Corruption risk in renewable energy threatens climate action

There is no time to lose in reducing greenhouse gas emissions – the overwhelming body of scientific opinion is that reaching net zero by 2050, compared to 1990 emission levels, is essential if the world is to be on track to keep rising temperatures below the two-degree rise that is widely accepted as the tipping point for disaster.

Along with the realization that the environment is not OK and that we need to change, and change quickly, there is growing pressure on policy makers, regulators and businesses to increase renewable energy production and connect it to the national energy networks.

Expanding targets to increase capacity in this regard is already translating into billions of dollars spent globally on renewable energy development, and billions more will follow in the years to come in the search for an energy cleaner and more durable.

There is a risk of corruption across the various stages of development that renewable energy developers and asset operators must manage.

The requirements to be met vary from jurisdiction to jurisdiction, but generally developers will need planning permission, environmental permits, licenses to generate power and connectivity to transmission networks . The process can be bureaucratic and slow, and often governments are only willing to grant a certain number of permits or licenses to generate, transmit or sell electricity. This combination of scarcity of permits and lucrative contracts creates an increased risk of corruption, as we have seen before in the context of oil and gas exploration and telecom spectrum auctions.

This risk is further heightened when there are unscrupulous gatekeepers who can influence the fortunes of renewable energy companies at different stages of a project. In some developing countries, for example, where there are often optimal environmental conditions for the development of renewable energy, the risks of corruption may be higher, since the guardians are often poorly paid civil servants and there are no strong anti-corruption laws or enforcement.

Where there is a risk of delay, with the cost that this entails, there is a risk that gatekeepers act as so-called “rent-seekers”, seeking a “quid pro quo” to sanction development or make advance applications towards approval, or even release critical components from ports where they may seek to take advantage of customs and customs officials who are under pressure to clear goods.

The tendering process for construction and maintenance contracts also gives rise to the risk of corruption, given the length and value of the contracts involved.

Failing to properly manage the risk of corruption would increase the cost of projects, and at the cost people and businesses would be called upon to foot the bill as part of the energy transition. This could embolden climate deniers and those lobbying against the “net zero” agenda. The transition to renewable energy requires public confidence that decarbonization is the right thing to invest in. If public confidence in renewable energy projects is shaken and populist views gain traction among those in positions of power, this threatens progress towards mitigating the worst anticipated effects of the climate emergency.

For renewable energy companies that fail to properly manage the risk of corruption and fall into the traps set by those seeking to profit from it, there is a risk of cross-border investigations and enforcement action. The world’s leading anti-corruption regulators, such as the US Department of Justice and the Securities and Exchanges Commission, as well as the Serious Fraud Office in the UK, are no doubt already monitoring the renewable energy sector for corruption allegations against companies that may come under their jurisdiction. Multilateral development banks such as the World Bank, African Development Bank and Asian Development Bank will also closely monitor bank-financed renewable energy projects.

Renewable energy companies should not wait until it is too late. The same degree of urgency that drives the race for renewable energy should be applied to putting in place appropriate anti-bribery and corruption controls. Renewable energy companies that are inexperienced in managing corruption risk should seek the assistance of experienced and appropriate anti-corruption expert advisors, where available.

Martin E. Berry