‘Extreme risk’: Carbon watchdog mismanaged conflicts, ‘intimidated’ scientists

The watchdog overseeing carbon offsets worth billions of dollars has failed to manage conflicts of interest or properly investigate fraud while current and former staff raise concerns about its relationship with the companies it regulates.

The revelations about the Clean Energy Regulator (CER) are contained in hundreds of pages of documents obtained by this masthead under freedom of information laws. The documents also reveal that the regulator’s senior staff are accused of intimidating scientists trying to influence government policy.

Clean Energy Regulator has chronic problems with managing conflicts. Credit: Stephen Kiprillis

Among the documents is a damning previously unreleased internal audit of the CER, finding weaknesses across several key areas to manage conflicts of interest and investigate fraud.

The regulator manages Australia’s carbon offsets market, overseeing the issuing of millions of Australian carbon credit units (ACCUs), and approving taxpayer-funded payments to private companies out of the government’s $4.5 billion Emissions Reduction Fund.

The 2022 audit found “control weaknesses” across the organisation, from inadequate training and executive accountability to non-existent or unused policies for receiving gifts, declaring conflicts or investigating fraud.

The audit found the regulator had not conducted a single fraud investigation in five years, despite legal requirements on Commonwealth agencies to “identify threats, vulnerabilities” and have systems in place to refer serious and complex breaches to the Australian Federal Police.

It made 17 recommendations, many classified as “very high risk” which required “immediate attention” within three months or risk “potential for or likely damage to the organisation’s reputation”. All recommendations required action within six months.

“An entity’s COI [conflict of interest] culture will be determined by the ‘tone at the top’ set by its leadership,” the audit stated. “COI ownership was not and could not be determined during this review, or which executive was accountable for COI.”

A spokesperson for the Clean Energy Regulator defended its independence, culture and “strong approach to managing conflicts of interest” that includes compulsory annual declarations and training for new employees. It said 16 of the audit’s 17 recommendations had been implemented, “with the final recommendation almost complete”.

“We have a robust internal audit function, including governance through an Audit Committee, aimed at improving and providing assurance over the agency’s control environment,” the spokesperson said.

Research by ANU law professor Andrew Macintosh found the majority of carbon projects were fraudulent.Credit: Vikky Wilkes

Correspondence released under a separate freedom of information request reveals a senior CER employee was accused of “intimidating” and having “robust” conversations with scientists making submissions to the 2023 Chubb review into carbon credits.

The review was launched after bombshell research by former Emissions Reduction Assurance Committee Chair Andrew Macintosh in 2022 found the majority of carbon projects were fraudulent, a massive waste of taxpayer funds and failing to abate emissions.

The review ultimately found the system was broadly “sound” and an important policy for Australia to reach its net zero by 2050 target.

The federal government then introduced a revamped safeguard mechanism – the flagship policy to reduce industrial emissions – that applies to the country’s top polluters. Under this, all emissions reductions can be achieved by purchasing offsets, delivering a windfall to carbon companies and minor cost (0.1 per cent) to major oil and gas profits.

Correspondence obtained by this masthead reveals Professor Ian Chubb, who led the review, alerted Clean Energy Regulator chief executive David Parker to several attempts by senior staff at the regulator to influence scientists making policy submissions.

“I have been informed by multiple individuals that the Clean Energy Regulator has contacted at least one party that has made a submission to the ACCU review and sought to intimidate them and get them to retract or otherwise amend their submission,” Chubb wrote to Parker in October 2022. “I’d be grateful if you can look into the matter.”

Five days later, Chubb contacted Parker with further allegations of CER staff making unauthorised approaches to the country’s top scientists.

“After our email exchanges last week were concluded, I was told that a member of the CER reached out to CSIRO, allegedly to seek to influence their submission that was then being finalised.”

Professor Ian Chubb.Credit: Alex Ellinghausen

Parker later confirmed that a CER staff member had contacted the Wentworth Group of Concerned Scientists about “factually incorrect information” in their submissions to the inquiry. The Wentworth group did not change their submission and Parker denied the staff member influenced the submission.

He said the contact with Wentworth scientists occurred over “several conversations” and described “aspects of those conversions” as “robust”.

“The CER staff member apologised to the [scientist] about that aspect of the conversations. The officer concerned has indicated that they did not seek or intend to intimidate.”

A spokesperson said these approaches were made by a “former senior CER employee” and pointed to public comments made by Parker in 2022 about communication with the Wentworth Group.

He said scientists were culturally inclined to “criticise and contest … that’s how scientific knowledge is advanced” but did not mention the CSIRO.

The Chubb review recommended splitting up the responsibilities of the CER – which was established in 2012 and tasked with funding “lowest cost abatement” – to avoid actual or perceived conflicts of interest after finding a “serious downside” to its expanding roles.

