# Application for PhD (Law) ([Australian National University](https://www.anu.edu.au)) 9030 Doctor of Philosophy, Faculty of Law The Australian National University Name: Wright, Glen Application number: W[REDACTED PHONE] Applicant number: [REDACTED PHONE] Contents Page Carbon offsets and Consumer Protection.pdf 15 Conceptualising and Combating Transnational Environmental Crime.pdf 29 Crest Energy casenote.pdf 41 Designing a Rule to Facilitate the Efficient Augmentation .pdf 83 Marine Energy in New Zealand.PDF 87 NGOs and Western Hegemony.pdf 99 Risky Business.pdf 159 The International Renewable Energy Agency.pdf 180 PhD proposal, one page summary.pdf 181 Details of written work.pdf 182 List of prizes and awards.pdf 183 GCSE transcript, certified.pdf 187 A level transcript, certified.pdf 190 Undergradtuate transcript, certified.pdf 194 Masters transcript (at September 2011), certified.PDF 195 CV.pdf 197 PhD proposal (full).pdf 207 A-[REDACTED PHONE] / S-[REDACTED PHONE] / C-[REDACTED PHONE] / T-14060 Graduate Research Application CRICOS Provider Number: 00120C • The University will not process or consider your application until all sections have been satisfactorily completed and all specified documentation has been provided. For International Applications payment of the Application Fee must also be received prior to consideration or processing of your application. • Visual Arts and Music Programs: These programs have specific application and selection requirements. Contact the ANU College of Arts and Social Sciences [REDACTED EMAIL] for a Prospectus. 1. Program of Study If you are applying for both PhD and Master by Research programs, please indicate so in the Preference fields: Program – Preference 1: Program/Plan Name: Plan Code Graduate Research Field Doctor of Philosophy, Faculty of Law 9030XPHD Law Program - Preference 2: Program/Plan Name: Plan Code Graduate Research Field Mode of Study: (Tick 9 one.) Full Time Full-Time Part Time Expected Commencement Year and Session: Sem 1 2012 February Field of Research/Discipline: e.g. Australian History/Japanese: Environmental Law Briefly describe the particular area of research in which you are interested. (If you wish to undertake research in Music, please include any instrument details). Please attach a research proposal discussing the field/topic that you would like to pursue. This should be a maximum length of one page. ### Marine energy Supporting Documentation: List details of Written Work relevant to this application that you have completed or to which you have contributed, e.g. theses (published or unpublished), essays or papers. (Copies of written work for consideration must be attached or sent to the Admissions Office immediately. If unsuccessful, this material will not be returned to you). Your application will not be considered until all relevant documentation is received. FILE Provide details of Academic Prizes or Awards that are relevant to this application: (if insufficient space is provided, please attach or send a list to the Admissions Office). Provide details of ANU Staff consulted about this application: (it is strongly recommended that you contact the relevant Graduate Studies Convener and an academic staff member in the College in which you wish to be located). Penny Swan, Mark Nolan, Tim Bonyhady, James Prest, Andrew Macintosh Provide details of your Proposed Supervisor: (if discussed or identified) Tim Bonyhady, James Prest 2. Scholarships For closing dates and other important scholarship information go to http://www.anu.edu.au/sas/scholarships/app_info.php Current and Previous Australian Government and/or other Postgraduate Scholarships Name of Award From To Value (if currently held) Y Y Y Y - $ - $ I wish to apply for the following scholarships: (Please tick 9.) ANU Graduate Research Scholarship * ANU PhD Scholarship Australian Postgraduate Award (PhD only) * ANU Master Scholarship Indigenous Australian Graduate Scholarship * Endeavour International Postgraduate Research Scholarship^ ✔ Re-entry Scholarship * ANU Graduate Research Mid Year Entry Scholarship * Available to Domestic applicants only ^Available to International applicants only Other Scholarship/s: (Please specify) ANU University Research Scholarship, ANU PhD Scholarship If eligible, do you wish to apply for a part time award? (strict conditions apply) Yes No ✔ Are you applying for any other scholarships or sponsorships external to ANU? (e.g. Government, Australian Leadership Awards) No 3. Personal Details: Please enter your details as they appear on official documents (ie your passport or birth certificate) Are you currently or have you previously studied at the ANU? If so, please specify your student University ID: number (if known): (Numeric only) D D M M Y Y Family Name: Wright Title: ████ of Birth: 26 Aug 1988 Given Names: Glen Email: glen.w.wright@gmail.com Previous Family Name (if any): Gender M Male / F Mailing Address: (The address where official documentation mailed to, do not use a PO Box address) Phone: ( ) [REDACTED PHONE] Mobile: [REDACTED PHONE] Fax: ( ) Country Australia Home Address: (This is your permanent home address) Country Australia 4. ATSI, Citizenship & Visa Details Are you an Australian citizen, Permanent Resident or hold an Australian Humanitarian Visa? No Citizen of Country other than Australia Are you an Aboriginal or Torres Strait Islander? D D M M Y Y If you were born outside Australia, the date of your first arrival: 11 Jul 2010 Country of Citizenship: United Kingdom Country of Birth (if born outside Australia): United Kingdom D D M M Y Y Have you applied for permanent resident status in Australia? Yes^ ✔ No ^Date: 18 Jan 2011 (Evidence will be required upon enrolment) 5. English Language Proficiency The University’s English Language Proficiency will not be waived under any circumstances. All requirements must be met. Please refer to the following link for more information http://info.anu.edu.au/studyat/International_Office/getting_in/_englishreqmts.asp. For advice on the Australian Government’s requirements to receive a visa, www.immi.gov.au Is English your first language? Yes ✔ No Have you already studied in English? Yes No If yes, at what level? (Only include studies that are taught and examined in English, evidence is required) Test Name: (eg. TOEFL, IELTS) D D M M Y Y Date taken: Overall Score: Band Score – Reading: Band Score – Writing: Band Score – Speaking: Band Score - Listening: Attach a copy of your English Language Test results. (PLEASE NOTE: you are required to provide the original or an authorised certified copy of your test prior to admission). 6. Educational Details: (ANU students must list studies at ANU and any other institutions) Please provide details of your secondary school studies and/or special tertiary admission schemes: Type of Studies/Scheme: Secondary School Name of the Institution where the studies have been undertaken: Summerhill School State/Country where the studies have been taught/examined: United Kingdom Attended from: Month 9 Year 1996 Attended to: Month 1 Year 2004 Has the qualification been completed? Yes ✔ No What is the Language of Instruction and Examination for this award? English Attach a certified copy of your results List all attempts at final Secondary School Examinations: Type of Study: (ie. College, tertiary) College Name of Examination (e.g. GCE ‘A’ Levels, HSC, STPM): A Levels Name of the Institution where the studies have been undertaken: King Edward IV College State/Country where the studies have been taught/examined: United Kingdom Attended from: Month 9 Year 2004 Attended to: Month 1 Year 2006 What stage has been reached or has the degree been Awarded?: Awarded Attach a certified copy of your results Post-Secondary Studies: Have you undertaken Post-Secondary studies that you are enrolled in or Yes ✔ No have completed. Eg. Diploma/Degree? Details of Study: (i.e. Master of Arts) LLB (Law with American Law) Name of the Institution where the studies have been undertaken: Uni. Nottingham; Uni. Texas Country where the studies have been taught/examined: United Kingdom Attended from: Month 9 Year 2006 Attended to: Month 6 Year 2010 What stage has been reached or has the degree been Awarded?: Awarded What is the Language of Instruction and Examination for this award? English Attach a certified copy of your results Provide details of any other previous study information that is relevant to this application Details of Study: (i.e. Master of Arts) Master of Laws Name of the Institution where the studies have been undertaken: UNSW Country where the studies have been taught/examined: Australia Attended from: Month 8 Year 2010 Attended to: Month 12 Year 2011 What stage has been reached or has the degree been Awarded?: 5 of 8 courses complete What is the Language of Instruction and Examination for this award? English Attach a certified copy of your results: Do you expect to obtain a qualification this year (outside of ANU)? Yes ✔ No If yes, name of qualification: LLM (as above) Have you ever been excluded (or are you facing exclusion) from a Yes No ✔ program/course on academic or other grounds? If yes, attach details on a separate sheet 7. Relevant Employment/Training Please attach your CV or resume. Please detail your current employment. Name of current Employer University of New South Wales Phone [REDACTED PHONE] Business address of current ██████, School of Law Mobile Employer Sydney Fax Postcode 2052 Stat Email NSW [REDACTED EMAIL] e ### Country if outside Australia Please detail your previous employment history if you believe it is relevant to your application Occupation Position Date Commenced D D M M Y Y Freehills (current) Paralegal 17 Sep 2010 Total Environment Centre (current) National Electricity Market Advocate 08 Aug 2011 Please describe details of your employment or training that you consider relevant to your intended study I currently hold three research positions that involve areas of law and regulation that are relevant to my proposed thesis topic. 8. Referees Please provide the details of three referees. The University will not request reports on your behalf. • Referees must be qualified to speak with knowledge about your work during the qualification most relevant to this application and on your capacity for research. • If you are also basing this application on relevant work experience/training, at least one of your referees must be able to comment on your relevant experience. • You must also provide contact details of your referees on this application form and ask them to submit their written reports directly to the University with a "Referee's Questionnaire" form which can be found at www.anu.edu.au/sas/forms/Questionnaire.pdf Name Address Position Date report requested D D M M Y Y 1. 09 Aug 2011 University of New South Wales, School of Law, Sydney 2052 ██████ Senior Research Fellow Email: [REDACTED EMAIL] Name Address Position Date report requested D D M M Y Y 2. 12 Aug 2011 University of New South Wales, School of Law, Sydney 2052 Michael Grewcock Senior Lecturer Email: [REDACTED EMAIL] Name Address Position Date report requested D D M M Y Y 3. Freehills, Level 38, MLC Centre, Sydney, NSW 2000 ██████ Senior Associate Email: [REDACTED EMAIL] 9. Finance for Study (Please indicate how you intend to finance your studies) Are you applying for any scholarship or sponsorship (if yes please provide details and evidence of the funding) Yes ✔ No Are you relying on private finance (if yes please provide details and evidence of the funding) Yes No ✔ 10. Agent Details (if applicable) Note: The ANU only allows certain government or educational organisations to act on behalf of applicants. Your agent should know whether they are permitted to act as an ANU agent. Refer to http://info.anu.edu.au/studyat/International_Office/getting_in/agents/index.asp for a list of recognised agents. ANU Agent ID : Agent Name : Agent Email: 11. How did you learn about the ANU? (Please tick ; the relevant box/es.) List of Options: ; (Please provide details). Australian Diplomatic Mission † Australian Education Centre † Agent † Student or alumni of ANU † College or university † Employer † ✔ Education exhibition † International Education Office (IEO) † Friend/relative familiar within Canberra/Australia † ✔ Newspaper or magazine advertisement † Visit to ANU campus † ✔ ANU academic staff member † The ANU website † Summer Research Scholarship † Other † 12. Declaration and Signature (all applicants to complete) • I certify that I have read the Instructions and understood the questions on this form and that the answers are true and correct. • I understand that the University may vary or cancel any decision made on the basis of incorrect or incomplete information provided by me or by my referees. • If any information is discovered to be untrue or misleading in any respect, I consent to the University collecting, storing and disclosing this information to Universities Australia (UA) and UA member institutions, the Australasian Conference of Tertiary Admissions Centres (ACTAC), and any other relevant authority. • I authorise the University to obtain official records from any institution I have attended. • I understand that ANU may disclose the personal information I have given in this application to the Department of Immigration and Citizenship (DIAC)(International Students only) and the Department of Education, Employment and Workplace Relations (DEEWR) and that DEEWR will collect and store my personal information for use in connection with the Higher Education Information Management System (HEIMS) or the Provider Registration and International Students Management System (PRISMS). DEEWR may also disclose the information to the Australian Taxation Office (ATO). • I understand that I am responsible for payment of all tuition fees by the due dates and for my living expenses unless I have been awarded a scholarship or sponsorship, which covers these costs. I have read and understood the tuition fee refund policy available at http://www.anu.edu.au/sas/fees/#refunds. • I understand that international students who are made an offer of admission will be required to provide [REDACTED PASSPORT] upon acceptance of offer and that the University may provide information, personal and academic to any authority legally entitled to request it. D D M M Y Y Applicant’s Signature: Glen Wright Date: 30-Aug-11 ### Documentation to Accompany your application Please attach original or certified copies of transcripts of Academic Records and evidence of completion of all qualifications. If you send original documents they will not be returned to you. All copies must be certified according to the instructions found at www.anu.edu.au/sas/forms/SA18_Certification_of_application_documents.pdf. You will be required to submit original documents at the time of enrolment. Do not delay in submitting an application if you are waiting for results of current study. Forward your results or transcripts as soon as they become available. Current or previous ANU students should list all studies attempted, but need not provide a transcript from the ANU. ### Acknowledgement of Application All Applications are acknowledged. You do not need to contact the University to confirm receipt. Any change of address or details must be notified in writing to the Admissions Office. Conceptualising and Combating Transnational Environmental Crime To date, transnational environmental crime has been poorly attended to by the transnational organised crime and transnational policing discourse. National and international institutions have prioritised other forms of organised crime, giving little thought to the nuances of environmental crime and how they should be reflected in policing. Academics have tended to focus on particular environmental crimes, neglecting a broader theoretical discussion: there has been no attempt made to “draw lessons from this group of problems as a whole, nor to organize the various policy issues involved into a coherent framework for analysis” (Hayman and Brack 2002: 6). Acknowledging that the genesis and dynamics of such crime must be understood in order to effectively respond to it, this paper aims to conceptualise transnational environmental crime and assess how this conceptualisation impacts upon the approach taken to policing. The paper will begin by looking at the problem of transnational environmental crime, its value, scope and effects. The nature of such crime will then be discussed by reference to traditional organised crimes, such as drug smuggling and people trafficking. It will be argued that, while transnational environmental crime has some features in common with these traditional forms of organised crime, there are substantial differences that make transnational environmental crime distinctive, and these differences should guide the approach to countermeasures. The effective combating of transnational environmental crime, it is concluded, requires both a different approach to policing, avoiding the „war on‟ paradigm, and a greater emphasis on demand and supply reduction. 1. Transnational Environmental Crime: the problem Transnational environmental crime (TEC) can be split broadly into two categories: trafficking in natural resources and trafficking in hazardous substances (COP 2010: 9). The former includes the trade in endangered species, illegal logging and illegal exploitation and trafficking of mineral resources while the latter includes the illegal trade in ozone depleting substances and the dumping and trafficking of waste. This paper will not attempt to deal comprehensively with the effects and scope of every environmental crime. However, it will be necessary to outline some of the effects in order to highlight the importance of the issue. Some environmental crimes, such as wildlife poaching, can jeopardise the existence of whole species and deprive local communities of a valuable tourism resource (EIA: 5). Likewise, illegal logging takes away a valuable resource from local communities that may depend on it. In some cases, for example in Honduras, criminal groups have driven communities off their land to engage in illegal logging and fishing (Schmidt 2004: 97). The effects of some environmental crimes are global in nature. For example, the depletion of the ozone layer causes a wide range of health and environmental effects worldwide (UNEP 2007), and the dumping of hazardous waste can affect wide geographic areas and pollute water systems. Like most illicit market activity, it is difficult to ascertain precisely how widespread and valuable TEC is (Higgins). One estimate places the total value of TEC worldwide at US$22-31bn each year (Lauterback 2005), yet another suggests that illegal fishing and logging alone are worth US$40bn (Baumüller et al. 2009: 2). This places illegal fishing and logging above people smuggling in terms of value (UNODC). Even estimating the value to criminals does not illuminate the full extent of the problem, as the crime not only generates money for those involved, but also costs states money. The World Bank, for example estimates that illegal logging costs states in the Global South1 US$15bn in lost revenue and taxes each year (EIA 2007). 1 I acknowledge that there are various terminologies used to refer to the North/South dichotomy (e.g. first world/third world, developed/developing). In this paper, I follow the practice of the United Nations 1 In addition, those involved with environmental crime are often involved in other high profit TOC (COP 2010: 9, Interpol 2006: 6, Interpol 2009). This occurs for three reasons. Firstly, it can be due to the perpetrators being involved in criminal activity more generally; thus environmental protection officers often come across evidence of firearms dealing and money laundering during their investigations (Blindell 2006). Secondly, it can be a result of symbiosis between environmental crime and other TOC. For example, the illegal clearing of land can be a precursor to drug cultivation or trade in illegal chemicals can be a precursor to trading chemicals for terrorist activity (Blindell 2006: 2). Likewise the hunting of wild animals is facilitated by logging as poachers can take advantage of infrastructure developed by logging companies to access animals (Schmidt 2004: 99). Thirdly, there is a high potential for „crossover crime‟; incidental crime committed in the course of committing TEC. ████ Higgins2 notes that a whole range of crimes, such as murder, corruption and falsification and forgery of documents, are commonly committed in the course of TEC (Higgins, Four Corners 2002). 2. The Neglect of TEC Despite the effects and scale of TEC, it has been woefully neglected at all levels. The UN notes that Governments tend to approach TEC solely from a natural resource management and conservation perspective (COP 2010: 10), thus neglecting to criminalise TEC, or otherwise attend to it with the same level of urgency commanded by the traditional forms of transnational organised crime (TOC). There is often “no exclusive competence on organised environmental crime” (Fröhlich 2003: iv) in national enforcement systems and the enforcement agencies responsible for TEC are usually poorly trained, inefficient and lacking in resources (Hayman and Brack 2002: 16). Environmental crime “relies on individual states to implement national legislation and actively enforce against environmentally criminal behaviour as they occur within their borders” (Bricknell 2010: 11). In this regard, countries in the Global North tend to have extensive legislative regimes for environmental crime (see Fröhlich 2003 for a comprehensive overview of the EU, for example), but low conviction rates. An extensive study into the prosecution of TEC cases in the national courts of the EU member states found a “relatively low number of cases compared to other classical segments of organised crime” (Fröhlich 2003: i). Only 122 cases were found between [REDACTED PHONE] (Fröhlich 2003: i). Even when a conviction is secured, the penalties are “often inadequate to deter re-offending or disrupt established criminal networks in any meaningful way” (EIA 2007: 2). Given the extent of TEC and the wide range of crimes it encompasses, it seems unthinkable that such a low number of cases would be prosecuted; such is the low level of priority accorded to TEC. In some instances however, the national legislation of Northern countries, or lack thereof, undermines other states‟ efforts to combat TEC. For example, when Indonesia banned certain logging activities, the failure of importing countries to also criminalise products of such activities undermined the domestic legislation (EIA 2007: 10). Nations in the South, who typically supply the goods derived from TEC, are poorly placed to implement effective legislation, and legislation relevant to TEC is often “unclear, contradictory or [lacking] popular support” (Brack 2007: 11). Environmental laws are frequently “marred by loopholes” (EIA 2007: 2), as well as the lack of capacity for enforcement. Meanwhile, the international community has focused heavily on the traditional TOCs, at the expense of TEC and other emerging forms of international organised crimes. Where international Development program which, in its 2009/10 annual report, uses the Global North/Global South terminology (UNDP). 