the face to long-time loyal iPhone customers like me who switched from T-Mobile and the only reason was the iPhone," wrote an iPhone customer on the AT&T support forum. "AT&T sucks, period," a commenter named Dan said on the iPhone Blog. Multimedia messaging has taken off among users in Europe and Asia, who can send pictures and videos using a variety of smart phones available on the market. The new European iPhone, which will be made available via overseas carriers, will have the new features built in. Ma Bell Nostalgia But in America, the iPhone is offered exclusively by AT&T, and for many that's the real problem. An AT&T spokesperson told the New York Times that "the delay has nothing to do with network issues," but declined to say why AT&T is slow to embrace cell phone innovation in the United States. Some clues might come from the company's long and turbulent relationship with any new technology that threatens its control. For decades, the old AT&T telephone monopoly controlled every phone on its grid and banned other companies from connecting innovative devices -- including answering machines, fax machines, cordless phones and early computer modems. A groundbreaking 1968 policy change -- known among tech wonks as the "Carterfone" decision -- pried open the device marketplace so that numerous new phone products could be introduced. This in turn spawned a flood of innovation in services that greatly benefited customers. That old monopoly was broken up. But the new AT&T has suffered a relapse, unilaterally deciding which applications make it onto the iPhone, and which don't. Both Skype (audio and video chat) and SlingPlayer (TV over the Internet) won't work over AT&T's 3G network, not because the technology doesn't function, but because the AT&T media empire is threatened by services that may strain its already shaky networks and compete with its other products. AT&T's lead lobbyist, Jim Cicconi, told USA Today, "We absolutely expect our [partners such as Apple] not to facilitate the services of our competitors." Garden Walls Must Fall Applying the Carterfone rules to the wireless marketplace would spark a revolution in gadgets, while freeing up users to bring their handheld Internet devices with them from one carrier to another. But don't expect AT&T (and its many lawyers) to stand idly by as policymakers, public interest advocates and angry consumers try to free the iPhone from its walled garden. "Consumers are tired of wireless carriers impeding innovation instead of promoting it. Congress should unlock the mobile marketplace by putting an end to these exclusive deals," said Chris Riley, policy counsel of the non-profit organization Free Press "Cutting-edge wireless devices and applications have the potential to launch new industries and revolutionize everyday life," Riley said. "In this challenging economy, we cannot afford to allow AT&T or any other company to stand in the way of progress." From corporation-watch at countercorp.org Sat Jun 13 08:04:34 2009 From: corporation-watch at countercorp.org (Corporation Watch) Date: Sat, 13 Jun 2009 05:04:34 -0700 Subject: [Corp. Watch] Big Oil's blood money is just another cost of doing business Message-ID: Shell's Self-Serving "Humanitarian" Gesture by Phil Mattera (Dirt Diggers Digest, June 11) -- One of the advantages for a corporation in resolving a sensitive lawsuit out of court is that it can proclaim innocence and insist it is settling for other reasons. Royal Dutch Shell has done just that in a case brought in connection with the 1995 execution of author Ken Saro-Wiwa and eight other activists who campaigned against the oil company's operations in the Niger River Delta region of Nigeria. Shell actually was even more brazenly self-serving than the typical company that says it is settling in order to put the case behind it. The Anglo-Dutch transnational insisted that its willingness to pay the plaintiffs $15.5 million -- $5 million of which will go into a trust fund for the Ogoni people who live in the region -- was a "humanitarian gesture." It was unusual for Shell to allow the amount of the settlement to be disclosed, but it was apparently worth it to draw attention away from the lawsuit's charges that the company collaborated with the repressive military regime that ruled Nigeria in the 1990s and put Saro-Wiwa and the others to death after a sham trial. The suit -- brought in U.S. federal court under the Alien Tort Claims Act, the Torture Victim Protection Act, and federal racketeering statutes -- also accused Shell of being complicit in crimes against humanity, torture, inhumane treatment, arbitrary arrest, wrongful death, assault and battery, and infliction of emotional distress. It is understandable why the plaintiffs and their lawyers -- led by the non-profit