How to spend money without influencing people

Let’s try a thought experiment.  The local shop has run out of your usual baby formula for your bouncing six-month-old.  But they offer you a Chinese substitute.  Naturally, you’re worried, because you’ve read about Chinese milk products in the paper.  But the shop shows you a certificate of quality, authenticated by the municipal authorities in a small provincial Chinese town you’ve never heard of.  Reassured?  No, I thought not!
 
Or suppose your newish Mercedes needs a safety-critical replacement part.  They’ve run out of official factory spares, but they have the same item made somewhere in Orissa, and it comes with a certificate of authenticity from the local Mayor, possibly in Urdu.  No again?  Very wise!
 
Yet the Clean Development Mechanism (CDM), developed under the Kyoto protocol and exceedingly popular with EU climate strategists, accepts such certificates at face value.  The deal is this: instead of reducing emissions at home, at great expense, Western countries can pay developing countries to achieve equivalent CO2 reductions at lower cost.  So an enterprise in China, or Africa, or India, can show it has achieved an emissions reduction, and get paid for it by a Western country which can then claim credit for the reduction.
 
Of course it’s claimed to be a “market mechanism” which achieves CO2 savings in the most efficient way.  But what it really is, is quite different.  It is a highway for fraudsters, a stonking scam, an invitation for others to pick our pockets, while we smile and say “Carry On!”.  A recent BBC documentary found example after example where companies in India and China were paid for reductions which they would have made anyway — for after all, plant gets up-graded and cost savings achieved, even in developing countries. 
 
But it gets worse.  Other companies were paid for reductions which had simply not been made, because in many of these countries any certificate you want can be obtained for a small fee.  And a worse case yet: in one case an entrepreneur had built a plant specifically so that he could close it and claim the credit.  It was designed to make a particularly noxious gas, which attracted such a high level of credits when closed that the total credits exceeded by many times the cost of erecting the plant.
 
Undaunted by this spectacular débâcle, however, Gordon Brown and his new advisor in these matters, Johan Eliasch, have come up with a scheme even more bizarre.  They are going to protect the rainforest.  They are going to pay developing countries for not chopping down trees.  The enormity of this proposal takes a while to absorb.  First, think of the moral hazard.  “Pay me more money or I shoot the tree!”.  Then, consider that many of these countries are simply unable to stop illegal logging, even when they want the proceeds for “official” loggers and not the bandits.  Recall that much pressure for logging and forest clearance results directly from the new fashion for biofuels.  And finally, call to mind the ease with which certificates for just about anything can be obtained in these countries.
 
What we are achieving is a proliferation of well-meaning mechanisms whose primary effect is to transmit staggering sums of money, which we can ill-afford, from poor people in rich countries to dishonest people in poor countries (I do not for a moment suggest that poor people are less honest than rich — there are dishonest people everywhere).  As Enoch Powell once said in a different context, “We must be mad, literally mad”.
 
Do I have a better solution?  Not offhand, though I should think that help with surveillance and policing, and looking for economic uses for rain-forest, like eco-tourism, would be a good start.  And anyway, the fact that I don’t have a better idea is no reason to sanction a project of such overwhelming folly, with vast and open-ended costs, which will achieve nothing but to enrich fraudsters.

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