2 Manager of Interpol‟s Environmental Crime Programme. 2 agreements are concluded dealing with elements of TEC, “implementation is left to national priorities at the expense of the big picture of the global control regime” (Hayman and Brack 2002: 17): national priorities that often do not include the effective counteraction of environmental crime. The Conference of the Parties to the Convention Against Transnational Organized Crime (the Convention) has recently described TEC as “highly relevant in terms of the UNODC mandates” (COP 2010: 9). While the inclusion of TEC under the auspices of the Convention is possible, as members of organised criminal groups can be prosecuted under the Convention for their participation in an organised criminal group (article 5), few governments impose the four-year deprivation of liberty penalty required for activity to be considered a „serious crime‟ (article 2). For example, the majority of States party to the Convention on the Trade in Endangered Species do not impose this level of penalty on wildlife criminals (Zimmerman 2003: 1684). Thus TEC is dealt with under the numerous multilateral environmental agreements regarding its constituent crimes. The consequence of the neglect of TEC, as may be expected, is that environmental crimes are committed with impunity. The vanishingly small chance of being caught and punished for committing these crimes means that smugglers and other environmental criminals have nothing to fear. As such, investigators are often faced with “exuberant confidence” from environmental criminals (Schmidt 2004: 98). One dealer in wildlife recently commented, during an undercover meeting, that wildlife trafficking is “better than drug smuggling” (Schmidt 2004: 98). Thus, through lack of strong and focused action, TEC is perceived to be high profit and low risk (Fröhlich 2003: 4; EIA 2007: 2). 3. The Present Context While there are causes for concern, it seems that TEC is increasingly being seen as an important issue. At the Twelfth Congress on Crime Prevention and Criminal Justice in April 2010, the Salvador Declaration acknowledged the “challenge posed by emerging forms of crime that have a significant impact on the environment” (UN 2010: [14]). TEC has also been included as an emerging form of crime on the agenda for the fifth session of the Conference of the Parties to the United Nations Convention against Transnational Organized Crime (COP 2010). While it is clear that TEC is beginning to arouse interest from the international community, it is not clear whether the issue will be met with the nuanced responses that are required by the unique nature of TEC. This paper attempts to analyse this unique nature, comparing TEC to the traditional TOCs, and frame future discussions of how best it can be counteracted. 4. Commonalities with Traditional Forms of Transnational Organised Crime Environmental crime is often by its nature transnational, and can be termed as such wherever there is a movement of illegal goods across national borders or where the effects of the crime are transboundary in nature. The transnational nature of much environmental crime is obvious: consider the distance from poacher to purchaser or forest to furniture store. TEC is conducted by a multiplicity of actors, as will be discussed, some of which are organised groups, including small amateur groups and large-scale organised criminal groups (COP 2010). Finally, environmental crimes are covered by a number of international treaties and national laws (Brack and Hayman 2001), and often involve the commission of other transnational organised crimes. In addition to being transnational, organised and criminal, TEC also shares other similarities with traditional TOC. Firstly, TEC is, at least in part, a result of the globalisation of crime, where environmental criminals operate across “disturbingly porous” borders (Schmidt 2004: 98), facilitated by the “ease of communication and movement of goods and money… involved in environmental crime” (EIA 2008). Secondly, like other TOC, environmental crimes are „enterprise crimes‟, rather than predatory crimes. That is, TEC is conducted as a business would be conducted, 3 meeting a demand with an illegal supply. Thirdly, in general, this demand originates in the Global North, while supply comes from the Global South, just as with the trade in drugs and people. 5. Environmental Crime as Distinct from Traditional TOC While TEC is undoubtedly a TOC and there are similarities between TEC and the traditional forms of TOC, these similarities tell us little about how TEC should be conceptualised and policed. To say that TEC is part of globalisation and stems from Northern demand is to merely highlight the broader characteristics of TOC generally, without actually enquiring as to the nature of environmental crimes specifically and how the TEC policy discussion should proceed. Thus, while there are some superficial similarities between TEC and traditional TOC, it is the differences between TEC and traditional TOC that should guide discussions about appropriate policing options. 5.1. TEC is multifaceted As previously noted, TEC is constituted by many different crimes, and this is reflected by their multiple foundations in international law, with separate treaties for each issue, instead of one in the case of the traditional forms of TOC, such as drugs and people smuggling. There is CITES3 for the wildlife trade, the Montreal Protocol4 for ozone-depleting substances, the Basel Convention5 for waste disposal and the Rotterdam6 and Stockholm7 Conventions dealing with hazardous chemicals. Overall, more than 250 international and regional environmental agreements have been concluded since the first UN Conference on the Human Environment in Stockholm in 1972 (Brack and Hayman 2001: 5). Each Convention has its own mechanisms and conferences, and breeds its own distinct body of literature regarding enforcement. It should also be noted that there are still areas of TEC that are not covered by an overarching international agreement, for example illegal, unreported and unregulated fishing and logging. 5.2. Licit trade TEC is also different to many forms of organised crime in that the illicit operate alongside a licit market; there is not a total prohibition. This is in contrast to the traditional TOC paradigm, where there is a total prohibition on the product or activity in question. For example, whereas drugs and human trafficking are prohibited and criminalised, certain species under CITES may only be criminalised if originating in specific countries, or illegally logged timber may come from a supplier that also logs timber legally. The presence of a licit market makes it particularly difficult for those on the ground to know whether what they are confronted with is legal or not. Traffickers in endangered species, for example, can declare their products to be a different species, especially where there are a number of species of similar appearance, because different types of “sawnwood and fish fillets appear very similar to the untrained eye” (Hayman and Brack 2002: 20). They can also claim that illegally caught animals have been bred in captivity. Similarly, illegally harvested logs are frequently „laundered‟ through products produced legitimately (Hayman and Brack 2002: 15) and illegal waste can be disposed of alongside legally disposed waste. 3 Convention on International Trade in Endangered Species 1972. 4 Montreal Protocol on Substances that Deplete the Ozone Layer 1987. 5 Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal 1989. 6 Rotterdam Convention on the Prior Informed Consent Procedure for Certain Hazardous Chemical and Pesticides in International Trade 1998. 7 Stockholm Conventions on Persistent Organic Pollutants 2001. 4 The technical nature of the distinctions between legal and illegal products are often beyond the capacities of ordinary law enforcement personnel who have not been specifically trained in this area, who therefore may not recognise violations of environmental law (Takizawa 1997). These complexities make it very difficult to promote legal trade while simultaneously curtailing illegal trade; Hayman and Brack note that this “has been an increasingly awkward and delicate task and a growing source of frustration for law enforcement” (Hayman and Brack 2002: 16). It is worth noting that other forms of TOC do have licit counterparts. For example, while human trafficking is prohibited, there is a licit market, the market for labour, which operates alongside the illegal practice. As will be discussed, the presence of a licit market can make detection of illegal activity more difficult. 5.3. Multiplicity of perpetrators It is debateable whether traditional TOC is conducted largely by criminal organisations in “the journalistic sense, [where a] dictator or central office directs work of members” (Hayman and Brack 2002: 7). What is clear, however, is that TEC is definitely different from this perceived model and commentators have observed that there are numerous different types of perpetrator involved. In Italy, for example, the term „Ecomafia‟ has been coined to describe the high incidence of environmental crime in traditional Mafia strongholds and the involvement of criminal organisations in TEC (Legambiente 2007), while Elliot, in relation to the Asia-Pacific region, notes that there is “some opportunity poaching”, but that organised groups also operate in most areas (Elliot 2007: 504). On the other hand, Hayman and Brack note that TEC is often “committed by loosely organized networks of individuals” (2002: 7), yet in other cases “smaller groups come together for specific shorter-term purposes and do not forge long-term, permanent associations” (Takizawa 1997). With regards illegal logging, it is common for corporations to be involved in both licit and illicit activity, as their power allows them to evade regulations with impunity (Brack and Hayman 2001: 6). It is also true that corrupt government officials are also involved in many cases, and can themselves be considered perpetrators. An example serves to highlight the interaction of these actors: in 2001 a poacher apprehended in Zambia's South Luangwa National Park had been contracted by the park‟s warden to poach 100 elephants. The ivory was then supplied to an organised criminal group in Singapore (EIA 2008: 6). Thus the perpetrators of TEC include large-scale criminal organisations, loosely organised networks, small and ad hoc groups of associates, opportunistic criminals, corrupt officials and corporations. It is clear that this multiplicity of actors has a bearing upon the development of effective countermeasures, as a diverse range of perpetrators is likely to require a diverse range of policing methods and other policies. 5.4. Perception as victimless As has been seen, the effects of TEC are potentially wide-ranging, devastating and long-term, yet despite these impacts, there is a perception of environmental crime as victimless (Banks et al 2007: 2). The effects of environmental crime are not always obvious or quantified, and therefore there is often a “tacit assumption” among enforcement institutions that such problems are insignificant (Hayman and Brack 2002: 6). There are two ways in which TEC comes to be perceived as victimless. Firstly, victims are often not initially aware that they are victims. For example, local communities may initially welcome a logging company, not realising that they are harvesting unsustainable levels of the resource, or may welcome the importation of waste, not realising it to be hazardous until problems later arise; it is often “only then that people become concerned about the crime and its impact upon them” (Interpol 5 2009: 4). The same is true of the wildlife trade, where individual specimens may be considered insignificant, but it later transpires that the trade cumulatively endangers the whole species (Interpol 2009: 4). Again, there are some similarities here with the illegal trafficking of human beings: often the victims are initially willing migrants, but subsequently become forced labourers Secondly, there may not be an obvious victim that accords with the usual perpetrator-victim model that police tend to prioritise: TEC is an enterprise crime. As the example of the logging company above suggests, the victim may be a community or geographical area, or the natural environment, or, as the wildlife trafficking example shows, the victim may be non-human. This is also the case with environmental crimes that have no obvious or immediate human impact but affect society more broadly, such as the use of ozone depleting substances and the dumping of illegal waste. The problem for enforcement is that without an obvious or aware victim, there is nobody to complain to the authorities. If nobody is complaining to the authorities then the assumption that the problem is insignificant is reinforced; TEC continues to be placed “low on the priority list” (Banks et al 2007). 5.5. The impacts of TEC The nature of the impacts of TEC is intrinsically different to traditional TOCs. This is because the effects of TEC are not only damaging, but are often also definitive and long lasting, even permanent. Whereas there is a potentially unlimited supply of narcotics, there is a finite stock of an endangered species. Thus, once an animal is poached, it is gone forever. Likewise, once pristine rainforest is illegally logged it is irreplaceable and when ozone-depleting substances are released they cannot be stopped from damaging the atmosphere. Whereas trafficked persons can be offered support and counselling and drug users can enter rehabilitation, rectifying the effects of environmental crime can take a very long time, if they can be rectified at all. 6. How Should TEC be Approached? The preceding section conceptualises TEC as a multifaceted enterprise crime, operating alongside a licit market, involving a range of actors, which is perceived as victimless despite potentially drastic consequences. This conceptualisation is the first step toward framing the discussion of how TEC should be approached. This section of the paper will discuss three areas of enforcement – control of illegal trade, reduction of supply and reduction of demand - in the context of this conceptualisation. TEC is made up of numerous constituent crimes, each with their own nuances and peculiar difficulties for effective countermeasures. It is acknowledged that strong countermeasures must be tailored to the specific problem at hand. The aim of this paper is not to enunciate such specific measures, but rather use the commonalities between the constituent crimes of TEC, as discussed, to discern a general framework for developing strong countermeasures. However, some discussion of examples is necessary to give the proposals made below a practical foundation; examples will be discussed where relevant. 6.1. Policing the illegal trade Most commentary on controlling TEC tends to focus, “not unnaturally, on improving enforcement” (Brack in White 2009: 491), and this paper will take the policing of the illegal trade as a natural starting point. First some relevant considerations for effective on-the-ground enforcement will be deduced from the above conceptualisation of TEC. Secondly, the extent to which policing can be effective in combating TEC will be discussed. 6.1.1. Prioritising TEC A precondition of effective policing is that those that enforce the law must see TEC as a serious issue. At present customs officers tend to prioritise other illegal products, such as drugs, while police tend to prioritise predatory offences that accord with the usual perpetrator-victim paradigm, 6 such as violent offences. This stems from the perception of TEC as victimless and a lack of awareness about its negative impacts (Schmidt 2004: 98). Prioritising TEC is “often about awareness raising as much as anything else” (Brack in White 2009). Thus a concerted effort must be made to inform and educate enforcement authorities of the importance of the task that they are charged with. It may also be useful to tie TEC to the broader TOC problem by informing them of the links between the two, thus avoiding having to prioritise TEC over the traditional TOCs, instead recognising them as an integral part thereof. Schmidt has noted that TEC is most under-prioritised in Southern countries: “a pervasive lack of enforcement… contributes to the growth of environmental crime, especially in developing countries where corruption, poverty, war, and other social problems are perceived as greater and more immediate threats” (2004: 98. Emphasis added). This observation requires attention to the North- South supply-demand paradigm discussed earlier. While supply for TEC comes from Southern countries, the enforcement agencies of these countries are, understandably given the pressing nature of their other priorities, the least likely to prioritise TEC. In this regard, it is imperative that Southern states are aware that TEC causes considerable damage and financial loss, such as the US$15bn revenue lost to illegal logging mentioned previously (EIA 2008), or the tax evasion that often accompanies wildlife trafficking (UNODC 2009: 46). Again it may be useful to posit TEC itself as being intimately linked with priorities such as corruption (UNODC 2009: 46), poverty and war (Thompson and Kanaan 2003). In addition, as will be repeated in relation to other aspects of policing, Northern countries must accept that they create the problem, and so have a duty to provide assistance to help countries in the Global South to make it a priority. 6.1.2. Training and expertise As with all TOC, TEC requires “a high level of time, financial and staff resources” to combat it effectively (Fröhlich 2003: ii). However, the complexity of environmental crime, its multifarious nature, the multiplicity of actors involved, and the difficulties caused by its overlap with licit markets, make the level of investment needed to combat it particularly high. The UN has suggested, “efforts to understand environmental crime should not be focused only on direct enforcement at borders and should be guided by criminal intelligence-led investigations” (COP 2010: 10). Training must be offered to enforcement officials to ensure that they know how to conduct such investigations. Particular focus should be on the varied nature of the groups that conduct environmental crime. At the same time, border policing remains important, so officers must be trained to identify illegal products. The expertise needed to verify an environmental product once it is in transit can be considerable, given the concurrent licit market, suggesting that it would be difficult and costly to train many enforcement officers to accurately assess whether a crime has been committed. Thus, a strong certification system is required that would allow a uniform set of standards to be applied pre- production, ensuring legality and reduce the burden on enforcement officers in determining legality. Examples of such certification systems are discussed below in the context of demand reduction measures. The Salvador Declaration stated: “We encourage Member States to [enhance] technical assistance and the sharing of best practices in this area”. As with the prioritisation of TEC, training and expertise lacks most in Southern countries where it is needed most, as they “don‟t have adequate institutional… frameworks to enforce treaty obligations” (Schmidt 2005: 98). Thus, while treaties like CITES are ratified with the best intentions, there is, in practice, little to no chance of the 7 increase in enforcement capacity required to effectively combat TEC. While the Salvador Declaration neutrally suggests „sharing‟, in reality this sharing needs to constitute a huge transfer of training, expertise and knowledge to countries in the Global South if TEC enforcement is to be effective. 6.1.3. Cooperation and communication It is widely agreed that greater cooperation and communication is needed to combat TEC. The Salvador Declaration recognises the need for greater international cooperation, while Interpol states that it is “one of the greatest obstacles we must overcome” in combating TEC (Interpol 2009: 6). All TOC will require high levels of cooperation, but, it is submitted, it will need to be particularly strong due to the complexities of TEC. The concurrent licit trade in many goods in particular dictates the need for cooperation. Offences such as illegal logging, where no international agreement exists, are defined by national laws. As laws on logging differ from country to country, it is necessary that strong communication takes place to ensure that an importing country‟s enforcement agencies are aware of the exporting country‟s laws. This is a lofty challenge, particularly as enforcement institutions are often ill- equipped and lacking in knowledge of their own legal regimes. Instructive in this regard are the activities of the Association of Southeast Asian Nations Wildlife Enforcement Network (ASEAN-WEN), which aims to coordinate regional responses to illegal trafficking in wildlife. The network is a “mechanism by which countries can share information and learn from each other's best practices” and achieve “better coordination and collaboration of law enforcement agencies” (ASEAN-WEN 2011). An additional possibility is the establishment of border liaison offices, originally developed to counter drug trafficking. These could “bring immediate results in addressing environmental crime” (COP 2010: 10) in this regard by establishing a direct and consistent communication link between countries. A number of South-East Asian countries that utilise these liaison offices to combat drug smuggling urged the UNODC to expand their function to include environmental crime (UNODC 2010). The UNODC has responded by implementing the Partnership Against Transnational-crime through Regional Organized Law-enforcement (PATROL) (UNODC). The aim of PATROL is to broaden the use of border liaison offices to other crimes, including TEC, and broker memorandums of understanding on international cooperation between governments. The progress of these initiatives should be monitored closely: if they prove effective they could be used as models for further cross-border cooperation initiatives in the future and in other regions. 