Emissions trading and bribery investigations in Slovakia

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Last month Transparency International warned that 28 OECD countries were not doing enough to investigate and prosecute alleged company bribery of foreign government officials. Emilia Sičáková-Beblavá from Transparency International Slovakia writes about one of these cases in the report, which shows how the wide impact of bribery includes efforts to tackle climate change.

This year Transparency International’s Global Corruption Report focused on how climate change measures can go wrong if badly managed. One article focused on the allocation and sale of carbon credits by the Slovak government.

Slovakia is bound by the Kyoto Protocol and is allowed to sell its spare state emission units to those countries that exceeded their levels of allowed emissions. There is no international regulation defining the process of governments selling the emissions. The only benefit the selling government receives is financial and so the priority should be maximizing revenue through the highest price. This can be achieved inter alia by an auction, which guarantees openness and transparency of the trading. That was, however, not the case in Slovakia in 2008 and 2009.

The Slovak government sold approximately 15 millions tons of its AAUs (emission units) in November 2008 to Interblue Group, an unknown US-based company (Baťo, Slovák, 2009) which seems to be nothing but a shell company. People involved in the sale seemed to be well connected to one of the coalition parties, which happened to run the Environment ministry.

The Slovak Ministry of Environment did not organize any tender or auction, and in fact directly allocated the contract to the selected company. The contract and even the price from the beginning were not publicly available (Baťo, Slovák, 2009). Therefore the media and later also opposition started to raise questions about the trade and asked to see the contract. The then-Environment Minister refused to make the contract public. He argued that it was the Interblue Group that would not give the permission to do so. The media pressure peaked in May 2009 as journalists found out from secondary sources that Slovakia most likely sold its quotas at half the market price, amounting to loss of income of up to 70 millions euros. The following table shows the prices in comparative perspective.

Trading with emission quotas AAU emissions units

Selling country Buying country Sold AAU (in million tons) Price (Euro/ton)
Hungary Belgium 2 13-15
Hungary Spain 6 13-15
Slovakia Interblue Group 15 5.05
Latvia Holland 3 Around 10
Ukraine Japan 30 Around 10
Latvia Austria 2 Around 10
Czech Republic Japan 40 Around 10
Ukraine Japanese companies 14 Around 10
Czech Republic Austria 3.5 Around 10
Latvia Spain 5 Around 10
Czech Republic Mitsui (Japan) 20 Around 10
Latvia Japan 1.5 Around 10
Czech Republic Spain 5 Around 10

Source:pointcarbon.com – Daily SME, Nov. 27, 2009

Low or no transparency in the process of emission allocation and no competition in this process led to a serious financial loss. What were the implications for decision-makers resulting from this case so far? Under huge media pressure, the relevant minister had to resign, but there was no repercussion for his party or its leadership. The criminal prosecution is not closed yet, but it seems unlikely at the moment that true culprits behind the crime will ever be apprehended.

If not, we could be on a highway to theft with NO transparency, NO competition and NO criminal punishment.

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