Ignore the CSIRO and Treasury – a no brainer for ScoMo

If you had the opportunity to ask the CSIRO and Federal Treasury to model a net zero climate plan what would you do?

If you are the Morrison Government that’s a no brainer. You ignore them and give the $6 million job to McKinsey.

 We only know the opportunity existed because it was revealed at Senate Estimates that the CSIRO had applied for a tender to conduct modelling work in relation to the Coalition’s net-zero plan but was rejected. We only know about the Treasury omission because of evidence to the same committee.

So what did we get for the $6 million? A ‘plan’ light on specifics, some unconvincing Power Points and more of the ‘technology not taxes’ slogan.

There are two bits of nonsense in this. First, the slogan is both oxymoronic and a lie. Obviously the billions of dollars being shovelled by the Government to various fossil fuel companies and untried technology have to be paid somehow or other. If they are not coming from our taxes where are they coming from – a magic pudding? If they are not magic pudding stuff, the plan’s cost will add roughly $1100 dollars to the tax bills of every Australian currently between the ages of 15 and 64.

Second, McKinsey estimated that the Australian carbon price will be $25 in 2050 and that’s the foundation of what Morrison took to Glasgow. Yet, under the Australian Carbon Credit Units (ACCUs) scheme (our faux Emissions Trading Scheme) the recent price was a record high of $35.50 per tonne. Less magic pudding and more miracle stuff is required to make sense of that.

The giveaway on how thin the plan is, and how it is relying on miracles, is on page 18 of the 129 page plan. The graph on that page depicts the “priority technology contribution to meeting Australia’s net zero by 2050 goal”.

20% is for reductions up to date (most of these are as a result of Australian’s brief flirtation with a carbon price which was repealed by the Liberals and now abandoned by a cowardly Labor Opposition) and the efforts of State Governments.

40% will come from the ‘Technology Investment Road Map’ which includes such unproven technology as carbon capture and the rest from ‘global technology trends’, ‘international and domestic offsets’ (an estimate in this area resulting in the reduction being either 100% or 110%) and ‘further technology breakthroughs’.

It is difficult to imagine how this can happen given that Australia spends just 1.8% of economic output on R&D compared with an OECD average of 2.5%.

Now there are various possible interpretations of how McKinsey came up with all this. It may have just been your usual consultancy pitch where the senior people came in and promised the world and then left the work to recent MBA graduates who worked at it in the bowels of the office.

Equally the work of the recent graduates could have had the help of political advisors in the Prime Minister’s Office who stripped it of any real content and ensured it achieved their political ends.

Another alternative is that it was just the sort of work McKinsey has sometimes undertaken

Bloomberg and the Financial Times have both reported on the firm’s South African work where McKinsey was one of several firms (including KPMG and Bain) caught up in the scandals associated with the Gupta family allegedly at the centre of widespread corruption that took place during the presidency of Jacob Zuma.

It was alleged the Guptas used their friendship with President Jacob Zuma to obtain lucrative state contracts and sway public appointments — referred to locally as state capture — to bolster their mining-to-media business empire.

At one stage McKinsey was also poised to win a $700 million fee for advising the South African power supplier, Eskom, on how to improve its services and end recurring power blackouts. It worked on that with a subcontractor linked with the Gupta family.

KPMG apologised for working with a company linked to the Guptas and Bain said in 2018 that work for South Africa’s tax authority, which was undermined in the scandal, “fell short of our operating principles”. Bell Pottinger, the British public relations company, collapsed in 2017 over evidence that it sought to defend the Guptas from the scandal by stirring up racial tensions.

All told McKinsey has repaid more than $63 million for the work it did in South Africa.

But being a global firm it also has form elsewhere.

TRT reports McKinsey worked with Purdue Pharma which made billions from pushing the OxyContin painkiller. It was alleged McKinsey advised clients on how to aggressively sell the drugs and market them through doctors. McKinsey has now agreed to pay $574 million to US authorities for its role in the opioid crisis which has killed hundreds of thousands of Americans.

It also worked for Donald Trump’s Immigration and Customs Enforcement (ICE) agency where it got paid $20 million for advice on how to manage detention facilities cost-effectively recommending budget cuts in areas such as food served to detainees. After the New York Times exposed the gig in 2018 McKinsey severed its contract with ICE.

In Europe it worked with Swissair on an expansion plan which, in a Blackadder type cunning plan, involved not focusing on its core business of flying passengers but proposed the purchase of stakes in regional airlines with the condition that they used Swissair’s ground services. It didn’t work, cost Swissair millions but fortunately didn’t result in bankruptcy.

And then there was Enron – the company supposedly run by the smartest people in the room. Jeff Skilling, the Enron CEO, was a former McKinsey staffer and paid McKinsey millions for various services. In 2001 it collapsed.

In the McKinsey Quarterly magazine, before the collapse, McKinsey wrote about Enron that “the deployment of off-balance-sheet funds using institutional investment money fostered securitisation skills and granted it access to capital at below the hurdle rates of major oil companies.”

A McKinsey partner write a book, Creative Destruction, applauding Enron’s business model – a model actually based on accounting fraud which destroyed the wealth of many including accounting firm Arthur Anderson and employees who took stock.

Given the Morrison Government’s record of rorts, lies, secrecy and corruption they are obviously a natural fit with some other McKinsey clients.

Morrison might instead heed the words of The Economist (October 30 2021): “Anyone who dreams of a reprieve for fossil fuels must be disabused. It suits Narendra Modi, prime minister of India, Scott Morrison prime minister of Australia and Joe Manchin a senator from West Virginia, never to speak of an end to the fossil fuel age. But for them to duck the responsibility of planning a transition is rank cowardice.”