6.1.4. The focus of policing Whereas all TOC involves actors moving across borders, TEC involves a wide range of actors, with commentators seemingly not in full agreement about which group is most prevalent. This creates a difficulty for policing as it complicates the issue of which groups to target. For example, attempting to locate a „████‟ would leave a substantial amount of TEC uncovered, as much TEC is conducted by more loose and fleeting organised groups. Yet if policing attempts to focus on all perpetrators, it is likely that resources would be spread too thinly, as is already the case. There is, simply put, no easy answer to the question of where the focus of policing of TEC should lie. TEC is not a problem conducive to the use of a single method or focus. In addition, it is likely that the main actors in TEC will differ from region to region. As already mentioned, Italy is aware that TEC there is often conducted in concert with other TOC by highly organised criminal groups, whereas perpetrators in other regions may operate on a more opportunistic basis less conducive to intelligence-led investigations, such as sporadic poaching for tourist sales or kill-to-order wildlife crimes. 8 This problem would be somewhat diminished by increased prioritisation, training and cooperation, all of which will increase the capacity to identify the key actors in a particular region and target them specifically. 6.2. The role for policing While some suggestions have been made for how TEC may be policed, it is clearly questionable whether TEC can be adequately combated through policing. As an enterprise crime, TEC is driven by demand and policing alone does not deal with this demand. Without curtailing the demand that makes TEC profitable, it is difficult to see how supply will be reduced. This seemingly obvious observation has come to be the bane of the approach to other TOC, such as the trade in drugs, as heavy policing efforts have failed to stop or prevent the problem. In 2002, more than 40 years after the creation of the narcotics convention,8 the EU Parliament proposed a recommendation that the approach should be radically changed, stating: “the vast majority of narcotics and psychotropic substances move freely around the world despite prohibitionist laws” and “the main effect of deploying vast resources to curb trafficking in illegal substances has been a rise in their price… which is of benefit only to organised crime networks” (European Parliament 2002). Academics have also widely acknowledged the failure of the „war on drugs‟ (Wisowsky 1986, Journal of Interamerican Studies and World Affairs 1988, Gray 2001, Jensen 2005). With environmental crime, this cautionary note is particularly relevant. Firstly, the prevention of further environmental crimes should be of high importance, given the often irreversible effects (UNODC 2009: 34). Secondly, the wide-ranging nature and perpetrators of TEC, and the complexity of determining the illegality of goods, suggests that the level of resources needed for this kind of intensive policing would be far too great to be practicable. It is therefore suggested that TEC requires a greater focus on demand and supply measures. This does not necessarily militate against policing altogether: the International Network for Environmental Compliance and Enforcement has noted that education and assistance, and other incentives, are only effective if they are complimented by a “credible threat of enforcement sanctions” against perpetrators (INECE 2009: 65). However, it does suggest that declaring a „war‟ on a particular problem, and then sinking vast resources into policing alone, is unwise. The failure of the war on drugs “suggests that this policy is doomed” (Hayman and Brack 2004: 4). 6.3. Reduction of demand Demand reduction is important for TEC as the impacts of TEC are often irreversible; it is crucial that a concerted effort is made to prevent the crime from happening. It is pertinent to distinguish here between two types of demand. There is a demand for illegal products and there is a demand for legal products that can be met by illegal products. For example, in the former category is the Northern demand for ozone depleting chemicals and demand for species prohibited under CITES, which are both illegal. In the latter category there is demand for timber, which is itself legal, but is often met with illegally logged timber. This distinction is an important one to make in terms of demand reduction strategies. 8 Single Convention on Narcotic Drugs 1961. 9 Where demand is for an illegal product, it is unlikely that demand will recede of its own accord. 9 In such cases, an attempt should be made to reduce the demand by educating the public on the harm caused by this demand. For example, tourists who purchase wildlife souvenirs may not possess much knowledge about the impacts of wildlife poaching or the legal status of the products. Secondly, traditional policing enforcement should be increased in such areas. Where the demand is for a legal product, there must be systems in place to verify the legal origins of the product, and the consumer must be aware of these systems. Some examples of this can already be seen, such as the Forestry Stewardship Council‟s (FSC) certification scheme, which provides for certification and labelling according to an environmental standard, or the CITES certificates. These schemes are by no means perfect, and efforts must be continually made to strengthen them and ensure that the products carrying their labels genuinely achieve the environmental outcome sought. As for informing consumers of these systems, Brack notes in this regard that public awareness campaigns are often overlooked, but can be valuable (Brack in White 2009: 491). Certainly, it is submitted, that where a consumer is demanding a legal product, a public awareness campaign could go a long way to ensuring that the consumer‟s demand is, in fact, met by a legal supply. 6.4. Reduction of supply These measures, as with demand measures, are important because TEC ideally needs to be pre- empted. Reducing supply involves dealing with the “underlying economic, social and political drivers” behind TEC (Brack in White 2009: 491) and, as such, are likely to be the most difficult and expensive measures to implement. In economic terms, reduction of supply involves making legal activity as valuable, or more valuable, than illegal activity. This primarily involves ensuring the availability of alternative forms of employment, but may also involve reforming the systems for granting exploitation rights and taxes. Crop replacement programs have not been particularly successful in the war on drugs (Argañarás 1997, Farrell 1998, cf., Snowdon 2009), though this may be due to insufficient funding and focus on such measures. Such programs should be explored in relation to TEC as some potential may exist. For example, programs could be implemented in wildlife poaching areas that enables local people to gain a sustainable tourist income and transition from enterprise crime to a legitimate economic activity. A similar transition can be seen with whaling, where whale watching is now worth $2.1 billion worldwide and supports 13,000 jobs (Cisneros-Montemayor 2010). The reduction of taxes, or even the implementation of subsidies, could help in some cases. In the area of hazardous waste disposal the cost of legal disposal can be very high, depending on the chemicals in question, and subsidies and lower taxes could be an effective way of encouraging correct disposal (Hayman and Brack 2004: 13). 7. Conclusion: Towards an Approach to Combating TEC This paper has conceptualised TEC, drawing lessons from TEC as a whole and organising the various policy issues involved into a coherent framework for analysis. Overall, it is clear that the approach to TEC will need to be a holistic one, both in terms of conceptualisation and approach to 9 Note that demand for ozone depleting substances will recede due to the Montreal Protocol, as all equipment using the substances will eventually be phased out. 10 countermeasures. Measures to combat TEC need to account for all the nuances of environmental crime and, as the international community begins to wake up to the problem of TEC, it is important that the failed „war on‟ approach is not simply superimposed over the complex and unique nature of TEC. The preeminent role of policing needs to be questioned and policing efforts must be tailored to meet the unique nature of TEC, while demand and supply reduction measures that aim to prevent environmental crimes taking place need to be implemented and strongly supported. Further research is needed into specific policies already in existence that accord with the approach advocated in this paper to assess whether these policies could be expanded or transposed to other areas facing similar problems. With a conceptualisation and framework for countering TEC in place, and a range of policy options available, the greatest hurdle for effectively combating TEC may ultimately be lack of political will. 11 ### References Argañarás F (1997) The Drug War at the Supply End: The Case of Bolivia. Latin American Perspectives 24: 59- 80. ASEAN Wildlife Enforcement Network, About Us. Available via ASEAN website. http://www.asean- wen.org/index.php?option=com_content&view=article&id=47&Itemid=55. Cited 7 March 2011. Banks D et al (2008) Environmental Crime: A threat to our future. EIA, London. Banks D et al (2007) Upholding the Law: The Challenge of Effective Enforcement. EIA, London. Baumüller H, Brack D and Umpfenbach K (2009) Keeping Illegal Fish and Timber off the Market: A Comparison of EU Regulations. Chatham House, London. Blindell J (2006) 21st Century policing - The role of police in the detection, investigation and prosecution of environmental crime. ACPR Issues 2. 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White R (2009) Environmental Crime: a reader. Willan Publishing, Devon. Wisotsky S (1986) Breaking the Impasse in the War on Drugs. Greenwood Publishing, Westport. Zimmerman M (2003) The Black Market for Wildlife: Combating Transnational Organized Crime in the Illegal Wildlife Trade. Vanderbilt Journal of International Law 36: [REDACTED PHONE]. 14 Crest Energy’s Tidal Power Project Decision in Environment Court leads way for marine energy projects Glen Wright* 1. Introduction Crest Energy Kaipara Limited (Crest) applied to Northland Regional Council for a range of consents under the Resource Management Act 1991 (RMA) to establish an array of 200 turbines on the seabed of the Kaipara Harbour (the Project). The array would be connected to a land-based electricity sub-station via two undersea cables and would ultimately have a nameplate capacity of 200 Megawatts.1 2. Case in the Environmental Court The two hearings discussed in this note were held in the Environmental Court (the Court). The first, the Interim Decision, was delivered 22 December 2009,2 and the second, the Final Decision, was delivered in March 2011 following court-sponsored mediation between the parties.3 The main parties in this case were: Crest; Environs Holdings Limited, representing Maori interests; the Director General of Conservation; and Northland Regional Council (NRC), to whom the resource consent application was made. * University of New South Wales (LLM). The Law Building, University of New South Wales, Sydney, NSW 2052, Australia. [REDACTED EMAIL]. 1 Re: Crest Energy Kaipara Limited [2009] NZEnvC A132 (18 June 2009), [1]. 2 See ibid. 3 Re: Crest Energy Kaipara Limited [2011] NZEnvC 26 (3 February 2011). 1 The Court was unable to grant all of the consents that Crest applied for as the New Zealand Coastal Policy Statement 1994 (NZCPS 1994) provided that certain coastal activities must be approved by the Minister of Conservation. Between the Interim Decision and the Final Decision, the New Zealand Coastal Policy Statement 2010 (NZCPS 2010) was promulgated, which replaces the NZCPS 1994. Clause 9 of the NZCPS 2010 states, “[t]he Minister of Conservation does not require any activity to be specified as a restricted coastal activity in a regional coastal plan”, and Clause 29 requires local authorities to give effect to this policy. However, the NZCPS 1994 continued to apply to Crest‟s Project.4 3. Interim Decision The Court noted that the planning provisions themselves were not the subject of significant debate.5 The key issues of contention that the Court considered to be within its jurisdiction were: sustainable management; navigation; coastal planning processes; Maori cultural issues; marine life, fish and fisheries; and monitoring and adaptive management. discussion of these issues will be addressed in turn. The Court considered that the Project constitutes the “efficient use and development of natural and physical resources” under Section 7(b)7 and that 4 Ibid, [3]. 5 Re: Crest Energy Kaipara Limited [2009] NZEnvC A132 (18 June 2009), [17]-[19]. 6 Ibid, [34]. 7 Ibid, [46]. 2 the reduction in carbon dioxide emissions addresses Section 7(j),8 which requires that the “benefits to be derived from the use and development of renewable energy” be considered when assessing a consent application. The Court also adopted a number of other conclusions regarding sustainable management, such as acknowledging that the Project will assist with the avoidance of future energy shortages and reduce transmission losses.9 Crest had not applied for exclusive occupation of the harbour. However, the Court noted that the Harbour Master had the power under the Local Government Act 2002 to implement a navigation exclusion zone, and therefore decided that the potential effects of the Project on navigation should be addressed.10 In the circumstances, the Court concluded that the effects on navigation would be minimal, given the “very limited boating use of this remote and often wild part of the harbour”.11 In the Court‟s view, the effect of the Project on marine fauna and fisheries was a “particularly important feature” of the case. 12 Despite Crest‟s research regarding fisheries, the Court said it was “less than satisfied” with the evidence offered.13 Given that the area supports a lucrative fishing industry, the Court reiterated the importance of understanding the potential impacts of 8 Ibid, [53]. 9 Ibid. 10 Ibid, [77]. 11 Ibid, [87]. 12 Ibid, [92]. 13 Ibid, [93]. 3 the Project on marine life.14 In particular, the Court noted that, while substantial evidence was available regarding the fisheries in the harbour, little work had been done to identify the effects of the Project on fisheries outside the harbour.15 For example, the harbour entrance was heard to be “an essential conduit for species migrating [into] the open sea”,16 yet no information was available on this migration. attempt to resolve the ambiguities in the evidence, and requested that further caucusing of the experts take place to provide clarity.18 As to the noise impacts, the Court noted that the science is “very much in its infancy”19 and is location specific.20 Having heard extensive evidence, the Court concluded that noise monitoring must take place to determine baseline noise levels and monitor noise levels as the Project progresses. Dolphin and other marine mammals. The Maui‟s Dolphin is particularly important because, due to its vanishingly small population of approximately 14 Ibid, [93]. 15 Ibid, [95]. 16 Ibid, [106]. 17 Ibid, [107]. 18 Ibid, [118]. 19 Ibid, [124] & [146]. 20 Ibid, [125]. 21 Ibid, [146]. 4 100 individuals,22 the death of one dolphin could threaten the survival of the entire species. enter the harbour would “at most be very low”,24 but decided that a baseline monitoring regime should be instituted for a two year period25 and that the intervals between stages of establishment and ongoing monitoring should be of a similar order. monitoring regimes.27 Another key issue in the Crest case was the treatment of Maori cultural issues. Environs Holdings Limited, a wholly-owned subsidiary of Te Uri o Hau Settlement Trust (TUOH), was a party to the case as it asserts a customary proprietary ownership right of the seabed.28 TUOH argued that granting resource consents for the Project would prejudice the claim they lodged in the High Court regarding their asserted rights.29 Environs also shared the concerns of the Court relating to navigation, fishing, and other issues. Given Section 59 of the Te Uri of Hau Claims Settlement Act 2002, by which the Crown acknowledged “the particular cultural, spiritual, historic, 22 Ibid, [149]. 23 Ibid, [165]. 24 Ibid. 25 Ibid, [168]. 26 Ibid, [169]. 27 Ibid. 28 Ibid, [170]. 29 Ibid, [171]. 5 and traditional association of Te Uri o Hau” with the land, the Court accepted the strength of the claim to Maori cultural significance. “adequately and appropriately addressed” these issues31 through “extensive, considerable and meaningful” consultation and modification of its proposal to address concerns. on the part of TUOH and that Crest had “essentially stepped into the middle of this situation”, accidently increasing tensions.33 In making its overall assessment, the Court proceeded tentatively, recognising the uncertainties identified and the need for further evidence. direction of consent being granted”,35 but cautioned that the issue of potential impacts on fisheries could result in rejection if not addressed to the Court‟s satisfaction. whether an Environmental Management Plan (EMP) could be developed to address the outstanding uncertainties regarding environmental impacts. The Court stated that „adaptive management‟, a concept expounded by a number 30 Ibid, [181]. 31 Ibid, [214]. 32 Ibid, [198]. 33 Ibid, [175]. 34 Ibid, [206]. 35 Ibid. 36 Ibid, [206] & [211]. 6 of previous cases,37 was at the heart of the issue. Adaptive management refers to the adaption of projects over time as environmental impacts become clearer. Adaptive management involves: collecting baseline data; setting objectives; planning for management of the resource; monitoring results; and changing the EMP to reflect new knowledge about impacts.38 3. Mediation Following the Interim Decision, the parties worked cooperatively and constructively throughout 2010 to resolve the outstanding issues, a process which “occupied a timeframe that normally would be uncomfortably long for the Court”.39 The parties reached agreement in a number of areas, but thirteen discrete issues remained unresolved.40 The parties attended Court- sponsored mediation which successfully reduced this number to seven.41 The parties agreed that they wished to finally resolve the application by filing one further statement of evidence (on behalf of NRC) and legal submissions before seeking the Court‟s determination.42 4. Final Decision 37 Ibid, [223]-[224]. 38 Ibid, [226]. The Court noted that the objectives for adaptive management must be “reasonably certain and enforceable” (Ibid, [227] and Lower Waitaki River Management Society Inc v Canterbury Regional Council [C80/2009]), but cannot require Crest to have carried out all research in advance (Ibid, [228] and Director General of Conservation v Marlborough District Council and Ors [C113/2004]). 39 Re: Crest Energy Kaipara Limited [2011] NZEnvC 26 (3 February 2011), [11]. 40 Ibid, [12]. 41 Ibid. 42 Ibid, [13]. 7 The first outstanding issue to be determined by in the Final Decision was the minimum timeframes for monitoring in between implementation of stages of the Project. Crest accepted that three years initial monitoring was appropriate, but argued that the period should not be so long for the implementation of the latter stages of its project, as sufficient data would then be available to make a realistic evaluation of the likely impacts of the next stage.43 The second issue was whether the EMP should state that effects of the Project should be “less than minor” or “no more than minor”, the former being a phrase discussed by the Court in the Interim Decision as not being contained in the RMA and more conservative than the alternative.44 Crest sought for the standard to be set at “no more than minor”, but accepted that the more conservative test may be necessary in the early stages of the Project. management requirements, holding that “less than minor” should be the test in the first stage of the Project, with the stringency being reduced to “no more than minor” in the later stages.46 The number of turbines to be installed at each stage was also a point of contention. Crest proposed to stage the turbines as follows: 3 turbines in 43 Ibid, [19.1]. 44 Ibid, [19.4]. 45 Ibid. 46 Ibid. 8 stage 1a; 20 turbines in stage 1; 40 in 2; 80 in 3; and finally increasing to the full array of 200 turbines in the final stage.47 Environs argued for a much slower implementation. The Court noted that Crest had already offered “careful and conservative conditions and EMP” and found no basis to require an even more cautious approach to the staged implementation of the turbines.48 An interesting issue of contention was that Crest had requested that the EMP contain a copyright statement to limit the use of the final EMP by other parties.49 This is somewhat understandable given that Crest is the „first mover‟ in this emerging industry and has expended considerable time and resources in obtaining consents. Crest may be concerned that other companies seeking similar consents would be able to make use of their efforts for their own projects. The Court nonetheless felt it inappropriate to limit access to consent documents, as many parties have access rights to such documentation.50 The availability of the EMP will undoubtedly provide some useful insights to future tidal and wave energy project proponents. The final two issues of disagreement were the lapse period and consent period. The Court decided that a lapse period of 10 years was appropriate 47 Ibid, [19.7]. 48 Ibid. 49 Ibid, [19.13]. 50 Ibid. 9 for such a large project of national importance, particularly given the lengthy and exacting consenting process.51 As to the issue of the length of the consent, Crest sought a term of 35 years, the maximum under Section 123(c) of the RMA, whereas Environs argued for a 10 year consent.52 Crest expressed its concern that the Project would not be commercially viable if a 35 year term was not granted.53 Environs cited Mangakahia Maori Komiti v Northland Regional Council54 as authority for the proposition that commercial viability is not relevant to the granting of a resource consent under the RMA. a more recent and authoritative statement was made in Ngati Rangi Trust v Genesis Power Limited and Manawatu-Wanganui Regional Council.56 In that case, the clear inference was that commercial viability is a factor that is a consideration: William Young P stated, “I cannot see a credible basis for concluding that an appropriate duration for consent was only 10 years… it is inconceivable that the Environment Court consider that the [power station in question] should cease operating at the expiry of 10 years”.57 51 Ibid, [19.6]. 