“The multiple roles of the CER, developing methods, regulating projects, and issuing ACCUs, and administering government purchase of [carbon credits], results in potential conflicts of interest and risks reduced confidence in scheme arrangements and governance,” it found.

Interviews with more than one dozen current and former staff within the Clean Energy Regulator, who could not be named because they were discussing internal matters, described change-averse leadership and a workplace culture that was cosy with the private sector.

The staff questioned the regulator’s relationship with the carbon companies and industry lobby group, the Carbon Market Institute (CMI), which counts fossil fuel producers among its members.

One employee said the regulator was overly reliant on the carbon companies and described the dynamic as “regulatory capture”.

“If you’re mates, friendly, been with them on the journey, does that pose a risk for how well you’re going to run compliance and be a regulator?” said one employee who left in mid-2023. “There was definitely that concern, that uneasiness.”

Another employee described the client base as changing from “Aussie battlers getting carbon credits” to large carbon companies, which were easier to work with but reflected the increasingly corporate nature of the scheme.

“Some people in the agency would see it as a departure from the spiritual intent of the scheme. But practically speaking, you want to work with them – they’re submitting paperwork on time. When you’re working with that complexity, why wouldn’t you?”

Analysis of the government’s tender portal shows the CER has given around $1.5 million to the CMI over the past decade for a range of work including policy development, training, marketing and events sponsorship.

Australian National University academic Don Butler said the government and regulator were captured by vested interests that was failing to deliver appropriate climate policy.

“People see this as a rort that’s big enough and useful enough to government that it’s unlikely to be unwound,” Butler said. “The response that we’re seeing from people like the ... Carbon Market Institute and the regulator is really just about maintaining the confusion and just continually clouding the issue, rather than actually engaging with it.”

A spokesperson for the CMI said the carbon industry was heavily regulation and “still evolving with continual improvements including significant reforms being implemented now after recent reviews”.

“It is entirely appropriate and not uncommon for a regulator to work with the regulated industry. CMI works with the CER on good governance, best practice and ensuring regulatory reforms are well understood and support substantial high integrity investments.”

‘Slow to change’

The global carbon offsets market is now valued at of hundreds of billions of dollars and has been the subject of rolling controversies due to problems with ensuring carbon projects deliver real abatement. On Sunday, this masthead revealed allegations that some carbon companies had signed up Indigenous communities to unfair, long-term deals over the credits they generate through traditional burning.

Butler said carving up the CER was positive but overall, the Chubb review was “profoundly disappointing”.

“They did a job for the government, which was to give it a clean bill of health. And enable the safeguard to get passed,” Butler said. “It was a tick.”

Butler said this structure exposed the CER to conflicts of interest. “If they’re always looking for ways of unlocking cheap supply, this means cutting corners on integrity.”

He added that the relationship between the CER and CMI gives him the “jitters”.

“We’ve seen several instances where the CMI and CER are making announcements and putting out press releases that are clearly orchestrated and come out in synchrony,” Butler said. “There’s that kind of ridiculous lack of distance with the regulator, who is really the only sheriff in town.”

A CER spokesperson said all tenders went through a competitive process and the CMI was selected to deliver the best value for money.

She said the CMI was a “key stakeholder” in the carbon market and one of many relationships the regulator has with industry bodies.

“In addition, the CMI administers a carbon industry code of conduct, including a complaints process, and we see voluntary self-regulation arrangements as positive to prevent bad behaviour or to deal with the same early,” the spokesperson said.

Staff though describe the CER workplace culture as “really worried about public backlash”, “risk-averse” and “slow to change” with a “lack of leadership”.

Employees said the regulator often commissioned reviews only to ignore findings.

“It was slow and steady wins the race. But it wasn’t winning any races,” said one employee.

“Reviews became shelfware. Nothing was done about recommendations,” said another employee who left in July.

“Top-level leadership was really poor and that trickled through the rest of the organisation,” said another former employee who left last December.

The CER spokesperson said it aimed to be “a practical, grounded, quick and commercially savvy regulator” and the culture was “positive and innovative”.

The spokesperson pointed to a staff survey that found 83 per cent of respondents believed the agency has a good culture and 70 per cent said the agency encourages innovation.

However, claims of unresponsiveness were supported by a separate report completed by the CER in February 2022, obtained by this masthead under freedom of information, that found “inadequate use of lessons learnt process”.

“Infrequent project retrospectives may result in learnings not being identified and applied to the project,” it found.

The Australian National Audit Office also in April found ongoing problems with CER conflicts management. Compliance with conflict-of-interest declaration requirements was 69 per cent with staff involved in offset auctions, where carbon credits are bought by the government not adequately declaring conflicts.

“The spreadsheets used by the CER to track compliance with these requirements were incomplete and did not demonstrate that all personnel involved with the auction processes met these requirements.

“There is an opportunity for CER to improve overall compliance with conflict-of-interest policies and ACCU scheme probity plans by ensuring the declaration processes are followed and records are maintained to demonstrate implementation.”

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