[UPDATED] Privatizing Public Diplomacy: Clinton's Shanghai Expo Sustainability Pledge Goes Awry

Turning the State Department's functions over to Beltway bandits is not in the interest of the American people. And with each USA Pavilion faux pas, Clinton's argument for privatizing public diplomacy is growing weaker.
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[UPDATES BELOW, OCT 7-8, 2010]

I've written before in The Huffington Post about the State Department's plan to privatize American public diplomacy and how it's prototyping the approach using the multi-multi-million dollar USA Pavilion project at the Shanghai World Expo as a stalking horse.

The privatization process goes like this, 1-2-3:

(1) Create a bogus nonprofit corporation -- in this case, call it Shanghai Expo 2010, Inc. -- to substitute for the Government as performer of the to-be-privatized public-diplomacy function.

(2) Compel the IRS to give the private corporation tax-exempt status, which by definition the company -- not a charity -- does not deserve.

(3) Raise corporate money for the private company, so that State can avoid having to to to Congress to get funding for the to-be-privatized function -- in this case, planning, constructing, and operating the USA Pavilion. And voila! There you have it: what was public is now private. Money-making. Political capital.

As a result of the prototyping, an agency bagman, the State Department's new Global Partnership Initiative was created to formalize and apply the process on a continuing basis. In our high-stakes world, its opportunities for political horse-trading on an international basis are boundless.

Unfortunately, Secretary Clinton herself became implicated in this scheme -- ironically, a racket of the State Department's own device -- when she made on-the-job fundraising calls to 60-plus American and Chinese CEOs, raising an estimated $70 million in behalf of the wholly private Shanghai Expo 2010, Inc. This was well after Shanghai Expo 2010, Inc.'s corporate charter had been suspended by the District of Columbia, where it was issued for failure to file tax returns; and well before the company improperly received tax-exempt status. The matter is now pending with investigative agencies.


On reading this, I went ROFL!

The USA Pavilion schemers -- the State Department, Shanghai Expo 2010, Inc., and the Shanghai Consulate -- have always been uneasy about their shopping mall-styled pavilion's high-carbon footprint, an embarrassment at an Expo dedicated to urban sustainability. The pavilion lost most of its eco-friendly features when in 2008, in an attempt to rescue the flailing effort, the Shanghai Consulate paid a Chinese group to simplify the pavilion's design and hence cheapen its cost. All that remained were a few square yards of rooftop plantings, an efficient water heater, and token solar panels.

Once the white elephant was built and shown to have the carbon profile of a large industrial complex (not counting the US-hosted fast-food court next door), something had to be done to restore the USA's "sustainability" creds. Otherwise, nothing about the USA Pavilion would be in keeping with the Expo's theme, "Better City, Better Life" -- a condition frequently noted in the increasingly critical international and American press.

But their hasty patch to make the USA Pavilion "compliant" has only made things worse. From the Alcoa press release:

The USA Pavilion and Alcoa Foundation have jointly announced that the Pavilion has reached carbon equilibrium covering the entire six-month duration of the Shanghai Expo, including the production of key building materials used in the Pavilion. A total of 8,250 tons of carbon offset credits were purchased from three selected Gold Standard-certified projects in China to offset the Pavilion's carbon footprint.

As the first national pavilion committed to be carbon neutral during the entire six months, the USA Pavilion fulfills a pledge to be a green pavilion, a commitment U.S. Secretary of State Hillary Rodham Clinton made on May 22 during her visit to the Expo.

Alcoa Foundation has partnered with the Pavilion on its environmental sustainability strategy to be carbon-neutral throughout the event. ICF International, a leading US climate change, energy and environment consultancy, was designated to conduct an independent, thorough, verifiable carbon footprint study to quantify GHG emissions.

Not so fast. All is not environmentally hunky-dory with this picture. In terms of sustainability and climate-change, the projects supposed to offset the USA Pavilion's carbon contamination are problematic, to say the least. So is the consultancy involved in their choice and investment.

ICF International, the company that calculated the USA Pavilion's carbon profile -- without independent review -- and that put this deal together is identified in the Alcoa press release as a "change, energy, and environment consultancy." Barely. ICF is primarily a multibillion-dollar Beltway-based defense, construction, and energy industry contractor. It states on its website, "To ensure a sustainable future, there is a great need to understand and manage greenhouse gas (GHG) emissions in ways that promote economic growth." You know where its sympathies lie. In the "green zone," ICF primarily serves the climate-change finance industry that exploits the climate crisis for its own financial well-being.