52 Ibid, [19.10]. 53 Ibid. 54 [1996] NZRMA 193 at 217. 55 Re: Crest Energy Kaipara Limited [2011] NZEnvC 26 (3 February 2011), [19.10]. 56 [2009] NZCA 222 (2 June 2009). 57 Re: Crest Energy Kaipara Limited [2011] NZEnvC 26 (3 February 2011), [44]. 10 The earlier case of PVL Proteins Ltd v Auckland Regional Council,58 also discussed by the Court,59 was perhaps more explicit, stating, “an applicant‟s need (to protect investment) for as much security as is consistent with sustainable management, indicates a longer term”.60 Noting that no basis had been provided in the evidence for only granting a 10 year consent, and that investment security is „not unimportant‟, the Court granted Crest the maximum term of 36 years.61 5. Conclusion The Environment Court concluded that it is not the law that a resource consent be denied simply because a proposed project is novel and there are no comparable projects in existence. “extensive and constructive input” on the part of Crest, NRC and the Director General of Conservation, and the “interesting and important” nature of Crest‟s project. authority to grant and recommended to the Minister of Conservation that he grant those consents requiring his approval.64 58 [2001] NZEnvC A061 (13 August 2001). 59 Re: Crest Energy Kaipara Limited [2011] NZEnvC 26 (3 February 2011), [19.10]. 60 Ibid, [30]. 61 Ibid, [19.10]. 62 Ibid, [21]. 63 Ibid, [24]. 64 Ibid, [26]. 11 The case suggests that the Court will take a pragmatic view, being mindful of scientific uncertainty and the need for adaptive management, while also being sympathetic to the applicant‟s need for investment security and aware of the broader benefits that marine energy projects can bring to the community. The case also provides some lessons for future applicants, such as the need for genuine and comprehensive consultation, a detailed EMP, and a cooperative, rather than adversarial, approach to the application process. With growing interest in wave and tidal energy projects in New Zealand, the question of how such novel resource consent applications are likely to be dealt with by the Environment Court will become an issue of importance for this fledgling industry. In this regard, the Crest Energy case provides an optimistic indication of the willingness of the Court to facilitate the granting of consents for marine energy projects and some insight for marine energy companies into how best to approach the resource consent process. 12 Designing a Rule to Facilitate the Efficient Augmentation of Transmission Networks to Connect Renewable Energy Generation The Australian Experience University of New South Wales (LLM), glen.w.wright@gmail.com, The Law Building, University of New South Wales, Sydney, NSW 2052, Australia, [REDACTED PHONE] ### Abstract Australia is heavily dependent on coal for electricity generation. The Renewable Energy Target has spurred growth in the utilization of renewable energy sources, with further growth expected into the future. Australia’s strongest renewable energy sources are generally distant from the transmission network in resource ‘basins’. Investment is needed to augment the transmission network to enable delivery of electricity from these sources to consumers. Considerable economies of scale flow from anticipating the connection of numerous generators in an area over time and sizing augmentations accordingly. Following a lengthy rulemaking process, the National Electricity Rules were recently amended by a new rule, designed to facilitate the construction of such efficiently-sized augmentations. However, the new rule is more conservative than initially envisaged, making little substantive change to the current frameworks for augmentation and connection. This paper outlines these frameworks and the rulemaking process. The key debates surrounding the rule change are identified. The paper provides a detailed analysis of the new rule, concluding that it is defective in a number of respects and is unlikely to result in the efficient and timely augmentation of the network needed to unlock the potential of Australia’s strongest renewable energy resources. Acknowledgments The author gratefully acknowledges the assistance of Eleanor Browne and ██████. Abbreviated Title Efficient Augmentation of the Transmission Network in Australia ### Keywords Transmission policy, transmission network augmentation, Scale Efficient Network Extension. 1 1. Introduction Australia depends heavily on coal to generate electricity. Coal accounts for around 80% of electricity output in the National Electricity Market (NEM), 1 while gas accounts for around 10% (AER, 2010b). Overall, electricity generation currently accounts for 36% of Australia’s total carbon emissions (Department of Climate Change and Energy Efficiency, 2011).2 As concerns over climate change mount, there is increased movement towards adopting less carbon-intensive methods of electricity generation. The Renewable Energy Target (RET), implemented by the Renewable Energy (Electricity) Act 2000 (Cth), is intended to alter the underlying economics of electricity generation in Australia and increase the utilization of renewable energy sources (MCE, 2010; AEMC 2010c). Furthermore, the policy to put a price on carbon and eventually transition to a cap-and-trade system (Multi-Party Climate Change Committee, 2010), will provide a disincentive to carbon-intensive electricity generation and likely further increase the utilization of renewable energy. As with all electricity generation, renewable energy power stations must be connected to the transmission network (Network) in order to transmit 1 For an overview of the NEM, see the ‘Regulatory Context’ section below. 2 This figure is lower than expected due to flooding causing coal mine closures and increased hydro generation capacity. 2 electricity to the distribution network and to end consumers. Australia’s Network has developed alongside the coal industry. As a result, the Network is close to coal, but distant from the best renewable energy sources, and the present regulatory framework is apt to deal with large, infrequent connection requests from big coal-fired power stations, but ill- suited to connecting multiple smaller generations in the same area over time. The Australian Energy Market Commission (AEMC) has, since publishing its Review of Energy Market Frameworks (REMF) (AEMC, 2009) in September 2009, been developing a rule change to the National Electricity Rules (NER)3 to facilitate suitably sized extensions to the Network to accommodate clusters of renewable energy generators in a geographic area over time, therefore taking advantage of the economies of scale that flow from building an efficiently sized augmentation, rather than a number of separate augmentations for each generator. Such augmentations have been termed ‘Scale Efficient Network Extensions’ (SENEs), though some proponents colorfully refer to them as ‘fields of dreams’ (Energy Supply Association of Australia, 2011). On 30 June 2011, the AEMC issued the National Electricity Amendment (Scale Efficient Network Extensions) Rule 3 This article refers to the National Electricity Rules Version 43 (2011). 3 2011 (Final Rule), promulgating a very different approach to SENEs from the options originally contemplated. Schematic diagram of a SENE Source: AEMC, 2010a This paper will give a brief contextual overview of the electricity market in Australia and a discussion of the current regulatory regime for the connection to, and augmentation of, the Network. The inefficiencies that flow from this framework will be identified and it will be argued that a SENEs rule is needed. The rule change process will be summarized and the Final Rule will be critically analyzed. It will be concluded that the Final Rule is not apt to achieve its goal of facilitating the efficient construction of Network extensions to connect renewable energy sources to the electricity system in Australia. 4 2. Location of the Network and renewable energy sources Renewable energy resources, like coal and gas, can be conceptualized as being present in distinct ‘basins’. The most powerful winds in Australia blow offshore and on the Eyre Peninsula, 300km west of Adelaide in South Australia, while the sun shines the strongest in the far northwest of New South Wales and mid- to north-Queensland (Geoscience Australia and ABARE, 2010). The Network that the renewable energy generators must connect to, however, is concentrated on the east and south-east coasts of the country, centered on the coal basins that necessitated its construction (Geoscience Australia and ABARE, 2010). It is therefore generally the case that the best renewable energy resources are situated far from the Network. There are some renewable energy resources close to the Network, though it is now becoming clear that connecting clusters of renewable energy generation in proximate locations is also challenging under the existing frameworks. In a technical paper, the Australian Energy Market Operator (AEMO) stated that connection of clusters to the existing Network was proving to be a challenge as “it is not desirable to establish many connections on a high voltage transmission line, nor is it the most economic outcome overall” (AEMO, 2010a). Thus the notion that 5 efficiencies can be gained in augmenting the network is also applicable to non-remote generation. 3. Scale Efficient Network Extensions As generation from renewable energy sources increases, there is a need to augment the Network to transmit this additional electricity. The Network will need to be augmented more quickly and on a larger scale than would have been necessary absent the RET (AEMC, 2009). Where a generator wishes to utilize the best renewable energy resources, those furthest from the existing Network, the cost of this augmentation will be high. As renewable energy sources are concentrated in specific geographic locations, it is expected that numerous generators will seek to develop power stations and connect them to the network in close proximity to each other over time, much as multiple coal-fired power stations have developed and connected over time in close proximity to coal basins. The existing regulatory regime regarding connection to the Network was “developed to support the requirements and characteristics of traditional generation investment” (AEMC, 2010c) and does not account for current and future changes to the generation mix, or provide a mechanism for coordinating the connection of a number of smaller generators in a geographic location over time. 6 Substantial efficiencies could be gained by anticipating increased generation and connection in a geographic area and augmenting the Network in advance to ‘unlock’ the renewable energy resources in that area. CitiPower and Powercor Australia identified an instance where coordinating the connection of four generators over a mere 35km of transmission line would save around $12 million. A case study for the connection of four wind farms on the Eyre Peninsula found that a SENE would reduce a generator’s cost to 60-62% of its standalone cost (NERA, 2010), while Grid Australia considers that a SENE can reduce this figure to 50% of the standalone cost for four generators over 100km of line (AEMC, 2009). As the AEMC notes, “*c+onnecting generators in a way that will minimize expected total system costs will require investment that is more forward looking than has historically been required” (AEMC, 2011). That is, the changing generation mix requires changing the way investment in the Network is managed, including augmentation and connection. 7 4. The regulatory framework for connection Following the introduction of the SENEs concept in the REMF, the Ministerial Council on Energy (MCE)4 requested, in February 2010, that the AEMC progress to considering a rule change proposal to facilitate and regulate SENEs (MCE, 2010). Before discussing this process and the Final Rule, it will be apposite to consider the existing framework in order to understand its inadequacies and the need for change. In addition, the Final Rule does not change this framework, which still remains relevant under the Final Rule. 4.1. Regulatory context The National Electricity Market (NEM), established by the National Electricity Law (NEL)5 is the name of Australia’s wholesale electricity market and Network connecting Queensland, New South Wales and the Australian Capital Territory, Tasmania, Victoria and South Australia. Western Australia and the Northern Territory are not part of the NEM, due to geographic distance (ABARE, 2010), and have their own regulatory 4 Note that the MCE has since changed its name to the ‘Standing Council on Energy and Resources’. MCE will be used in this paper, as this is the name used in the documents relating to the rule change under discussion in this paper. 5 The NEL is a Schedule to the National Electricity (South Australia) Act 1996 (SA), passed in South Australia and subsequently adopted in the other NEM jurisdictions. See e.g. National Electricity (Victoria) Act 2005 (Vic). 8 regimes. A consideration of these regimes is beyond the scope of this paper. The operation of the NEM is governed by the National Electricity Rules (NER) and four core governing bodies, the MCE (COAD, 2004), the AEMC (Australian Energy Market Commission Establishment Act 2004 (SA)), the Australian Energy Regulator (AER) (Trade Practices Act 1974 (Cth)), and the Australian Energy Market Operator (AEMO) (Electricity (South Australia) (National Electricity Law - Australian Energy Market Operator) Amendment Act 2009 (SA)). These bodies are responsible for market policy, rules, enforcement and physical operation respectively (COAG, 2004; Australian Energy Market Commission Establishment Act 2004 (SA); Trade Practices Act 1974 (Cth); AEMO, 2011b). A person that wishes to participate in the NEM must register as a ‘Registered Participant’ under the NER (s 2) in the category relevant to their intended activity. For example, a person wishing to operate a power plant must register as a ‘Generator’ (s 2.2), as the rules state that a person must not own, operate, or control a power plant that is connected to the Network without registering as such (s 2.2.1(a)). Registration as a ‘Network Service Provider’ (NSP) (s 2.5.1) is also relevant to the present discussion. NSPs own and operate the transmission and distribution networks, the 9 ‘poles and wires’, of the electricity system. The Network, operated by transmission NSPs (TNSPs), delivers electricity from power stations to local substations, while the distribution network delivers electricity to customers from the substations. Under Section 2.5.1(a) of the NER, a person must not own, operate, or control a part of the Network without registering as a NSP. 4.2. Current framework for connection to the Network Connection to the Network is regulated by Chapter 5 of the NER. The generator first submits an enquiry which outlines the details of the proposed connection to the Network (s 5.3.2). The TNSP then responds and provides information relating to access and plant standards, capacity of the Network, and the program for assessing the connection application (s 5.3.3). A formal application for connection is then made by the generator (s 5.3.4) and the TNSP studies and identifies technical issues. The TNSP prepares an offer to connect, which must provide all relevant information to the connection applicant (ss 5.3.5 & 6) and contain the proposed terms and conditions of the connection (s 5.3.6(b)). These include technical matters (s 5.3.6(b)(1)) and the matters specified in Schedule 5.6 (s 5.3.6(b)(2)) , such as metering arrangements, charges, and the duration of the agreement (sch 5.6(b) & (l); sch 5.6(d); sch 5.6(f)). 10 Connection agreements may include “other technical, commercial, and legal conditions governing works required for the connection or extension to the network which the parties have negotiated and agreed to” (sch 5.6), which provides for commercial negotiation on all aspects of the connection that are not regulated. The connection agreement is finalized when the generator accepts or declines the offer to connect (s 5.3.7). 4.3. Augmentation under the current framework The above framework, while regulating the connection itself, does not regulate any augmentation of the Network that is required to enable a connection to occur. Specifically, the NER does not require a TNSP to undertake an augmentation to enable a connection (s 5.3.6(k)). Nor does the NER expressly require the generator to fund the augmentation. Any necessary augmentation must be negotiated between the generator and the TNSP under the auspices of the ‘catch-all’ provision in Schedule 5.6. Negotiating to augment the Network could result in the generator, the TNSP, or a third party funding the works. There is no standard arrangement for augmentation, though the numerous TNSPs (for a list, see Australian Government, 2011) have internal policies (see, for example, AEMO 2007). Each of the possibilities is briefly outlined below. 11 4.3.1. Generator pays In this scenario, the TNSP undertakes the augmentation and the generator provides the funds (a ‘funded augmentation’ under the NER, ch 10). This is the common practice for augmentation. Grid Australia, the representative body of the owners of the Network, states, “*u+nder current arrangements, the cost of any geographical expansion of the network to connect generation is met by the connecting generator” (Grid Australia, 2010). The AEMC’s options paper notes that the implicit test for augmentation required to effect a connection is that the user, that is the generator, is willing to pay for it (AEMC, 2010c). Although the generator pays for the physical assets, they are not allowed to own or operate them because, as noted previously, a participant in the NEM has to register as a TNSP to own or operate Network assets. It is not practical for a generator to register as a TNSP, due to the lengthy and exacting process and commensurate high cost of doing so (AEMO 2010b). In reality, registration as a TNSP is only practical for the companies that manage large-scale grid infrastructure in a region as their main business, and there are not currently any TNSPs in Australia that are not within this category (Alinta Energy, 2011). 12 The NER do provide for both specific and general exemptions from the registration requirement (ss 2.5.1(d) & (g)), however, these exemptions are for self-contained transmission networks,6 and do not apply to long- distance Network augmentations built to connect renewable energy generators (NECE, 1999, 2010). Given the foregoing, the norm is for the generator to gift the assets to the TNSP, who then owns and operates them, allowing the generator to connect to the Network. This may seem perverse, but the generator will have little other option than to do this if they wish to connect to the Network. 4.3.2. TNSP pays While the general rule is that the generator funds augmentations, if the TNSP considers that it may be beneficial for the network to be augmented beyond the level requested by the generator, it may opt to fund the incremental capacity as a part of the shared network (AEMO, 2007), i.e. the parts of the Network used by all NEM participants according to the charging framework of Chapter 6A of the NER (see ‘shared transmission service’, NER, ch 10). In such a case, the proposed augmentation must pass the Regulatory Investment Test for Transmission (RIT-T) (AER 2010a), which 6 Such as caravan parks, office buildings and shopping centres. 13 is designed to identify the augmentation option that “maximises the present value of net economic benefit to all those who produce, consume and transport electricity in the market” (NER, s 5.6.5B). The generator still pays for the augmentation works that facilitate its connection, while the TNSP pays for the additional capacity. 4.3.3. Contestable services The third scenario is contestability. The NER define this as “a service which is permitted by the laws of the relevant participating jurisdiction to be provided by more than one Transmission Network Service Provider as a contestable service or on a competitive basis” (‘contestable service, NER, ch 10). TNSPs and third parties can submit tenders to build Network augmentations and other infrastructure. While this is an exception to the general practice and does not warrant a detailed discussion here, it is worth briefly noting that Victoria has permitted this process and has invited tenders to connect a wind farm to the 500 kV Moorabool - Heywood transmission line (see National Electricity (Victoria) Act 2005 (Vic), div 10; NER, ch 8, pt H, NER; Essential Services Commission, 2003; AEMO, 2011c). 14 5. Problems with the current framework There are a number of issues with the current framework that mean that it is not apt to efficiently coordinate the connection of multiple renewable energy generators to the Network over time. 5.1. Incentives for generators to construct SENEs There is no incentive under the current framework for a generator to augment the Network beyond their own needs in anticipation of other generators seeking to connect in close proximity over time, even where this would result in lower costs to the system overall. Firstly, the generator must have sufficient funds to construct an augmentation with additional capacity, which, particularly in the case of smaller generators, may alone be an impassable barrier to investment in additional capacity. Secondly, the anticipated future generation and resultant connections to the Network via the augmentation may not materialize, leaving the generator with costly unused capacity (asset stranding). Grid Australia has called this an “insurmountable hurdle” (Grid Australia, 2010). Thirdly, a generator may not, perhaps understandably, wish to facilitate the connection of a competitor, and, finally, a generator may be uncomfortable with investing a large sum in assets which they cannot own or control because it is unclear how the costs of building the 15 augmentation might be recouped from subsequent generators, given that it does not own the assets (AEMC, 2010c). This will be discussed in detail presently, as it is a major barrier to scale-efficient investment in the Network. 5.2. Ownership rights and recouping costs from subsequent generators The NER does not provide for economic regulation of generator-funded assets, so there is significant uncertainty as to whether, and how, a generator is be able to recoup the costs of building additional Network capacity (AEMC, 2010c). The generator could attempt to negotiate an agreement with the TNSP that the TNSP will seek a proportion of the costs of the augmentation on behalf of the funding generator from any subsequent generator. However, the TNSP, which now owns the assets, has little incentive to negotiate with a subsequent generator, so long as its own costs are covered. At best the original generator/funder might hope to extract a ‘reasonable endeavors’ obligation from the TNSP, but this is unlikely to instill confidence in a generator that has spent millions of dollars on a Network augmentation much larger than it needs for its own connection. 