Palazzo Turati , Camera di Commercio di Milano.

The International Conference is the final event of the project, which will present the best practices and tools developed over the course of the past three years, and will be the basis for the follow-up of the project. Details of the initiative will be published in the coming months.

For those who would like to express interest in participating in the conference, please write to info@transparency.it.

In 2011 alone, corruption stole 900 million euro in investment activity from the Italian renewable energy sector, a number equivalent to the annual income of 27,000 households, and thereby prevented the production of 2.5 million megawatts (MW) of power from renewable sources, a number equivalent to the annual consumption of 800,000 households.

Numbers such as those illustrated above are some of the findings that have emerged from the research regarding risks and opportunities in the renewable energy market. This research, carried out by Transparency International as part of the Siemens Integrity Initiative Italy, was presented in full at the National Forum of the Green Clean Market project with the intention of highlighting critical issues and best practices in the sector.

Globally, it is estimated that corruption accounts for 5% of global GDP, with more than $1 billion paid in bribes. For businesses, this global culture of corruption translates into additional costs for public services of up to 10% in developed countries and up to 25% in developing countries. In Europe, corruption impacts the internal economy at an estimated rate of 120 billion Euros per year, equal to 1% of GDP. In Italy, corruption robs the country of 60 billion euro a year, and can increase the cost of any large businesses venture by up to 40%.

In economic terms, in 2011 alone in our country the renewable energy sector has witnessed 24 billion euros (29 billion dollars) in new investment. Italy is therefore the fourth largest spender on renewable energy, behind only Germany (31 billion dollars), China (48 billion dollars), and the United States (51 billion dollars). Additionally, recent studies have indicated that to this original Italian investment total of 24 billion, there should be added an additional 6.3 billion euro of incentives that do not appear explicitly on the bills of sector participants, therefore bringing to overall total expenditure to 30 billion euro.

Regarding this business climate rife with government subsidies and misappropriation, Frederick Golla, CEO of Siemens Italy asserts that “Integrity pays: by achieving our objectives while fully observing all applicable laws and internal regulations, we ensure a successful and sustainable business, even in such a difficult environment as the one detailed in this study.” With our initiative, we wanted to promote integrity and fair competition in the world. The Green Clean market project of Transparency International is an important step in this direction.

The Green Economy represents a key sector for the sustainable development of the country and, for this reason, requires special protections to prevent the subversion of corruption and fraud. The availability of public resources in the form of incentives, loans, and tax breaks also attracts the interest of unscrupulous actors, both public and private. These individuals take advantage of the opportunities and vulnerabilities inherent in the system to achieve rapid, substantial gains at the expense of the rule of law and fair competition between companies.

Mario Teresa Brassiolo, President of Transparency International Italy, echoed the importance of reform of the green energy market, stating “Our attention should be focused on the issues of legality and transparency in the sector. Only with such a focus, carried out by the state, will the benefits of free market competition allow the sector to thrive. If such a free market is allowed to exist, Italy will be poised to compete in the international renewable energy market and help define the future of the sector. This role is increasingly important for the future, as humanity continues to consumer more resources than we produce.”

The present situation in the green energy market therefore presents a real danger that could compromise the integrity and transparency of the sector, with particular risk existing in regards to emerging energy sources such as biomass.

As has emerged from the analysis, the critical causal factors that facilitate criminal opportunities and ultimately result in a weakening of the system of prevention are inherent in the regulatory framework and rules of the market. In particular, the absence of a national energy plan and effective central coordination of the market has led to an uncertain and unstable environment for private operators. This environment includes the excessive instability of regulations regarding incentives and additionally is characterized by strong geographical heterogeneity. The impact of this instability on the market is largely a widespread insecurity of participants, who, in turn, seek to ensure “more guarantees” from local institutions.

The national framework of authorizations/licenses is also at a high risk for exposure to corruption and fraud because of the inconsistent legislation on the national level, the inadequacy of quality standards required of projects and their financiers, the inadequacy of discretion laws, the inadequacy of laws preventing potential conflicts of interest, and finally the unpredictable and obscure manner in which changes to these laws are made.

At the market level, no shortage of companies have chosen the road of illegality by utilizing easy-to-create but difficult-to-identify corporate schemes, capitalizing on the volatility of investments, encouraging strong speculation in the sector, and benefiting from the weak control of the supply chain, and the difficulty in tracking money. Finally, this situation continues to exacerbate the marginal role of trade associations, who are unable to operate definitively to promote a culture of legal business and minimize the risks of corruption.

Another critical element is the active presence of organized crime, a common problem in areas of high profit potential and public interest. Ultimately, the presence of these criminal organizations can distort market dynamics.

Currently, research clearly demonstrates that the tools of investigation and prosecution are too weak, incapable of effectively reducing the risk of criminality and having a real deterrent effect. Additionally, the regulation regime continues to lack a reliable tool that is able to evaluate the local real return of investment in the renewable energy sector.

Signaling an absence of effective measures to counter the risks of corruption in fraud in the green market, the Green Clean Market study highlights these potential consequences in the medium and short term for the renewable energy market:

• Highly elevated risk for the misuse of  both European and national, funds earmarked for energy sustainability and local economic development. To date, the majority of the structural funds for the EU Convergence Objective (2007 – 2013, energy) have not been distributed.
• The contagion of both organized crime and white collar crime from the wind/solar energy sectors toward new, more profitable frontiers in the green energy market (e.g. biomass, ecological renovations of public buildings and/or public administered buildings…)
• A growing interdependence between criminal activities and organizations active in the RES and similar criminal organizations in related sectors (sectors characterized by significant inflows of cash and lax regulatory laws such as environmental restoration of ecosystems and wood smuggling for illegal heat production)
• A growing complexity and effectiveness of recycling schemes and trans-national crime networks, a growth facilitated by weak instruments of investigation and punishment.
• Significant economic losses to the State resulting from not only direct corruption, but also tax evasion, under the table employment, and capital flight of all profits from operating energy plants.
• A growing distrust among legally operating companies and private investors working in the Italian Green Economy that the market is not only healthy, stable, and efficient, but also free of maladministration, corruption, infrastructure deficiencies, excessive bureaucracy, and white-collar bribery.
• A continual impoverishment of local municipalities characterized by an increase in unemployment and a retardation of development. This outcome would be especially tragic considering the great possibility for green energy investment in these rural areas.
• An increase in environmental degradation and pollution of the local soil, water, and air. This pollution also results in increased costs for the revitalization of polluted areas and the disposal of toxic substances, more business for a sector in which there is strong evidence of criminal infiltration.

In conclusion, the renewable energy market will be best protected if it is able to free itself from government support and exist solely as a free market. As a free market, the green energy sector would be able to grow in an autonomous and responsible manner. Additionally, a free market with clear and simple rules would allow sector participants to plan investments based on realistic growth and opportunity assessments in the sector.

On Nov. 22^nd, 2012 at the headquarters of FAST in Milan (Piazzale R. Morandi 22), the first full plenary meeting of the Green Clean Market project will be held.

To download the event program, click here, or go to the web page of the Forum.

To register for the free event, please write to info@transparency.it

The Siemens Integrity Initiative Annual Report 2011 has been published. It contains the description of all projects funded in the first round and the related activities carried out in 2011. The Clean Green Market project is on page 90.

La green economy è un business nascente. Le sue radici si inseriscono nel più ampio processo di creazione dello sviluppo sostenibile, in quanto l’obbiettivo della green  economy è quello di realizzare un equilibrio fra l’utilizzo delle risorse naturali e la riduzione dei rischi ambientali. [...]