The VCS carbon-offset metric that ICF used to select these projects is voluntary and industry-created. The World Wildlife Foundation, hardly a radical actor, says VCS "fails to guarantee climate benefits and promote sustainable development. The standard lacks credibility." The Gold Standard, also applied, is a carbon-sale and -trading scheme administered by a firm in Switzerland. The firm rewards qualifying carbon-trading projects with a gold star they can flaunt in the carbon market. The gold star comes with a fee. You pay upfront.

The three projects in which ICF invested in to get the USA Pavilion off the hook are themselves highly problematic. Two of the three are slow-motion ecological trainwrecks.

  • The Gansu hydroelectric power project is an unmitigated ecological disaster, reports the Asia News: "Dam building and deforestation, more than 'natural' causes, are behind the Gansu disaster."

The Gansu projects' dozens of dams and thousands of windmills could produce in China's Western deserts an urban sprawl resembling water-thirsty, polluted, and hot Phoenix, unsustainable in the American Southwest -- only, many times larger and more intense.

(Which begs the question: why were all the offsets purchased in China? CO2 is a global phenomena. Offsets purchased anywhere would have the same effect. Why help China to develop its green technology instead of investing them at home, in American projects? The answer's simple: Shanghai Expo 2010, Inc., is currying favor with China in behalf of its corporate sponsors. Its misplaced priorities are an inevitable outcome of privatization.)

In that context, the comments of US Expo Commissioner General Jose Villarreal -- who is supposed to render an objective analysis of the USA Pavilion to the Congress when the debacle is over -- are laughable. From the same press release:

Said Villarreal, "I am proud the USA Pavilion will be supporting the Expo's theme, 'Better City, Better Life', through the purchase of credits from carbon offset projects in China which fulfills our commitment to be carbon neutral for the six-month duration of Expo 2010 Shanghai. The USA Pavilion is pleased to put into action our message of sustainability and healthy community-building by supporting three Gold Standard-certified projects across China to offset our carbon footprint. I would like to thank Alcoa Foundation for its generous contribution in helping the USA Pavilion be the best possible Expo citizen and become the first national pavilion to commit to carbon neutrality at Expo 2010 Shanghai."

Such creative disingenuousness deserves a reward, maybe even a real diplomatic posting. To Gansu, perhaps?

As the Expo nears completion, not a single aspect of the USA Pavilion has genuinely and honestly adhered to the Expo's sustainability theme (contrary to the pavilion's mission as Shanghai Expo 2010, Inc., stated when it applied for and received expedited tax-exempt status from the IRS). Not a single one. And with each USA Pavilion faux pas, Clinton's argument for privatizing public diplomacy grows weaker.

The bottom line: turning the State Department's functions over to Beltway bandits and Hollywood hucksters is not in the interest of the American people. And never will be.


Adrian Rimmer, CEO of Gold Standard, replied to this column elsewhere on the HuffPo, "Why the US Expo Pavilion Should Be Congratulated," October 4, 2010. You can read Adrian's and my exchange (and a humorous footnote by the character assassin ZenGarden) here:

Not wanting to put words in his mouth, I simply observe that it's a rare coincidence that the US Pavilion, tied so closely to the Shanghai AmCham, with Gold Standards help guided the purchase of carbon offsets to Chinese projects instead of projects in the USA or elsewhere. Gold Standards apparently has been trying to get US public entities to buy offsets overseas, I presume principally in China based on the sheer number of Chinese projects -- thus depleting US-based climate change-mitigation projects of funding. Gold Standard made its case in more general terms at the recent Carbon TradeEx America conference, held in Chicago, where Gold Standard hosted a session, "International offsets: A critical tool for the US market." The session preview states,

Although international offsets may help provide a cost effective solution for US emitters to meet their emissions reduction targets, US legislators have often taken a somewhat skeptical view on the role of international offsets for achieving US emission reduction targets. Past proposals for domestic climate legislation have allowed the use of 2 billion offsets, but according to many market reports these volumes will not be reached without the inclusion of international offsets. Indeed, participants in the US voluntary carbon market are already using domestic and international offsets to significantly reduce their emissions. The panel at this side event will consider the value and benefits of international offsets, as well as concerns surrounding international offsets and how these concerns can be resolved.

I'd like to think that Adrian's praise of the Chinese projects wasn't tainted in any way by Gold Standard's corporate strategy, to get US public entities to invest overseas. Even more, I hope that Adrian isn't under the assumption that by selling offsets to Alcoa for the USA Pavilion, he was dealing with a public entity! That would be untrue. I explain this in ....