16 This risk of non- or under-recovery of costs is a strong deterrent to building an efficiently sized augmentation and ensures that generators will only build the capacity that they need. When numerous generators develop resources in close proximity, this is likely to result in the inefficient duplication of infrastructure (MCE, 2010). 5.3. Incentives for TNSPs to construct SENEs Concurrently, there is also little incentive for the TNSP to opt to bear the costs of an incremental augmentation in addition to a generator’s requirements. As with generators, TNSPs are concerned about the risk of asset stranding. Without a high degree of certainty that generators will connect via the SENE, TNSPs are unlikely to invest in such costly infrastructure. Without rules in place that ensure cost recovery, a TNSP gains no benefit from building an under-utilized augmentation, but takes on significant risk by doing so. 5.4. Coordination of generators wishing to augment the Network The problems with the current framework go beyond the issues of cost and asset stranding. The current framework is also ill-suited to coordinating the connection of numerous generators. Grid Australia has “experienced the reluctance of individual [generators] to tie their project delivery to the timelines of third parties” (Grid Australia, 2010), while the AEMC notes that 17 generators can be cautious about providing TNSPs with commercially sensitive information about their intentions (AEMC, 2010c). This means that a generator or TNSP considering building a SENE can find it difficult to gather sufficiently detailed and definite information to justify the cost and risk involved. Some improvements have been made in this regard by a recent rule change that loosened restrictions on NSPs from releasing information received as part of a connection enquiry or application, allowing NSPs to confidentially share information between applicants for connection in proximate locations (National Electricity Amendment (Confidentiality Provisions for Network Connections) Rule 2009). However, even with improved information sharing, the current system will still struggle to coordinate connections, because generators may not wish to share information about their intentions with competitors. In any case, it is unlikely that all generators wishing to connect in an area will be ready to do so at the same time, and are unlikely to allow their timetable to be dictated by third parties. 5.5. Increased cost to customers The inability of the current framework to incentivize and coordinate SENEs is likely to increase costs to customers of electricity through the inefficient 18 duplication of assets and the pass-through cost from generators burdened by stranded assets. The MCE notes that the cost impact on customers from such inefficiencies may be large, given the efficiencies that could be gained by better coordinating augmentation and connection (MCE, 2010). 5. The SENEs Rule Process The process for promulgating a SENEs rule in Australia began in August 2008, with the MCE requesting that the AEMC investigate the effects of the RET and the proposed Carbon Pollution Reduction Scheme (CPRS), a cap- and-trade system, on the frameworks for energy market regulation. The AEMC delivered the REMF, which included a SENEs rule proposal, in September 2009. The MCE then asked the AEMC to progress the proposal. The AEMC produced a consultation paper in April 2010, an options paper in September 2010, a draft rule in March 2011 and, finally, the SENEs rule, which took effect on 1 July 2011. Throughout the rule change process, the AEMC consulted with stakeholders, whose submissions and contributions are useful sources of information and indicators of industry support for different proposals. The various steps in the rule change process will be discussed in turn, culminating in a critique of the Final Rule. 19 5.1. Review of Energy Market Frameworks proposal As part of the REMF, the AEMC identified the need for SENEs in light of a projected increase in renewable generation, and set out a proposal for a SENEs rule (REMF Proposal) (AEMC, 2009). The REMF Proposal sought to encourage construction of new transmission infrastructure based on predicted renewable energy generation in a given location. Under the REMF proposal, generators would be charged for the use of the infrastructure based on how much electricity they transmit through the connection. Customers would underwrite the cost of the asset until the forecasted generation materializes. The basic framework is that the AEMC would identify possible areas for future growth as part of the National Transmission Network Development plan, and NSPs would formulate indicative plans for possible connection options in those areas. Following connection applications by generators, a detailed planning process would be conducted by NSPs, identifying and consulting on the optimum size of the augmentation based on forecasted renewable energy generation in the area, which would be independently verified by the AEMC. The SENE would then be constructed and generators connecting to the Network via the SENE would pay for their usage. If generation does not 20 materialize or is lower than predicted, customers pay for the shortfall, but customers would benefit from the savings made if generation connects early. As long as generation connects as expected, customers would be effectively be paid back over the life of the asset (MCE, 2010). The AEMC noted that at this stage stakeholders generally felt that changes to the NER were warranted by the challenges the electricity system faces, and that the ‘high level policy’ was “generally considered appropriate” (AEMC, 2010c). 5.2. MCE rule change request The MCE then signified its intention to formally request a rule change (MCE, 2009), which it subsequently did in February 2010 (MCE, 2010). The request sets the REMF proposal as the starting point for the rule change, along with some specific additional elements outlined in its response to the REMF which are set out below. The MCEs first concern was that shared network assets are subject to the RIT-T test, which ensures that any proposed augmentation will deliver benefits to customers, but SENEs would not be part of the shared network and therefore not subject to the same level of economic regulation. Generators and NSPs could propose unrealistically large augmentations, as no test for efficiency must be passed. This would place a high risk of 21 stranded assets on customers. The MCE requested that a SENEs rule would provide generators and NSPs with an incentive to develop accurately sized proposals. The MCE agreed with the AEMC that the AER should be given powers to block a SENE proposal where it considers that it will not deliver efficient outcomes based on customer needs. In support of these powers, the MCE requested that a SENEs rule must require the AER to engage with those affected by a SENE proposal to ensure that it possesses all relevant information regarding the risks that consumers would assume under a SENE proposal and provide a mechanism for these risks to be communicated. 5.3. The Consultation Paper The AEMC’s initial consultation paper delivered a more detailed version of the REMF proposal. In contrast to the initial support for the REMF proposal, the AEMC found that support was now “tempered by the complex nature of the proposed Rule” (AEMC, 2011). The initial submissions made to the AEMC’s consultation set the tone for the entire rule change process, with the key themes that have prevailed throughout the process emerging at this stage. Opponents of the rule change questioned the need for a new rule and expressed concerned at placing risk on customers. Proponents of 22 the rule however maintained that SENEs would not be built in the absence of such a rule. 5.4. The Options Paper The Options Paper suggested five options for a SENEs rule, all broadly based on the original REMF proposal that the MCE requested be used as the initial model. The first two options most closely resemble the REMF proposal, in that they involve the AEMO identifying renewable energy zones and NSPs providing augmentation options for those zones. Generators would pay a proportional average cost, with customers underwriting the risk of asset stranding. The options are differentiated by their access arrangements. The remaining three options have elements in common with the current framework in that a generator connection enquiry triggers the augmentation process, however, under these options, the SENE would be classified as a part of the shared network, rather than a non-regulated service (as funded augmentations are at present). This would mean that access to the SENE would be regulated as it is for the rest of the network under the NER (ch 5). In options 3 and 4 the first generator pays the standalone cost and with the RIT-T being applied to, and customers underwriting the risk of, incremental 23 capacity. These two options differ in how these charges are reduced over time: in option 3 the charges to the generator decrease as more generators connect, whereas in option 4 both the cost to generators and the cost to customers decrease (see AEMC, 2010c for a useful graphical representation of these charging structures). Option 5 would have introduced a new classification for SENEs in the NER, whereby generators would be charged their proportional average cost and the RIT-T would be applied to the whole proposal. In all 5 proposals the AER would have certain powers of regulatory oversight. In options 1 and 2 AER would have a veto power while in options 3-5, where the process is generator-initiated, AER would review the applications. In all options the AEMO would review generation forecasts, providing a second layer of oversight. There was a strong and varied response to the options paper. Opinions again differed as to which of the options achieved the best balance between capacity and asset stranding, and whether risk should be borne by generators or customers (AEMC, 2011). 7 7 AEMC, ‘National Electricity Amendment (Scale Efficient Network Extensions) Rule 2011’ (Draft Rule Determination, 10 March 2011) iv. 24 5.5. The Draft Rule Following the options paper, the AEMC devised a new proposal (AEMC, 2011) that attempted to navigate the concerns of all stakeholders. The Draft Rule was a significant departure from all other options considered. In contrast to the relative complexity of the other proposals, the Draft Rule simply provided for a generator to request that a TNSP undertake a study for a SENE. The TNSP would then undertake and publish a study to consider the options for a SENE in that area, funded by the interested generator(s). Following the study, the negotiation and construction of the augmentation are regulated by the existing framework detailed above. 5.5. The Final Rule The AEMC ultimately decided to adopt the Draft Rule as the Final Rule. A detailed discussion and analysis of the Final Rule follows. This includes discussion of the submissions regarding the Draft Rule, as these provide insight into the industry opinion of the new rule. 6. Assessment of the Final Rule Before assessing the Final Rule, it is worth noting that it is, despite representing a considerably scaled-back framework, just as divisive as the previous proposals. A cursory glance at the 21 submissions to the AEMC 25 shows that 11 were against the rule,8 5 were in favor,9 and 3 were for it in principle, but held some reservations.10 Two submissions continued to doubt the need for the rule at all.11 This brief assessment suggests that the generators, TNSPs, industry bodies and large energy users that will be subject to the Final Rule, were, at the very least, not in agreement, and, more specifically, were generally not in favor of the Final Rule. The AEMC noted that many submissions considered that the AEMC should not promulgate the Draft Rule and should consult with the MCE, informing it of the difficulties experienced in navigating the numerous considerations, and seek further guidance on how to proceed (AEMC, 2011). At the very least the AEMC could have extended the time period for the process, either by announcing another extension of the current process (NEL, s 107), or by incorporating SENEs into the more general transmission frameworks review that is currently in progress (AEMC, 2010b). 8 Brookfield Infrastructure Group; Clean Energy Council; Conservation Council of South Australia; Government of SA; Infigen Energy; International Power; Origin Energy; Pacific Hydro; Renewables SA; TRUenergy; Vestas. 9 AGL; Ausgrid; AER; Grid Australia; Nyrstar. 10 AEMO; National Generators Forum; Private Individual. 11 Alinta Energy,; Major Energy Users. 26 The AEMC did not, however, conduct further investigations, but instead adopted the Draft Rule as the Final Rule, and it is this rule that will be discussed presently. 6.1. A change of direction The Final Rule is quite different from that envisaged by the MCE, which requested that a rule for SENEs be modeled on the widely-approved proposal in the REMF, with some changes. The Clean Energy Council (CEC) stated that it is “inappropriate for the AEMC to have made this decision without reference to the MCE” (CEC, 2011). The Draft Rule departs markedly from the options previously considered. Law firm Allens Arthur Robinson (AAR) described it as “considerably more conservative” than the previously considered options (Collyer, A. and Green, F., 2011), while Origin Energy stated in its submission that the Draft Rule “essentially upholds the status quo” (Origin Energy, 2011). The AEMC rightly notes that it is empowered by section 91A of the NEL to make a rule that is different from a proposed rule (AEMC, 2011). Nonetheless, given stakeholder concern that the Draft Rule was inadequate, it would have been advisable for the AEMC to seek further guidance, particularly given that the rule change was proposed by the MCE, the body in charge of steering the policy of the NEM. 27 6.2. Does the Final Rule cure the defects of the current framework? 6.2.1. Does the Final Rule provide an incentive for generators to construct SENEs? The Final Rule provides little certainty for investment beyond that already provided by the NER. The decision of the AEMC to allocate risk and cost to generator or investors, rather than consumers as the MCE had envisaged, means that the high costs of augmentation will continue to act as a deterrent to investment. The Final Rule does not change the underlying reason for under- investment: a generator that can afford to build a dedicated augmentation for their project is highly unlikely to risk significant additional capital by building a larger connection (which would help their competitors if successful, and cost them if not). The Final Rule seems to assume that a study alone will guarantee investment and coordination of connections. Australia’s largest owner of wind farms states that “this is a heroic assumption” and that the most likely outcome of the Final Rule is that no SENEs will be constructed (Infigen, 2011). 28 6.2.2. Does the Final Rule enable the first mover to recoup their costs? The position of a party that constructs a SENE, as against another party that subsequently connects to the Network via that SENE, is unaffected by the Final Rule. Negotiations for connection of the third party to the Network via the privately constructed SENE will continue to take place under the existing framework, which does not cover this situation (AEMC, 2011). The AEMO, in its submission on the Draft Rule, stated that investments in SENEs are unlikely “unless a potential investor has reasonable certainty that it has a transport right to offer to a connecting generator” (AEMO, 2011a). The National Generators Forum (NGF), representing 95% of the sales of electricity to the NEM, stated that the lack of control over the SENE, and the need to become a TNSP in order to gain control over it, means that generators are unlikely to build SENEs (NGF, 2011). 6.2.3. Will the Final Rule improve the coordination of connections? There is some potential for the Final Rule to increase the chances of numerous generators coordinating their connections and building the SENE together, as a study of an area may provide some certainty as to the likelihood of future demand for use of the proposed SENE. 29 However, it should be borne in mind that the study only provides more information for generators which, while somewhat helpful in itself, will not solve the problems noted previously, including generators not wishing to tie their schedule to others’ projects or help a competitor. Origin Energy notes that the reality is that “potential generators are unlikely to be in a position to achieve simultaneous financial close, let alone come to a decision on the required transmission infrastructure” (Origin Energy, 2011). Thus it seems that, without some provision for future connection of generators, a SENE is unlikely to be built. 6.2.4. Does the Final Rule provide an incentive for TNSPs to construct SENEs? The Final Rule makes no significant change to the position of a TNSP under the current framework. As with generators, the TNSP will possibly have better information upon which to base their investment decisions, however the Final Rule will not remove all of the barriers to information sharing and cooperation that currently exist. Further, a TNSP is guaranteed a return on investment in regulated assets under Chapter 6A of the NER and so is unlikely to risk its capital on an unregulated asset with no such guarantee. 30 6.2.5. Will the Final Rule reduce costs to consumers? It seems unlikely that SENEs will be progressed by this rule, given that it does not remove the barriers that exist in the current framework or incentivize generators or TNSPs. It is probable that generators will continue to only build sufficient infrastructure to connect their projects to the Network, at a significant additional cost overall, compared to the cost resulting from an augmentation shared between two or more generators. This additional cost caused by the loss of significant economies of scale will be passed on to consumers, who will ultimately pay more for their electricity as Australia transitions to renewables. 6.3. Arguments made in favor of the Final Rule 6.3.1. Removes burden of risk from customers A common theme throughout the process, and no less in the submissions to the Draft Rule, was whether it is acceptable to require customers to bear the risk of asset stranding through an increase in charges. Proponents of the Final Rule state that consumers should not be required to underwrite SENEs as they do not receive any share of the profits, should they materialize: the common refrain has been that a rule should not “privatise profits and socialise losses” (AGL, 2011). To be sure, there is an argument 31 that risk should be placed on those best placed to manage it, and this is not the customer. However, the MCE request specifically recognized that customers could expect to benefit from SENEs, due to a lessening of infrastructure duplication and the lower cost of meeting the RET and increase in renewable energy generation into the future (MCE, 2010). Customers would also benefit from the broader social good of increased renewable energy generation and lower emissions. In addition, the cost of asset stranding could be very damaging to a generator, but the individual impact is lessened when it is dispersed between numerous customers. The MCE made it very clear that some risk to customers is necessary and acceptable. In their rule change request they stated that “*c+ustomers will be exposed to some of the costs of the SENE if generators arrive late or do not materialise, but will receive payments if generators arrive early or in excess of forecasts… customers will initially fund some spare capacity but will be repaid over time” (MCE, 2010). As the CEC suggests, if the AEMC was concerned about this issue, further guidance should have been sought. Finally, the fact that customers would be protected somewhat by the regulatory oversight of the AER and AEMO under the previous options has been overlooked in the submissions. Thus, while the burden of the risk 32 would have been placed upon customers, they would have had the benefit of regulatory protection; generators will not have this protection under the Final Rule if they choose to underwrite the risk of stranded assets. 6.3.2. Removes complexity While it is undoubtedly true that the Final Rule is less complex than even the earliest SENEs proposal in the REMF, it also does not serve its purpose. A number of stakeholders seem to suggest that the complexity of a rule is alone enough to abandon it. On the contrary, a rule that successfully balances all interests will very likely be complex, but this is no reason to not attempt to balance these interests at all. The AEMC itself warned against making piecemeal changes to the NER (AEMC, 2011), yet the Final Rule itself is a perfect example of piecemeal change. Finally, the MCE did not feel it necessary to even consider the issue of complexity (MCE, 2010), instead choosing to focus on the substantive issues, yet the AEMC has attached great significance to the issue, considering it at length (AEMC, 2011). 7. Alternatives Upon receiving such a mixed reaction to the drastic change in direction introduced by the Draft Rule, the AEMC would have been best advised to seek further guidance, delay the process, or, consider an alternative. Three 33 alternatives, two of which were open to the AEMC, will be discussed below. Oddly, the AEMC acknowledged the difficulties in balancing all stakeholder interests throughout the consultation process, but ultimately decided to implement a divisive rule that did not receive majority support and does not appear to solve the targeted problem. 7.2. Back to basics Preferably, the discussion should have returned, or should in the future return, to the REMF proposal, which was generally recognized as being sound in principle. The AEMC should have reconsidered all options, acknowledging that some risk to consumers was necessary to break the deadlock over who should invest in SENEs. The AEMC should have acknowledged that no rule will ever gain the support of all stakeholders, but that the benchmark for whether a rule is appropriate is whether it fixes the issue at hand. The AEMC could have sought inspiration from overseas jurisdictions, such as Texas, where Competitive Renewable Energy Zones have been implemented to facilitate infrastructure development (see Oncor, 2011). 