organizations Center for Constitutional Rights and EarthRights International -- would feel a need to settle a case that had dragged on for 13 years and provide some financial assistance to the Ogoni community. Yet it is frustrating to see Shell trying to turn an outrage into an opportunity to burnish its image, even as other Ogoni claims are still unresolved. The frustration is compounded by the fact that Shell continues to engage in dubious behavior in other parts of its global operations. For example, the company has a problematic relationship with another undemocratic government as part of its deep involvement in a massive off-shore oil and gas project in the Russian Far East. That project, known as Sakhalin 2, has been the subject of a great deal of controversy because it threatens the survival of one of the world's most endangered species of whales, Western Pacific Grays. Non-profit organizations such as Pacific Environment, collaborating with Russian activists who formed Sakhalin Environment Watch, have pressured Shell and its partners to adopt stronger environmental protections or abandon the project. Shell's largest partner is Gazprom, the publicly traded gas monopoly controlled by the Russian government, which has used the company to advance Russian foreign policy goals vis-?-vis Eastern Europe by cutting off gas supplies at various times. There were reports last year that Shell had sought to influence the outcome of a purportedly independent environmental audit of Sakhalin 2. More recently, Shell has acknowledged that it is interested in developing a new Sakhalin 3 project in collaboration with Gazprom. Previously, Shell gained notoriety for overstating its proven petroleum reserves by 20 percent. The company ended up paying about $150 million to U.S. and British authorities to settle accounting and fraud charges. It did not try to depict that payment as a humanitarian gesture, but it is possible that one day Shell may have to put a positive spin on millions paid to settle claims stemming from the harms caused in Sakhalin. From corporation-watch at countercorp.org Sun Jun 14 19:28:05 2009 From: corporation-watch at countercorp.org (Corporation Watch) Date: Sun, 14 Jun 2009 16:28:05 -0700 Subject: [Corp. Watch] Cap-and-trade: More Wall Street smoke and mirrors Message-ID: <37830439-152D-449C-B7B9-87937C82E846@countercorp.org> Could Cap-and-Trade Cause Another Market Meltdown? By Rachel Morris (Mother Jones, June 8) -- You've heard of credit default swaps and sub- prime mortgages. Are carbon default swaps and sub-prime offsets next? If the Waxman-Markey climate bill is signed into law -- setting up a system in which corporations buy and sell pollution credits -- it will generate, almost as an afterthought, a new market for carbon derivatives. That market will be vast, complicated, and dauntingly difficult to monitor. And if Washington doesn't get the rules right, it will be vulnerable to speculation and manipulation by the very same players who brought us the financial melt-down. Cap-and-trade would create what Commodity Futures Trading commissioner Bart Chilton anticipates as a $2 trillion market, "the biggest of any [commodities] derivatives product in the next five years." That derivatives market will be based on two main instruments. First, there are the carbon allowance permits that form the nuts and bolts of any cap-and-trade scheme. Under cap-and-trade, the government would issue permits that allow companies to emit a certain amount of greenhouse gases. Companies that emit too much can buy allowances from companies that produce less than their limit. Then there are carbon offsets, which allow companies to emit greenhouse gases in excess of a federally mandated cap if they invest in a project that cuts emissions somewhere else -- usually in developing countries. Polluters can pay Brazilian villagers to not cut down trees, for instance, or Filipino farmers to trap methane in pig manure. In addition to trading the allowances and offsets themselves, participants in carbon markets can also deal in their derivatives -- such as futures contracts to deliver a certain number of allowances at an agreed price and time. These instruments will be traded not only by polluters that need to buy credits to comply with environmental regulations, but also by financial services firms. In fact, a study by Duke University's Institute for Environmental Policy Solutions anticipates that the derivatives trade will probably exceed the market for the allowances themselves. "We are on the verge of creating a new trillion-dollar market in financial assets that will be securitized, derivatized, and speculated by Wall Street like the mortgage-backed securities market," says Robert Shapiro, a former undersecretary of commerce in the Clinton