The article on which my original article relied, in Ecosystems Marketplace -- a trade journal for dealers in carbon offsets -- made the astounding claim, "US Buys Chinese Offsets as Gold Standard and Others get Creative," implying that the US Government had purchased offsets overseas, in China. The title was just changed to "US Pavilion Buys Chinese Offsets...," a clever alteration that still does not explain to EM's readers the wholly private nature of the USA Pavilion and Shanghai Expo 2010, Inc., the tax-exempt "charity" behind this corporatized carbon-emitting beast. Despite the controversy, one thing is for sure: the USA Pavilion is not a part of the US Government. I asked Steve Zwick, the editor of EM, to make corrections for his readers' sake. My letter follows:

Dear Mr. Zwick:

I am writing to recommend that you alter the headline on an article by Molly Peters-Stanley, with whom I have been in touch, "US Buys Chinese Offsets as Gold Standard and Others get Creative," 4 October 2010.

In fact, the "US" -- implying the US Government -- did not buy Gold Standard offsets as your title suggests. Alcoa Foundation bought the offsets on behalf of Shanghai Expo 2010, Inc., a private tax-exempt corporation set up to relieve the US Government of any responsibilities regarding the USA Pavilion except to wish it well and encourage others to give to it. No policy is in effect on the part of the US Government to buy carbon offsets in China, so far as I know.

The title you chose could lead to serious problems if the USA Pavilion was held up as an ideal model for public purchase of offsets, as the article additionally implies should be the case.

  • First, of course, there is the matter that the SE 2010 is not a public entity. It is a private corporation. It has never even opened its books to the public, let alone its operations.
  • Second, as a result of alleged irregularities, it may be under investigation by authorities in the USA. (Tax law as you know prohibits disclosures about investigations.)
  • Third, there is now the issue of money flowing into and out of SE 2010, an organization in which the Shanghai AmCham has played such a decisive role. By and from whom, and for what purpose, has all of this cash been transferred. AmCham's involvement, based on recent press accounts, begs the question: were the USA Pavilion offsets purchased in China strictly on their merit?

When it applied to the IRS for tax-exempt status, SE 2010 represented the future USA Pavilion as a sustainable, carbon-neutral structure. That was part of its public-service "shtick." Instead, it now requires the purchase of 9,000 tons of offsets to go neutral. The USA Pavilion's design was mucked around with by the Chinese, but the promise was off when SE 2010's first major corporate sponsor (or "marketing partner") decided to set up a fast-food court on the premises, the better to sell obesity food to seven million Chinese guests. "Fried chicken with offsets? Would you like that supersized?"

The offsets' expense ultimately will be paid by American taxpayers -- without Congressional approval -- because the offset purchase are now tax exempt and someone has to make up the revenues lost to the US Treasury. Backhanding the financial burden this way isn't in the best interest of the offset-market industry. This article should note these realities lest it mislead your readers who now expect the field to be plowed. Plowed, yes, but also possibly poisoned.

It's ironic that Gold Standard, which prides itself on its investigative abilities, did not know about these alleged irregularities regarding SE 2010 and its USA Pavilion. It shows that the offset value chain is still vulnerable and prone to distortion, on the buyer's side as well as the seller's side.

I look forward to your reply and a correction. Thanks for your attention.


Robert Jacobson

Will EM "man up" to its editorial responsibility to its readers? I hope it will. I'll let you know.


I did some investigating regarding carbon credits today. Basically, they are worth whatever the seller asks and the buyer pays. There is no agreed-upon worth: that's the whole reason that there is a cap and trade debate.

Carbon credits -- unlike offsets, which start with a material base, the pollution being offset -- are a total guess -- range in value from $5/carbon-ton to $100/carbon-ton. The 8,250 credits purchased by the Alcoa Foundation for SE 2010 (presumably as a tax-exempt contribution) thus are worth between $40K and $1 million. That's quite a variance. However, do they really matter to the Chinese who are building their mega-projects regardless of how much guilt money Westerners put in their pockets? Unlikely. Yet the same amount provided to an eco-startup in the US could mean the difference between starting up and failing. So why again were these credits purchased in China?

There is also concern expressed in the press that purchasing credits is an incentive for Third World countries like China to more rapidly pollute their own environments while forgiving current pollution in the donor nations. In other words, credits may do more harm than good.

Lastly, how did ICF International -- the firm charged with determining how much CO2 the USA Pavilion is responsible for, deal with the construction of the pavilion and its deconstruction? The credits have already been purchased, yet there is still a month to go before the Expo concludes and probably two months work (and a lot of emissions) before the pavilion is fully removed and disposed of, and the plot restored for its next use. It's difficult to imagine how ICF saw into the future given the unique quality of the USA Pavilion and its location.

8,250 carbon tons is an awfully small figure to cover the construction, operations, and deconstruction of the USA Pavilion. Does the audit on which the purchase was calculated take into account cleaning the nest? Or is this a CO2 expense to be passed on to future generations, like so much else that happens today? That would seriously call into question Clinton's pledge and its fulfillment.

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Comments? Write to me at Bob Jacobson.

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