34 7.3. Granting ownership: a preferable compromise The placement of risk on customers was a concern of many parties not in favor of SENEs, while the issue of ownership of the augmentation was identified by both those in favor and those against the Final Rule. The AEMC could have simply proposed a rule that would enable a generator/funder to acquire rights to the capacity of the SENE. Even in the absence of more holistic reform, it is likely that this would have increased the willingness of generators to invest, without placing any risk on consumers, thus compromising between divergent opinions, without sacrificing the effectiveness of a SENEs rule. Furthermore, this reform would not drastically increase the complexity of the framework, a key concern of the AEMC and some stakeholders. The AEMC still has the option of considering a rule change that would allocate property rights to the funder of a SENE, and this should be given further consideration. 7.4. Reform of the National Electricity Objective (NEO) A broader change, which is beyond the ambit of the AEMC, would be to reconsider the NEO (NEL, s 7; Department of Resources, Energy and Tourism). The NEO does not allow the consideration of anything other than 35 efficiency in the interest of the customer in the rule making process (NEL, s 88(1)). Arguably this makes the scope of NER reform very limited. A key argument against the more comprehensive SENEs framework was risk to customers and, ultimately, the AEMC agreed, citing the “unacceptable” level of risk to customers (AEMC, 2011). There are two issues with this situation. Firstly, the AEMC did not define what constitutes an “unacceptable” level of risk, nor for that matter does any other body or instrument. The AEMC appears to have taken the opinion that any risk is unacceptable, yet surely placing some risk on customers, overseen by regulators, cannot be unacceptable where the customer will benefit overall in the long-term. Secondly, regardless of whether the Final Rule would be likely to benefit customers, it seems absurd that the range of considerations is so narrow. Policies that are important for environmental or energy security reasons, or any other reason, cannot be articulated in furtherance of the rule making process. This is problematic in the current context, because SENEs have the potential to deliver much wider benefits that efficiency alone. For example, SENEs would enable large-scale Concentrating Solar Power plants to be connected in remote areas where space is not at a premium. 36 Likewise, the building of wind farms far from densely inhabited areas could reduce the opposition to ‘blight’ experienced in less remote areas. Many stakeholders have, rather short-sightedly, focused only on the ability of the NEM to meet the RET, but looking beyond the RET to the future of renewable energy generation reveals further possible benefits of SENEs. For example, SENEs could facilitate the connection of geothermal energy sources, which have the potential to provide baseload renewable energy power. Under the current NEO, these benefits are not legitimate arguments in favor of a rule change unless they increase efficiency and lower electricity bills. 8. Conclusion: hard cases make bad law In relation to the courts, it is often said that ‘hard cases make bad law’. This well-worn aphorism appears to hold true for the incorporation of SENEs into the NER. The issue is a difficult one, with numerous interests, opportunities and risks to be identified, considered and balanced. A process that started out with a clear mandate and a broad consensus has culminated in a rule that has strayed from its mandate and divided opinion. It is true that the AEMC initially met with broad support which later dissipated in light of the difficulty of pinning down the finer details. Yet these complexities cannot be side-stepped if Australia is going to bring 37 more renewable energy generation into its energy mix and slowly, but surely, reduce its reliance on carbon-intensive electricity generation. 38 ### List of Reference AEMC, 2009, Final Report: Review of Energy Market Frameworks in light of Climate Change Policies. AEMC, 2010a, Consultation Paper: National Electricity Amendment (Scale Efficient Network Extensions) Rule 2010. AEMC, 2010b Notice under National Electricity Law. AEMC, 2010c Options Paper: National Electricity Amendment (Scale Efficient Network Extensions) Rule 2010. AEMC, 2011, Draft Rule Determination: National Electricity Amendment (Scale Efficient Network Extensions) Rule 2011. AEMO, 2007 Victorian Electricity Transmission Network Connection Augmentation (Guidelines No 2). AEMO, 2010a, Connecting Generation Clusters to the Victorian Electricity Transmission Network: A Technical Perspective. AEMO, 2010b, NEM Network Service Provider Registration (Guide, 1 December 2010). AEMO, 2011a, Submission to Draft Rule Determination: National Electricity Amendment (Scale Efficient Network Extensions) Rule 2011, 5 March 2011. ██████████████ . AEMO, 2011c, Upcoming Tender Opportunity to Build Own and Operate a ███████████ . AER, 2010a, Final Regulatory investment test for transmission. AER, 2010b, The State of the Energy Market 2010. AER, 2011, Submission to Draft Rule Determination: National Electricity Amendment (Scale Efficient Network Extensions) Rule 2011. AGL, 2011, Submission to Draft Rule Determination: National Electricity Amendment (Scale Efficient Network Extensions) Rule 2011. Alinta Energy, 2011, submission to Draft Rule Determination: National Electricity Amendment (Scale Efficient Network Extensions) Rule 2011. 39 Ausgrid, 2011, Submission to Draft Rule Determination: National Electricity Amendment (Scale Efficient Network Extensions) Rule 2011. Australian Energy Market Commission Establishment Act 2004 (SA). Australian Government, 2011, Transmission Network Service Providers Electricity Performance Report for [REDACTED PHONE]. Brookfield Infrastructure Group, 2011, Submission to Draft Rule Determination: National Electricity Amendment (Scale Efficient Network Extensions) Rule 2011. CEC, 2011, Submission to Draft Rule Determination: National Electricity Amendment (Scale Efficient Network Extensions) Rule 2011. COAG, 2004, Australian Energy Market Agreement. Collyer, A. and Green, F., 2011, Focus: Not-so-dramatic SENEs – Draft Rule on scale efficient network extensions issued, AAR . Conservation Council of South Australia, 2011, Submission to Draft Rule Determination: National Electricity Amendment (Scale Efficient Network Extensions) Rule 2011. Department of Climate Change and Energy Efficiency, 2011, Australian national greenhouse gas accounts: National Greenhouse Gas Inventory Accounting for the Kyoto Target December Quarter 2010. Department of Resources, Energy and Tourism, National electricity market objective: an explanation. Energy Supply Association of Australia, 2011, Member Briefing, Sydney, 2 June 2011. Essential Services Commission, 2003, Issues Paper: Electricity Transmission Augmentation Guidelines: Competition in the Provision of Transmission Augmentation Services. Geoscience Australia and ABARE, 2010, Australian Energy Resource Assessment. Government of South Australia, 2011, Submission to Draft Rule Determination: National Electricity Amendment (Scale Efficient Network Extensions) Rule 2011. Grid Australia, 2010, submission to Consultation Paper: National Electricity Amendment (Scale Efficient Network Extensions) Rule 2010. 40 Grid Australia, 2011, Submission to Draft Rule Determination: National Electricity Amendment (Scale Efficient Network Extensions) Rule 2011. Infigen Energy, 2011, Submission to Draft Rule Determination: National Electricity Amendment (Scale Efficient Network Extensions) Rule 2011. International Power, 2011, Submission to Draft Rule Determination: National Electricity Amendment (Scale Efficient Network Extensions) Rule 2011. Major Energy Users, 2011, Submission to Draft Rule Determination: National Electricity Amendment (Scale Efficient Network Extensions) Rule 2011. MCE, 2009, Response to Australian Energy Market Commission’s Final Report. MCE, 2010, Rule Change Request from the MCE to the AEMC, 15 February 2010. Multi-Party Climate Change Committee, 2010, Carbon Price Mechanism. National Electricity Amendment (Scale Efficient Network Extensions) Rule 2011. National Electricity (South Australia) (National Electricity Law - Australian Energy Market Operator) Amendment Act 2009 (SA). National Electricity (South Australia) Act 1996 (SA). National Electricity (Victoria) Act 2005 (Vic). National Electricity Amendment (Confidentiality Provisions for Network Connections) Rule 2009. National Electricity Rules Version 43 (2011). NECA, 1999, Guidelines for exemption from the requirement to register as a network service provider (1999). NECA, 2000, General exemptions from the requirement to register as a network service provider (2000). NERA Economic Consulting, (2010) Case Study of the Network Extension . NGF, 2011, Submission to Draft Rule Determination: National Electricity Amendment (Scale Efficient Network Extensions) Rule 2011. Nyrstar, 2011, Submission to Draft Rule Determination: National Electricity Amendment (Scale Efficient Network Extensions) Rule 2011. 41 ██████████████ . Origin Energy, 2011, Submission to Draft Rule Determination: National Electricity Amendment (Scale Efficient Network Extensions) Rule 2011. Pacific Hydro, 2011, Submission to Draft Rule Determination: National Electricity Amendment (Scale Efficient Network Extensions) Rule 2011. Private Individual, 2011, Submission to Draft Rule Determination: National Electricity Amendment (Scale Efficient Network Extensions) Rule 2011. Renewable Energy (Electricity) Act 2000 (Cth). Renewables South Australia, 2011, Submission to Draft Rule Determination: National Electricity Amendment (Scale Efficient Network Extensions) Rule 2011. Trade Practices Act 1974 (Cth). TRUenergy, 2011, Submission to Draft Rule Determination: National Electricity Amendment (Scale Efficient Network Extensions) Rule 2011. Vestas, 2011, Submission to Draft Rule Determination: National Electricity Amendment (Scale Efficient Network Extensions) Rule 2011, 9 May 2011. 42 ### Marine energy Glen Wright and ██████, the University of New South Wales provide an overview of New Zealand law and policy N ew Zealand currently produces 73 per cent of its Light For Ground-Breaking Tidal Energy Project In Cook electricity from renewable sources, and has an ambi- Strait” Energy & Environment Business Week (16 April tious target to increase this to 90 per cent by 2025 2008)). As of April 2010 the turbine had not been deployed, (National Policy Statement for Renewable Electricity Gen- and the current status of the project is unclear (Nick Eldred eration 2011). There are a number of marine energy projects (presentation to AWATEA Conference, Wellington, April underway in New Zealand, and marine energy generation is 2010)). expected to provide 1750 MW of electricity by 2030 (Min- istry of Economic Development “New Zealand’s Energy Wave energy Outlook to 2030” (2006) at 130). Wave Energy Technology New Zealand (WET-NZ), a research This paper will outline the main projects aiming to har- and development collaboration programme comprising Indus- ness marine energy in New Zealand, as well as examining the trial Research Limited and PPL, acquired resource consent, key policy and funding initiatives in place supporting the the first for a wave energy project in New Zealand, for development of this emerging industry. A detailed overview deployment of prototypes of its technology in Pegasus Bay. of the current regulatory regime is also provided, along with Their device has been deployed since December 2006, but it an outline of some of the issues with the regime. is for research and development purposes only and it is not Energy from the oceans can be converted into electricity in intended that it will be developed into a commercial-scale a number of ways. Wave and tidal energy are the most project (John Huckerby (AWATEA Conference)). developed worldwide, and it is these sources that are cur- Chatham Islands Marine Energy Ltd (CHIME) is pursu- rently being pursued in New Zealand. New Zealand is ing shore-based wave power near Point Durham in the fortunate to have one of the best wave energy resources in the Chatham Islands and has lodged an application for resource world, while only limited opportunities exist for tidal energy consent. The project would supply the Islands with half their (Ministry of Economic Development “Emerging Supply-Side electricity needs, lessening reliance on diesel generation (Garry Energy Technologies” (2006) at 4). The New Zealand Energy Venus (AWATEA Conference)). Outlook states that the “potential resource is huge” (at 98): New Zealand’s waves contain between 7.5 to 25 MW per km RESOURCE MANAGEMENT ACT of wavefront and the tides contain 5 to 35 MW per km width The Resource Management Act 1991 (RMA) is the main (“Emerging Supply-Side Energy Technologies” at 3). legislation dealing with environmental management and approv- als in New Zealand and it aims to promote the “sustainable CURRENT PROJECTS management of natural and physical resources” (s 5). The There are a number of marine energy projects currently being RMA provides for a regionalised system, whereby national undertaken. The key projects are outlined below. standards, regulations and policies are implemented and supplemented by regional policy statements and plans, made Tidal energy by regional councils (s 65(2); Sch 1). Regional policy state- While tidal resources are limited, they are strong in localised ments “set the basic direction for environmental manage- areas, such as Kaipara Harbour and the Cook Strait. Crest ment in the region”, while regional plans “tend to concentrate Energy is in the advanced stages of developing a tidal power on particular parts of the environment, like the coast, soil, a project that will see 200 turbines, capable of producing 200 river or the air” (Ministry for the Environment An Everyday MW of electricity, installed in Kaipara Harbour (www.crest- Guide to the RMA (series 1.1, 2nd ed, Wellington, 2009) at energy.com). Crest has received resource consent under the 5). Resource Management Act 1991, the first such approval for A person wishing to undertake certain activities must commercial tidal power generation in New Zealand (Minis- apply for resource consent under Part 6A of the RMA from ter of Conservation “Kaipara Harbour tidal turbine project the regional council. A coastal permit, a type of resource approved” (press release, 17 March 2011)). consent under s 87(c), is a consent to do something in the Energy Pacifica is pursuing tidal stream generation in the coastal marine area that would otherwise contravene the Tory Channel (Cook Strait) and has applied for resource RMA. The marine coastal area describes the foreshore, sea- consent. It plans to install ten turbines, each able to produce bed and seawater within 12 km of the low-water mark (see up to 1.2 MW (Lindsay Clark “Benign Tides” (2008) 6 RMA, s 2; Territorial Sea, Contiguous Zone, and Exclusive Energy NZ). Neptune Power Ltd obtained resource consent Economic Zone Act 1977, ss 3 and 25). in April 2008 for a tidal generation turbine off Sinclair Head Some activities relevant to developing marine energy projects in the Cook Strait (Power Projects Ltd (PPL) “Development are restricted by the RMA. Unless authorised by law, a of Marine Energy in New Zealand” (2008) at 58). The plan person may not “erect, reconstruct, place, alter, extend, initially is to deploy a single 1 MW device as a trial (“Green remove, or demolish any structure” that is “fixed in, on, 227 New Zealand Law Journal August 2011 under, or over any foreshore or seabed” without a coastal be seen whether many Maori groups will gain customary permit (s 12(1)(b)). A person must not disturb the foreshore title. The test is difficult to satisfy, as it requires exclusive use or seabed in a way “likely to have an adverse effect” thereon and occupation from 1840 to the present day without sub- (s 12(1)(c)). A coastal permit is also required to use the water stantial interruption, and it seems that this is unlikely to be itself, as s 14(1)(a) of the RMA states that a person may not relevant to most marine energy projects. “take or use … energy from any open coastal water” without consent. Consultation Under s 117 of the RMA, consent must be sought for The RMA does not place an obligation to consult stakehold- activities that are designated “restricted coastal activities” ers when applying for a resource consent (s 36A). However, under a regional plan. However, cl 9 of the Coastal Policy the government recommends consultation, which may be Statement 2010 (CPS) states, “[t]he Minister of Conserva- advisable given the potential for opposition to a marine tion does not require any activity to be specified as a restricted coastal activity in a regional coastal plan”. Under cl 29, local energy project (Ministry for the Environment An Everyday authorities must amend their regional plans in order to give Guide to the RMA (series 2.1, 2nd ed, Wellington, 2009) at effect to this policy (see also RMA, ss 5 and 55). 9). The RMA does not specify how consultation should be The maximum duration of a coastal permit is 35 years managed, though the Government provides a guide to the (s 123(c)), though practical experience is said to show that process (An Everyday Guide to the RMA (series 2.2, 2nd granting consent for this time is unusual and generally comes ed)). with onerous conditions (Simpson Grierson “Marine Energy Proposals – Resource Management Act 1991” (2005) at 2). TITLE TO THE SEABED The Marine and Coastal Area (Takutai Moana) Act 2011 Regional plans repeals the controversial Foreshore and Seabed Act 2004 and The relevant regional plan must be considered when making restores customary title extinguished by that Act (Marine an application in order to determine whether there are any and Coastal Area (Takutai Moana) Act 2011, s 6(1)). specific activities restricted or requirements to be met. The Importantly for the present discussion, the Act states that RMA tasks regional councils with, if appropriate, “the estab- “[n]either the Crown nor any other person owns, or is lishment of rules in a regional coastal plan to allocate the capable of owning, the common marine and coastal area” taking or use of … energy from open coastal water” and “the (s 11(2)). While this does not affect the ability of regional establishment of a rule … to allocate space in a coastal councils to grant resource consents or impose charges under marine area” (s 30(1)(fb)(i) and (ii)). s 5(d), it does mean that a marine energy company cannot Regional councils are responsible for the “strategic inte- actually own, or lease, that part of the seabed upon which gration of infrastructure with land use through objectives, their project is situated. A marine energy company can hold policies, and methods” (s 30(1)(gb)). Infrastructure is defined only a resource consent in relation to their project. The Act by s 2 of the RMA as “facilities for the generation of treats a structure in the common marine and coastal area as electricity, lines used or intended to be used to convey elec- personal property which does not signify an interest in land tricity, and support structures for lines used or intended to be or form part of the common marine and coastal area (s 18(2)(a) used to convey electricity”. and (b)). Visual impacts Submarine cables The preservation of the “natural character of the coastal The Submarine Cables and Pipelines Protection Act 1996 environment (including the coastal marine area)” is a matter regulates undersea cables. Sections 6 and 11 give a marine of national importance under the s 6 of the RMA and must be energy project protection through civil and criminal penal- considered when assessing resource consent applications. ties for interference with cables. Section 6 states that the Act This will be relevant to marine energy systems that are not places no limitation on civil liability for damage, while s 11 fully submerged. states that any person that “damages, or causes or permits a ship or equipment belonging to a ship to damage” marine Maori issues cables is liable on summary conviction to a fine not exceeding Regional councils must consider the “relationship of Maori $250,000. and their culture and traditions with their ancestral lands However, the Act also places some of the burden of [and] water” and the protection of customary rights (see avoiding damage to submarine cables on the owner of the RMA ss 6(e), (f), (g) and 7(a)). There is a “considerable body cables. Section 8 states, “if after all reasonable precautions of case law, some of it conflicting” on these considerations have been taken … fishing equipment belonging to a ship is (Simpson Grierson at 10), and much will turn on the specific sacrificed in order to avoid damaging a submarine cable … facts of each case. It is worth noting that Crest Energy was the owner of the ship is entitled to be indemnified for that granted resource consent, despite vocal opposition from owner’s loss by the owner of the cable or pipeline”. To local iwi (see Robyn Downeyn “Hui to fight Kaipara wave mitigate this risk, a marine energy company may wish to seek turbine project” Dargaville & Districts News, 23 May 2011). a protection area around its cables under s 12. Such an area Where the activity to be carried out is within a customary currently exists in the Cook Strait to protect Transpower’s marine title area, the customary marine title group may give cables (Submarine Cables and Pipelines Protection Order or decline permission, on any grounds, for an activity, not- 2009 (SR 2009/41)). Finally, insofar as submarine cables withstanding that resource consent has been given. Custom- may discharge heat into the water, a discharge permit may be ary marine title has only recently been restored (Marine and required under s 15(1)(a) of the RMA, as heat is a “contami- Coastal Area (Takutai Moana) Act 2011), and it remains to nant” according to the definition in s 2. 