administration and a co-founder of the U.S. Climate Task Force. Banks like JPMorgan Chase, Morgan Stanley, and Goldman Sachs already have active carbon-trading desks that deal in instruments connected to Europe's cap-and-trade system and voluntary markets here. But business will explode if a cap-and-trade system becomes law. So it's no surprise that the financial industry has taken an intense interest in the fine print of the Waxman-Markey bill. According to data compiled by the Center for Public Integrity, the financial services industry has 130 lobbyists working on climate issues, compared to almost none in 2003. They represent companies like Goldman Sachs, JPMorgan Chase, and AIG (before it was shamed into temporarily halting its lobbying activities last fall). The industry "wants lawmakers to create a brand-new revenue stream for its bottom line, and cap-and-trade would do it," says Tyson Slocum of Public Citizen, who is a member of a Commodity Futures Trading Commission (CFTC) advisory committee considering how carbon trading should be regulated. Among environmental groups, there is understandably less focus on the finer points of financial regulation. "The derivatives side is not something that a person who comes to the table worried about carbon emissions has on their agenda," says Michael Greenberger, a derivatives expert at the University of Maryland who has also served in the CFTC and the Justice Department. But "[t]hose people -- and they're fighting a good battle -- opened the door" to the new carbon derivatives market by seeking to regulate greenhouse gases. Experts from the Congressional Budget Office have said that the most stable and effective form of cap-and-trade would involve a system in which the government periodically sets prices in much the same way that the Federal reserve determines interest rates. That would prevent volatility, which would in turn remove the temptation to gamble on big price swings. In other words, it would provide far less opportunity for wheeling and dealing -- and profits. Rep. Jim McDermott (D-Wash.) offered a proposal for a managed-price cap-and-trade scheme, but failed to gain any traction. Meanwhile, industry groups like the International Swaps and Derivatives Association pushed for a system in which a "broad suite" of financial products can be traded, and that's what Waxman-Markey delivers. In an especially audacious move, the industry also argued that cap- and-trade should allow the very same types of unregulated instruments that helped spread risk throughout the financial system like a cancer, contributing to the economic meltdown. In particular, it lobbied for "over the counter" (OTC) carbon derivatives -- deals conducted directly between two parties with no one monitoring the risk. (Perhaps the most notorious form of OTC derivative is the credit default swap, which crippled AIG when it issued too many high-risk swaps while lacking the money to cover them.) On this front, however, Wall Street was less successful. The day before the bill passed out of committee, Rep. Bart Stupak (D-Mich.) inserted language requiring all allowance derivatives to be either traded on an exchange or cleared by an organization registered with the CFTC. This would provide a paper trail for regulators, although the reporting requirements for clearinghouses are less stringent than those for public exchanges. Stupak also added limits to prevent speculators from cornering too much of the market. Still, the bill leaves many vital specifics to the White House, directing the president to form a task force to determine precisely how to avoid "fraud, market manipulation and excess speculation." Andy Stevenson, finance adviser at the National Resources Defense Council, says, "I would feel comfortable if much more of it were explicit." He applauds the bill's "spirit" but cautions that "the details are important." The lobbying battle is not over. CFTC commissioner Chilton praised Stupak's 11th-hour amendment, but expressed concern that it could be removed in the legislative process ahead. The bill, after all, has yet to pass through several more House committees -- before the Senate weighs in. That gives the financial sector a few more bites at the apple. At the same time, Wall Street is marshaling its forces against Treasury Secretary Timothy Geithner's proposal to move most derivatives trading onto public exchanges, which would also cover carbon derivatives. "There are so many issues, so many jurisdictional obstacles out there, I'm just worried it's not going to get done," Chilton says. "I don't want people's good intentions to be all we get. I'm worried that people will start clustering and positioning, and the reforms these markets require aren't going to be enacted." Even a well-designed regulatory system may not be able to prevent gamblers from contorting prices and discouraging the investments in green energy that are the entire purpose of cap-and-trade. After all, one lesson to be drawn from the economic crisis is that complexity is like catnip to the unscrupulous, and the carbon regime that would be created by cap-and-trade is nothing if not complex. Perhaps the biggest uncertainty hinges on how offset derivatives -- such as a contract to buy offset credits at a future date for a determined price -- will be monitored. This too would be left to the White House task force to figure out. It will be a tough task, because the quality of offset projects is notoriously difficult to verify. Sen. Jeff Bingaman (D-N.M.) has described them as "fraught with opportunity for game playing, which will be fully exploited, I'm sure." In 2008, the U.S. Government Accountability Office (GAO) examined the use of offsets in Europe's Emissions Trading Scheme, which theoretically has a rigorous process to certify that offsets are "additional" -- that is, that they cause emissions cuts that wouldn't have occurred if the project hadn't been implemented. But even though projects must be reviewed by both national officials and an external independent monitor to qualify, the GAO found that it was "nearly impossible" to ensure that offsets really were additional. It concluded that offsets present "a significant regulatory challenge", and should probably be viewed as a temporary measure at best. "In practice [offsets] have proved impossibly difficult to successfully implement without fraud," writes Michael Wara, a carbon trading lawyer and co-author of a Stanford University study that found that one- to two-thirds of offsets authorized by the Kyoto Protocol's Clean Development Mechanism didn't represent true emissions cuts. "Even in the presence of a tough regulatory system?that is working hard to get things right?lots of counterfeit carbon currency is making it into the system," Wara said. Michelle Chan, the investment program manager for Friends of the Earth, believes that if offset derivatives aren't properly regulated, they could become "sub-prime carbon" -- futures contracts that promise emissions reductions but fail to deliver and then collapse in value. Already, she points out, some banks are bundling credits from multiple offset projects and splitting them into tranches to sell to investors. This kind of activity is "hauntingly close" to mortgage- backed securities, Chan told the House Ways and Means committee in March, arguing that it has the potential to spread risk throughout the financial system. At a CFTC hearing earlier this year, Skip Hovarth, president of the Natural Gas Supply Association, questioned whether the agency had the tools and the manpower to keep track of such an incredibly complex market. "If this market fails, and all the derivatives and all the markets that attach to it and grow over time fail, it will make this last recession look like nothing," Horvath said. Again, Europe's experience offers a glimpse of the difficulties of tethering an environmental goal to the whims of the financial system. In the early years of Europe's cap-and-trade system, speculators flocked to trade carbon. Prices seesawed wildly, and analysts warned of a "carbon bubble." Regulators made adjustments to stabilize the market -- but then the financial crisis hit and carbon prices crashed. This January, an executive from the French energy giant EDF warned that carbon trading was in danger of becoming "a new type of sub-prime tool which will be diverted from its initial purpose: encouraging real investment in real low-carbon technology." During the negotiations over cap-and-trade, little airtime has been given to the idea that perhaps carbon is fundamentally different from other purely commercial markets that weren't conjured into existence to save the planet. After all, the allowances are an artificial commodity -- according to the logic of cap-and-trade, the government will issue fewer permits each year to encourage polluters to cut their emissions. "The supply is dwindling and will tail off. Arguably, it's much less clear that you need a derivatives market," says Greenberger, the derivatives expert. "You could try to control speculation, which is what [Rep.] Stupak wants to do, but even in a regulated market there are speculators -- many of them." "Or, Greenberger continued, "you could say, 'This is unlike any other market, and no regulation is perfect. So why take even the risk of speculation or malpractice that could distort the price -- let's just not have derivatives.' I think it's a subject worthy of serious debate." Thanks to the persistent lobbying of the financial sector, however, that doesn't seem to be a debate that will happen anytime soon.