228 New Zealand Law Journal August 2011 Charges closed at the end of November 2010 and the recipient is due Under s 64A of the RMA, a regional council decides whether to be announced presently (Energy Efficiency and Conserva- or not to charge a person for its occupation of the marine tion Authority “New Zealand Marine Energy Deployment area, having regard to the public and private benefits ren- Fund, Fund Definition Document” (2010) at 3). dered by the occupation. Charges may also be levied under Resource Management (Transitional, Fees, Rents, and Roy- POTENTIAL ISSUES alties) Regulations 1991 (SR 1991/206) for rental of the Rights over the seabed seabed on which the cables lie (reg 8 and Sch 2). A clear defect in the present regulatory regime is that a marine energy developer cannot hold any title to the seabed, POLICY AND FUNDING due to the “special status” accorded to the coastal marine The government recently released its National Policy State- area by s 11(1) of the Marine and Coastal Area Act. This lack ment for Renewable Electricity Generation 2011. Policy E1 of security may act as an impediment to the development of requires that regional policy statements and plans include: the marine energy. Given the controversy over rights to the foreshore and seabed caused by the Foreshore and Seabed objectives, policies and methods (including rules within Act that gave rise to the 2011 Act, it seems unlikely that plans) to provide for the development [of] renewable situation will be changed. As one commentator noted in electricity generation activities using … tidal, wave and relation to Crest Energy’s project, a key question is “[w]ho ocean current energy resources. will be the landlord for a $400m–$600m project involving As the statement was only Gazetted on 14 April 2011, it 200 marine turbines?”(Garry Venus “Crest Energy Kaipara remains to be seen how this requirement will be incorporated Harbour Marine Turbine Project” (RMLA (Auckland Branch) into regional policy. At best it can be hoped that regional Seminar (November 2009)). Looking at the issue from another plans, the relevance of which is discussed below, will be standpoint, Maori groups have been vocally opposed to amended to include specific rules to facilitate the approvals Crest Energy’s project as they see it as the allocation of a process for marine energy projects. property right and are concerned that this will affect their The Coastal Policy Statement 2010 (CPS), cl 6(2)(a), potential customary rights (“Crest energy claiming de facto identifies the need to: harbour property right” Radio Waatea (30 May 2011)). Despite the lack of clarity in this area, the number of recognise potential contributions … from use and devel- projects currently underway would suggest that this is not yet opment of the coastal marine area, including the potential acting as a significant barrier to marine energy projects. for renewable marine energy. These policies are encouraging as they show an overarching Time and cost support for renewable energy in general and marine energy in As with any emerging technology, the consent process is not particular. However, neither directly implements any specific yet fully developed and the initial entrants are “learning by measures to facilitate marine energy development. doing”. At present, there is substantial cost and time involved in obtaining novel consents in the coastal environment (“Emerg- Renewable energy target ing Supply-Side Technologies” at 12). For example, Crest New Zealand has announced a target for electricity genera- Energy spent five years obtaining the resource consent for its tion from renewable sources that is one of the highest, in project. terms of total renewable energy percentage, in the world. It is intended that 90 per cent of generation will be from renew- Allocation of marine and coastal area able sources by 2025 (NPS at 3). The current framework allocates space on a first-come-first- served basis. Given the limited number of suitable sites for Marine Energy Deployment Fund tidal generation, competition may become intense. In antici- The Marine Energy Deployment Fund (MEDF) aims to bring pation of this, it may be advisable for regional councils to use forward the development of marine energy in New Zealand their power under s 30(1)(fb)(ii) of the RMA to devise a rule and provides grants to “deploy devices … to provide infor- to facilitate a more orderly allocation of space, for example a mation and practical experience” (Energy Efficiency and tender process such as that used by the Crown Estate in Conservation Authority “Marine energy deployment fund” Scotland to identify the most effective use of marine energy www.eeca.govt.nz/marine-energy-fund). The $8m fund was resources (The Crown Estate “Tenders Invited For Further established in October 2007 and grants are being allocated in Wave And Tidal Projects” (press release, 8 December 2010)). four rounds, from 2008 to 2012. Applications to the fund are assessed by an expert panel, and grants are offered to projects Grid connection that best meet a number of criteria. Funding is subject to The number of sites suitable for marine energy generation conditions, such as the project receiving the necessary approv- will be limited by grid connection points. Legislation might als. be considered to defray the costs of extending the electricity The first three rounds of funding have been awarded to grid to connect marine energy projects. Inspiration may Crest Energy ($1.85m), WET-NZ ($760,000) and CHIME come from jurisdictions such as Texas, which has imple- ($2.16m) respectively (see AWATEA “Tidal current power mented “Competitive Renewable Energy Zones” for this project gets the go-ahead” (press release, 22 March 2011); purpose under Senate Bill 20 (2005), and the UK, which has Energy Efficiency and Conservation Authority “Wave energy enacted a tendering process for third parties to build offshore proposal gets marine energy funding” (press release, 19 May electricity infrastructure (Electricity (Competitive Tender for 2009); Gerry Brownlee “Chatham Islands wave project receives Offshore Transmission Licences) Regulations 2009). backing” (press release, 29 July 2010)). The final round Continued on page 234 229 New Zealand Law Journal August 2011 Continued from page 229 Interaction with other users It is not yet clear how marine energy consents will interact Environmental impacts with other users of the sea. For example, fishermen consider The environmental impacts of marine energy technologies their fishing permits to be property rights and consider any are not as well understood as those of more developed impediment to their ability to fish an interference with these technologies (Craig Stevens (AWATEA Conference)). This rights. Thus a company wishing to install a marine energy may result in caution on the part of regional councils and device will have to consider early consultation with fisher- significant staging and monitoring costs. Crest Energy’s coastal men (Simpson Grierson at 9). The same may also be said of permit requires them to introduce turbines to their array over oil and gas exploration authorisations, insofar as they may a long time period, with strict monitoring conditions (Crest Energy Kaipara Ltd v Northland Regional Council Env Ct overlap with a coastal permit. Auckland A132/09, 22 December 2009). Yet there is evidence that the environmental impacts of CONCLUSION these devices are low (██████ and Miguel Esteban New Zealand is set to be a key player in the nascent marine “Renewable Energy from the Oceans and Tides: A Viable energy industry. Unlike other jurisdictions, such as Australia Renewable Energy Resource in Search of a Suitable Regula- tory Framework” (2009) 4 CCLR 417). Crest Energy’s project and the USA (see ██████ and Miguel Esteban “Recent is likely to pave the way for others in New Zealand by developments in offshore renewable energy in the Asia- demonstrating the low impact of marine energy technologies. Pacific” (2011) 42 Ocean Dev & Intl L 94), the current It is, however, unfair for such a large burden to be placed on framework for marine energy projects is relatively concise. the first mover in the industry, and the National Institute of The MEDF and the ambitious renewables target is likely to Water and Atmospheric Research (NIWA) should continue help the development of marine energy. to investigate these environmental impacts in an effort to There are, however, some issues which require further better understand them and to reduce some of this burden research and policy development in order to ensure the (Stevens (AWATEA Conference)). smooth development of marine energy in New Zealand, in More favourable to marine energy projects is that particu- lar regard must be had to the effects of climate change and particular the time taken to obtain consent and the likely the benefits of renewable energy in considering a resource future scarcity of, and competition for, suitable marine energy consent application under the RMA (s 7(i) and (j); see also sites. If these issues are not addressed early on in the devel- Genesis Power Ltd v Franklin District Council [2005] NZRMA opment of the industry, they may become major barriers to 541 (NZEnvC)). expansion. r 234 New Zealand Law Journal August 2011 NGOs and Western Hegemony: causes for concern and ideas for change Glen Wright* Since their rise to prominence in the post World-War II period, NGOs have grown exponentially in size and stature. This growth has occurred most notably under the „New Policy Agenda‟, with Western donor states emphasising the role of NGOs in democratisation and service provision. As NGOs have received more funding from donors, their reliance on such funds has increased, while their independence from governmental interests has decreased. Donors have gained the power to set the development agenda and NGOs have slowly become „Trojan horses‟ for global neoliberalism (Wallace 2004). This paper first gives a brief overview of the current development context and identifies where NGOs are situated in that context. It then comprehensively surveys the principal ways in which NGOs have become a part of the promotion of Western hegemony in the developing world: loss of legitimacy, shifting accountability, „isation‟ of internal procedure, displacement of local government and the assumption that global neoliberalism is an unfaltering inevitability. Once the problems facing NGOs have been discussed, this paper will present some ideas for change, concluding that NGOs are best placed to solve these problems, by first acknowledging them and then implementing counteractive measures. NGO Beginnings: a very brief history Though NGOs in some form existed before the twentieth century, NGOs as we currently know them arose initially out of World War I, and then gained prominence repairing Europe after World War II. The 1950s and 1960s saw an increase in NGO interest in third world development and „modernisation‟; importing Northern ways to the south. This approach came under criticism, and in the 1960s-1970s NGOs moved toward „self-help‟ strategies. After realizing the limitations to this approach in the context of political and economic constraints, NGOs moved toward empowerment, „conscientisation‟ and advocacy. NGOs have since experienced a boom, increasing in number and presence in what one commentator calls the “associational revolution”, commenting that “[t]he rise of the nonprofit sector may well prove to be as significant a development of the latter twentieth century as the rise of the nation-state was of the latter nineteenth century” (Salamon 1993; 1). ### The New Policy Agenda The end of the Cold War marked a new phase in NGO discourse as donor agencies began to pursue what has been termed the „New Policy Agenda‟ (Edwards and Hulme 1998, Kamat 2004, Mayhew 2005). This agenda emphasizes the development of good governance, democracy and civil society (Mercer 2002; 5, Fisher 1997) and the provision of services (Brinkerhoff 2007). As a result of this agenda, NGO funding from Government donors has increased rapidly, in the belief that NGOs are apt to meet its goals. This is based on two assumptions (Marcussen 1996; 408, Edwards and Hulme 1998; 6). Firstly, the assumption that NGOs encourage democracy through the strengthening of civil society. Starting with Bratton (1989), “a wealth of literature has emerged... that has indicated the increasing... support for the role of NGOs in promoting democratic development” (Mercer 2002; 6). As Mercer notes, this assumption is particularly concerning given the role NGOs have come to play in the deployment of Government-, and World Bank/IMF-, funded projects. Secondly, the assumption that NGOs are “more * Student, LLM Environmental Law, University of New South Wales. efficient and cost-effective service providers than governments” (Edwards and Hulme; 6, Marcussen 1996; 408). While the accuracy of these assumptions have been increasingly questioned (see, e.g., Marcussen 1996, Mercer 2002), the fact remains that the dual emphases of the New Policy Agenda reflect the dominant Western development paradigm of socio-economic development based on neo-liberalism. NGOs receive large amounts of funding under this Agenda and it is against this background that this paper will explore the ways in which NGOs have come to be propagators of Western hegemony. ### NGO Funding Detailed and reliable statistics on NGO funding are difficult to find, probably due to their diverse and disparate nature. The OECD‟s Development Assistance Committee (DAC) is a useful source in this regard. The DAC, comprising 24 OECD countries, publishes detailed figures. It dispersed US$103.5 billion of aid in 2007 (OECD 2010; 172), 6.5% of which was dispersed through NGOs (OECD 2010; 219). These figures however, does not provide the full picture, as they do not include the percentage of aid from the US that goes to NGOs, nor does it include the percentage given to multilateral agencies that in turn disperse funds to NGO; these agencies received US$35 billion in 2008 (OECD 2010; 212). Overall, it is estimated that 15-20% of total development aid is channelled through NGOs (Mayhew 2005). There have been two consequences of this increase in dispersion of funds through NGOs. Firstly, there has been an increase in the number of NGOs (Brinkerhoff 2007); around one fifth of all NGOs were created in the 1990s (Bendaña 2006; 1). Secondly, NGO reliance on Government funding has increased (Edwards and Hulme 1998; 7, Wallace 2004). For example, in the UK, OXFAM relied on the Government for 15% of its income in 1984 but 24% in 1993 (Edwards and Hulme 1998; 20). ### Weakening Legitimacy Perhaps the most obvious consequence of the increased reliance on funding from Western governments is the weakening of legitimacy of NGOs, simply put: why are they called „non-governmental organizations‟ when they receive substantial funding from governments? (Engler 2007). Legitimacy in this context includes a number of different concepts. It may conjure notions of authenticity and genuineness (Edwards and Hulme 1998; 14), popular support, local participation (Fisher 1997; 455), and voluntarism; i.e. using “discussion, bargaining, accommodation and persuasion... rather than bureaucratic control” in conducting NGO affairs (Edwards and Hulme 1998; 14). If an NGO receives a substantial amount of funding from governmental donors, it may be perceived as less authentic or genuine and, as will be discussed, local participation may falter in favour of bureaucratic control. Legitimacy is also bound up with notions of independence. If an NGO is subject to the whim of a donor, it is subject to the constantly changing policy focus of that donor (Wallace 2004; 210). As an African proverb puts it: “if you have your hand in another man‟s pocket you must move when he moves” (Kramer 1981). Legitimacy is therefore not only conceptually important, but has real ramifications for development in practice; changing fashions in the Western donor states can rapidly move funding away from much needed projects in the ultimate donee states. The most direct weakening of legitimacy occurs when an NGO does not just have its hand in another‟s pocket, but is actually steered by Western governmental, corporate or political interests, which can utilise the presumed legitimacy and independence of NGOs as a front. For example, US NGOs were sent to provide training to Cambodian political parties, the NGOs being the National Democratic Institute and the International Republican Institute; affiliated with the two big US parties and heavily biased against the ruling party of Cambodia at the time (Rajagopal 2003; 138). Likewise, the US National Endowment for Democracy, which Ronald Regan helped to found, is directly financed by the US Congress and was key to advancing Western preferences in Central America. It is clear that, while there are examples of this more direct exploitation of NGOs, not all NGOs are so explicitly co-opted, and it would be necessary to examine their links to state institutions and sources of funding of an NGO to determine whether or not this particular form of illegitimacy is present. In cases such as those identified it is clear that the NGO lacks legitimacy, and that it is promoting Western hegemony: NGOs are less the „Trojan horses‟ of imperialism (Wallace 2004) and more a policy instrument of the West. ### Distortion of Accountability Typically, NGOs are subject to numerous accountabilities, for example, to their partners, host governments and staff (Edwards and Hulme 1998; 16). Ultimately, however, an NGOs main accountability is, or should be, their beneficiaries; the people whose lives their activities affect. The New Policy Agenda has distorted this accountability, because funds given to NGOs by Governments must be accounted for (Srinivas 2009; 620), resulting in the moving of accountability away from the people NGOs aim to help, to the donors who demand to see concrete results. Programs are “not accountable to local people but to overseas donors who „review‟ and „oversee‟ the performance of NGOs according to their criteria and interests” (Petras 2004; 433). This shift in accountability changes the focus of NGO practice; the NGO must account for the money according to a Western standard that emphasises numbers, statistics and efficiency over the qualitative aspects of development. For example, if an NGOs stated goal is the “empowerment” of impoverished people, this is objective and very difficult to measure discretely and the NGO may therefore move to a specific program that can be better measured, at the expense of a more holistic approach. In addition, donor preferences gravitate toward specific projects, rather than support for “long-term operations, organizational support, renewal, and growth” (Brinkerhoff 2007), so there is an opportunity cost for NGOs, who accept funding, but cannot use it for increasing the capacity of their organisation. NGOs must spend more money on meeting their increased upward accountability, rather than spending that money on long-term development and social change on the ground. ActionAid experienced firsthand this shift in accountability: “[w]e realized we had no end of upward accountability systems in place, but what we really didn‟t know was what difference our work was making” (Rowden and Irama 2004). ActionAid took the bold step of doing away with data-centred reports and moving back toward a holistic approach to development. There is also a risk that this upwards accountability allows NGOs goals to be co-opted by donors. An illustration would be an NGO that wishes to empower women being funded by the World Bank (Ilon 1998; 43). The NGO may decide to empower through a literacy program, while the World Bank, its goal being market creation and stabilization, sees literacy as a means of moving people toward market- based economies. The NGO may view empowerment as involving “political sensitization and organizing the poor for their social and economic rights” (Kamat 2004; 169), whereas the World Bank focuses on “the capacity of poor people [to] become „clients‟ who are capable of demanding and paying for goods and services” (World Bank 1995). In such a context, where the two actors are using the same means but to vastly different ends, it is usually the goals of the NGO that are subordinated (Ilon 1998; 43), resulting in the NGOs abandonment of its social justice driven mission to become the “implementer of the policy agendas of Northern government” (Edwards and Hulme 1998; 19). The example given above of women in development is a pertinent one for an enquiry into the shifting accountability of NGOs, as Yudelman‟s (1987) study of how NGOs incorporate women into development showed that the interests of women on the ground are often subordinated. He gives two examples: an NGO in Asia that initiated a wide range of programs for women, including “„pre-income‟ sewing projects” and “organizational skills”, without enhancing the women‟s traditional role in farming and in spite of their protestations, and an NGO in Africa that took the seemingly positive step of identifying women‟s traditional role in food harvesting, marketing and processing, only to disregard it entirely in favour of a pottery making project (Yudelman 1987; 183). In both of these cases, the above example is seen to occur in practice and the shift in accountability away from the donees is brought into sharp focus. The ‘isation’ of NGOs: inside NGO operations The „isation‟ of NGOs refers to a number of processes, including bureaucratisation, technicisation, homogenisation and corporatisation, which potentially turn NGOs into propagators of Western hegemony. These processes are poorly attended in the literature and so will be discussed at some length here. This focus on technical management and bureaucracy has homogenised the approach to development, leaving no space for the heterogeneous mix of ideas and approaches that arise from varied local contexts and that are necessary for social change (Srivinas 2009; 622). Instead, that context and diversity is eradicated by forcing it into the Western perspective. Thus small Ghanaian and Ugandan community organisations are now well versed in the language of logframes and SWOT analysis, a language that has become universal, despite the fact that these bureaucratic processes carry “specific cultural values, definitions and understandings” (Wallace 2004; 211) and are reflections of Western “technological objectification” (Murphy 2000; 339). To take just one example of this obsession, the Aga Khan Rural Support Programme in India was forced by pressure from international donors to track 89 different statistics, including farm yields and school graduations, in the rural villages it worked in (Ebrahim 2003; 87). An interesting parallel can be drawn between Western NGOs and colonial states in this regard. Tandon (1991) notes that colonial Governments viewed diversity as an obstacle: while civil society was receptive to the unique social, cultural and political dimensions of their communities, the State created uniform policies that did not account for these nuances, because accommodating them was seen as too much effort. This led to the “homogenization of models, approaches, practices, structures and programmes” (Tandon 1991; 6). The same Northern governments that led the colonialist charge are now at the forefront of the New Policy Agenda, pursuing the neoliberal goal of bringing “the entire planet into one clear, concerted, and unified road [to] progress... liberal capitalism” (Murphy 2000; 339); thus it is perhaps unsurprising that the same homogenization has occurred. There is also a growing elitism and professionalism (Petras 1997) in NGO staffing and a corporatisation of the running of NGOs. As NGOs become unwieldy bureaucratic machines, elites and professionals are drafted in to run them and the NGO begins to be run like a business. While having the best minds at work is not necessarily a negative, it must be conceded that these elites and professionals will generally come from very different backgrounds from their intended beneficiaries and “often will not understand [them], especially if they are poor, uneducated, and from the global South” (Lehr- Lehnardt 2005; 22). Thus the professionalism and elitism of NGOs has distanced them further from the people they seek to help. Ronald Regan once joked that the most terrifying sentence in the English language is: “I'm from the government and I'm here to help”. Given the distance that the corporatisation of NGOs has created between the representative and the represented, the most terrifying sentence in the developing world may come from international NGOs: “we‟re not from the government, but we‟re here to help” (AIC 2003). Petras is particularly scathing in this regard: “[h]undreds of individuals sit in front of high powered PCs exchanging manifestos, proposals and invitations to international conferences with each other. They then meet in well furnished conference halls to discuss the latest struggles” (Petras 2004; 434). Eventually the NGO passes its plan for development, a plan that is now devoid of grassroots participation and legitimacy, down to the local people at the bottom of the chain. Wallace compares the top-down development as practised by corporatized NGOs to the practice of Coca Cola in marketing its products (Wallace 2004; 211). Unfortunately, as NGOs rely on donor funding, when the donor wants efficiency and statistical results, NGOs are driven to “corporatize or "die"” (Brinkerhoff 2007) and they, somewhat understandably, make the choice to corporatize, losing some of their essential values in exchange for continued existence and funding. This criticism is not confined to Northern NGOs. In the South, NGOs have in some circumstances become a “last-chance business, and may represent one of the few sectors where paid, professional jobs are still available” (McDougall 2004; 15), thus attracting local elites who are equally detached from those they claim to represent as those in the West. These NGO elites live lives of “privilege and comfort, and progressively grow distant from a life of struggle” (Odinkalu 1999). This trend has been noted, for example, in Africa (Odinkalu 1999) and Bolivia (Lehr-Lehnardt 2005; 23), where “development NGO activists, supported by international funding… can be found in the best restaurants on any day of the week”. Providing Services, Displacing Governments The shift to using NGOs as service providers under the New Policy Agenda is displacing the Governments of the developing world. Rather than helping States to build institutional capacity, Northern donors are funding private actors to run basic services. Yet if ministries of health and education were given access to the same level of funding as NGOs, they too could, over time, provide the same services in an effective manner (Edwards and Hulme 1998; 10). Thus weak state provision, part of minimal-state neoliberalism (Benda a 2006; 3), is made a self-perpetuating situation, as Western donors both fail to provide the support needed to strengthen state provision and undermine it by providing superior private provision through NGOs. This again highlights the disjuncture between NGO and beneficiary and the lack of accountability between the two. A more theoretical way in which this process displaces Governments is that it rewrites the social contract between Government and citizen (Farrindon 1993b; 188). This is because the accountability relationship between a private actor, the NGO, and its client, is very different to the relationship between a citizen and government. This has led to the emergence of „franchise states‟ (Wood 1996); states where Government is no longer accountable to its citizens as it no longer provides services to them. Instead the Government provides weak central oversight for a „patchwork quilt‟ of services run by NGOs. This displacement can be seen in Haiti where, by 2004, aid NGOs provided almost 80% of basic services, and in Ghana, where the government is reliant on NGOs (Engler 2007). Again, it is not only Northern NGOs operating in the developing world that can cause this problem. In Bangladesh, for example, the Bangladesh Rural Advancement Committee (BRAC) has administered $US1.8 billion of funds and is largely self-supporting, with less than one fifth of its funds coming from overseas donors (Whewell 2003). While this may set BRAC up as a successful model of development without the “taint of neo-colonialism”, it has been noted that Bangladesh is probably the “most visible case of a very large and very powerful NGO sector... displacing government” (Whewell 2003) as NGO service provision has become a proxy for governmental social services. ### NGOs at the ‘End of History’ Thus far, the New Policy Agenda has been criticised, as above, for its effect on NGO practice and the increased propensity for NGOs to act as propagators of Western hegemony. However, NGOs, and the development discourse generally, can, though infrequently is, be criticised at a deeper, more theoretical level. The New Policy Agenda is premised on the ideals of neoliberalism, yet the issue of whether neoliberalism itself is in fact a justifiable or effective development policy, and what the position of NGOs is in relation to that policy, is rarely discussed. Instead, both commentators and NGOs have assumed that we are at the „end of history‟ and that neoliberalism is the inevitable endpoint of human progress (Fisher 1997, see also Murphy 2000; 339). While commentators have increasingly questioned whether the New Policy Agenda‟s goals are achievable, they have not questioned whether those goals are justifiable. Yet “[i]f the North‟s NGOs are genuinely seeking ways to help overcome poverty in the South, they have yet to find many answers”. Nevertheless, Northern governments press on with the neoliberal development paradigm. The question is, what role do NGOs play in this march to the end of history? There are two main roles that NGOs play. Firstly, they act as a „softener‟ for the damage caused by the West‟s structural adjustment policies in the developing world, thus lessening resistance to those policies and, secondly, they diffuse the grassroots political resistance to neo-liberalism. In addition, the homogenisation of development, already discussed, is also relevant in this regard. As to the first, the service provision role that NGOs have come to occupy merely offers a palliative, “ameliorating the worst effects” (Murphy 2000; 343) of structural adjustment and thus defusing political anger (Roy 2004). Thus, rather than challenging the neoliberal policies causing the problems, the problems are simply masked. NGOs take a fatalistic view of the world: neoliberalism is inevitable and “nothing significant or structural can be changed” (Murphy 2000; 343), so the only option is to help those being „left behind‟. In this way, the dominance of neoliberalism is reinforced. So strong is this link between NGOs and their facilitation of the neoliberal project that Roy (2004) has called NGOs an „indicator species‟; “the greater the devastation caused by neo-liberalism, the greater the outbreak of NGOs”. This „outbreak‟ is a result of increased aid in areas where structural adjustment hits hardest, so an influx of aid, “mostly from the core capitalist countries and international financial institutions... flow[s] into countries alongside... Northern NGOs” who play “an increasingly central role in the control and disbursement of such „aid‟” (McKinley 2003). Thus Northern governments actively exploit NGOs to further their own agendas, and NGOs, no doubt wishing to do good, willingly oblige. The second role of NGOs is what Benda a (2006; 1) calls the “„NGO-izaton” of movements and politics”. Western NGOs enter civil society in the developing country and then “assure control over popular mobilization and mass movements” from within (Engler 2007). As third world movements have arisen and united around claims for rights and democracy, “a host of [INGOs] have emerged to program this new era” (Rajagopal 2003; 155). This programming involves selecting the voices that are legitimate and channelling those voices through the avenues acceptable to the Western world (Rajagopal 2003; 155). As the activities of social movements do not conform to the technicised modes of operation of NGOs, they are rarely selected as legitimate voices and therefore seldom receive the support they need to thrive (Pratt et al. 2006; 10). Thus social movements are either crippled or deradicalised, abandoning education and empowerment programmes that seek to question the dynamics of power and inequality, because the Western NGOs do not select them as legitimate, and instead “adopt[ing] a technical managerial solution to social issues of poverty and oppression” that can be logframed and measured (Kamat 2004; 168). Another facet of this is that NGOs take the would-be leaders of social movements away from that role and instead toward an NGO role (Roy 2004): “academics, journalists, and professionals have abandoned earlier excursions into the poorly rewarded leftists movements for a lucrative career managing an NGO” (Petras 1999; 430). This form of depoliticisation is made easier because, as noted previously, NGO work is often one of few jobs available in countries already blighted by the neoliberal project. This leaves local movements fragmented and without the leadership that they would have otherwise had. As Roy (2004) notes, there is no substitute for true social change at a grassroots level: “[r]eal resistance has real consequences. And no salary”. Neoliberalism is not, as many would assume, the logical and inevitable conclusion of human history. As George (1999) notes, “it has been created by people with a purpose… [it is] a totally artificial construct”. In order to challenge this construct, ideas need to be able to develop and be discussed and debated. Some NGOs, however, in their moves to appease donors, have homogenised and corporatised development, reinforcing the Western way as the only way. This homogenization further promotes Western hegemony and neoliberalism. While many in the North believe that neoliberalism is inevitable and so NGOs must work within these constraints, it is submitted that NGOs can only be true agents of change if they do not allow a Northern viewpoint to constrain them. Instead, development must be de- homogenised and ideas for change be permitted to flow freely: NGOs “do not have to be cogs in the machine” (Murphy 2000; 345). ### Ideas for change While the “complexity of the issues and of the differing natures, mandates and ideologies of the players would appear to make [the criticisms discussed here] insurmountable” (Smillie 1994; 186), there are a number of ideas for change. In some cases, change can be effected by governments and in others it will be effected by NGOs themselves. One simple way, at least in theory, of removing donor pressure from NGOs would be to establish an intermediary funding agency to channel funds to NGOs. For example, the OECD DAC, rather than simply being a forum for donor states, could become an institution for the receipt and dispersal of funds. However, as the Northern states have steered the development discourse using the New Policy Agenda, they may not wish to give up the control they presently have over the NGOs, and other actors, that receive their funds. Alternatively, Northern donors could remove the need for a „middle man‟ by themselves acknowledging the flaws in viewing NGOs simply as cheap service providers and investigating more effective aid measures. In this regard, the current questioning of NGO effectiveness, and the moves by some NGOs to refuse donor funding, may force donors to rethink this strategy. Either way, donors should move toward long-term institutional support for NGOs, as opposed to outputs and targets, and look at NGOs as “valued development agencies in their own right” (Smillie 1994; 187). The first, and most obvious, point to make is that NGOs must become more self-aware. This is a prerequisite to combating the problems discussed in this paper; NGOs themselves must acknowledge these problems, rather than becoming lost in the technicisation and bureaucratization of their organizations. This awareness involves not just a negative acknowledgement of the problems, but also a positive awareness and reaffirmation of the ultimate goal of development NGOs. If NGOs can reaffirm a commitment to the people they seek to help, rather than those that provide funding, they can regain the independence and accountability that is essential to their legitimacy. Once this awareness has been raised, one way to escape the confines of the New Policy Agenda would be to become financially self sufficient. While this sounds simple, in practice it will present a considerable challenge. As governmental funding has increased, so has reliance. Heavily reliant NGOs will in particular find it difficult to eschew governmental funding. Amnesty International, as noted, does not receive governmental funding, but this may be easier for a campaigning organisation, as opposed to an organisation that undertakes projects, where funding is more fundamental. In any case, becoming self sufficient will not necessarily solve all of the problems discussed. For example, BRAC is almost self sufficient, but nonetheless undermines the Government in its wide scale provision of services. Likewise, changing funding may not necessarily change the viewpoint of an NGO; deeper consideration of ideology and methodology is needed. Accountability can be improved in a number of ways, and Edwards and Hulme note that a number of NGOs are already experimenting with these. One Zimbabwean NGO has implemented a bottom-up democratic structure to ensure that those at the local level are being heard. While this may be more difficult for a large INGO such as Oxfam to replicate, there is certainly value in ensuring that voices on the ground are at least heard in some way. Other NGOs are using „social audits‟ to ensure that stakeholders set the performance indicators (Zadek and Gatward 1995). In this way, the intended beneficiaries set the goals for the NGO to maintain and the NGO can better meet the needs of the beneficiaries, rather than subjecting them to a top-down development plan. As to the displacement of governments, it would pay NGOs to consider whether their strategies are likely to provide long term development. NGOs should acknowledge that their funding may not be guaranteed and should be careful of encouraging dependence on NGO run services, rather than assisting people to become self-reliant. NGOs must be aware that their provision of services on a large scale, or on a smaller scale, but in concert with other NGOs, may undermine the local government and redraw the government-citizen relationship. Thus it may be that it is more beneficial in the long term to assist communities in building up their own services or to assist governments build institutional capacity, rather than taking over their role as service providers. There is a more radical call to NGOs which relates to the criticism that NGOs replace social movements and advance the neoliberal agenda. Murphy has asserted that a “renaissance of transformative NGOs” is necessary (Murphy 2000; 344): smaller, more politically minded organisations that shun altogether the notion that neoliberalism is inevitable and that the only choice is „corporatisation or death‟, instead opting for strategies that promote grassroots development and the heterogeneous mix of ideas that are necessary for real social change. Petras (1999; 439) goes as far to say that NGOs should deconstruct themselves altogether, converting themselves into members of social/political movements in order to “avoid being lumped with the tens of thousands of NGOs feeding at the donors trough”. At the very least, it is submitted, NGOs should not assume that neoliberalism is the pinnacle of human development and should acknowledge that the assumption that it is undoubtedly looks a lot like colonialism in the South. Instead NGOs should seek to engage with local ideas for development and social change and seek to more thoroughly question their own conceptions of development. While this radical call for change seems to be the loftiest, George suggests that the „people power‟ is there and that NGOs must merely organise it: [T]here are far more losers than winners in the neoliberal game. We have the ideas, whereas theirs are finally coming into question because of repeated crisis. What we lack, so far, is the organisation and the unity (George 1999). Thus, rather than merely being conduits for the Western neoliberal agenda, NGOs can actually become conduits for ideas, voices and real social change. ### Conclusion Encouragingly, the academic world and NGOs themselves are starting to engage with the issues raised in this paper. This engagement with the problem, and the suggestions for change, are positive steps and it is submitted, albeit tentatively, that NGOs can once again contribute to the “sustained, equitable and just transformation of the planet to the benefit of all mankind” (Murphy 2000; 331), rather than a transformation that consolidates Western hegemony and the assertion of neoliberalism as an inevitability. A formidable hurdle along the way will be the need for Western NGOs and in those in the development sector to engage in a frank and open dialogue about the nature of their organisations and the work they do in their respective Southern beneficiary states. It is only with acknowledgment and engagement with these issues from those on the front line that true change can be made to NGO practice. One optimistic commentator notes that “[t]he urge for hegemony and preponderance by some will be matched with greater intensity by the longing for dignity and justice by others” (Roy 2007). For the legitimacy of NGOs and for non-hegemonic development, it can only be hoped that this is true. ### Bibliography Benda a, „NGOs and Social Movements: A North South Divide?‟ (2006) 22 United Nations Research Institute for Social Development Civil Society and Social Movements Programme Paper. Bratton, „The politics of government-NGO relations in Africa‟ (1989) 17 World Development 569– 587. Brinkerhoff, „Corporatization of the Nonprofit Sector and NGOs: Trends and Issues‟, NGOs, International Security, & Global Governance, American Institute for Contemporary German Studies conference (Washington DC 9 October 2007). Ebrahim, NGOs and Organizational Change: Discourse, Reporting, and Learning (Cambridge University Press, Cambridge 2003). Edwards and Hulme, „Too Close For Comfort? The Impact of Official Aid on Nongovernmental Organizations‟ (1998) 24 World Development 961-973 reprinted in (1998) 1 Current Issues in Comparative Education 6-28. Fisher, „Doing Good? The Politics and Antipolitics of NGO Practices‟ (1997) 26 Annual Review of Anthropology 439-64. George, „A Short History of Neo-liberalism: Twenty Years of Elite Economics and Emerging Opportunities for Structural Change‟ (keynote address) Conference on Economic Sovereignty in a Globalising World (Bangkok 24-26 March 1999) available at http://www.globalexchange.org/campaigns/econ101/neoliberalism.html, accessed 15 September 2010. Ilon, „Can NGOs Provide Alternative Development in a Market-Based System of Global Economics?‟ (1998) 1(1) Current Issues in Comparative Education 42-44. Kamat, „The Privatization of Public Interest: theorizing NGO discourse in a neoliberal era‟ (2004) 11(1) Review of International Political Economy 155-76. Kramer, Voluntary Agencies in the Welfare State (University of California Press, Berkeley 1981). McDougall, „A Decade in Human Rights Law: Decade of NGO Struggle‟ (2004) 11 Human Rights Brief 12. McKinley, „The Crisis of Public Services in Southern Africa‟, Managing Public Goods in Favour of the People, Rosa Luxemburg Foundation sponsored conference (Johannesburg, 3-5 December 2003). Marcussen, „NGOs, the State and Civil Society (1996) 69 Review of African Political Economy 405- 23. Mayhew, „Hegemony, Politics and Ideology: the Role of Legislation in NGO-Government Relations in Asia‟ (2005) 41(5) Journal of Development Studies 727-58. Mercer, „NGOs, civil society and democratization: a critical review of the literature‟ (2002) 2(1) Progress in Development Studies 5-22. Murphy, „International NGOs and the challenge of modernity‟ (2000) 10(3&4) Development in Practice 330-46. Odinkalu, „Why More Africans Don‟t Use Human Rights Language‟ (1999) 2(1) Human Rights Dialogue, available at http://www.cceia.org/resources/publications/dialogue/2_01/articles/602.html accessed 10 September 2010. Petras, „NGOs: In the Service of Imperialism‟ (1999) 29(4) Journal of Contemporary Asia 429-40. Pratt et al., „Official Agency Funding of NGOs in Seven Countries: Mechanisms, Trends and Implications‟ (2006) 46 INTRAC Occasional Papers Series. Rajagopal, „Completing a full circle: democracy and the discontent of development‟ in International Law from Below: Development, Social Movements and Third World Resistance (Cambridge University Press, Cambridge 2003). Rowden and Irama, Rethinking Participation: Questions for Civil Society about the Limits of Participation in PRSPs (report) (ActionAid, Washington DC 2004). Roy, „Tide? Or Ivory Snow? Public Power in the Age of Empire‟ (address) 99th annual meeting of the American Sociological Association (San Francisco 16 August 2004) available at http://www.alterinfos.org/spip.php?article1622 accessed 19 September 2010. Salamon, „The global associational revolution: the rise of the third sector on the world scene‟ (1993) 15 Occasional Papers, Institute for Policy Studies, John Hopkins University, Baltimore. Smillie, „Changing partners: Northern NGOs, Northern governments‟ (1994) 5(2) Voluntas: International Journal of Voluntary and Nonprofit Organizations 155-192. Srinivas, „Against NGOs? A Critical Perspective on Nongovernmental Action‟ (2009) 38(4) Nonprofit and Voluntary Sector Quarterly 614-26. Tandon, „Civil Society, the State & Roles of NGOs‟ (1991) 8(3) Institute for Development Research Reports. Wallace, „NGO Dilemmas: Trojan Horses for Global Neoliberalism‟ in Pantich and Leys (eds), Socialist Register (Merlin Press, London 2004) 202-19. Whewell, „The Giving Game - Part 2‟ (2003) ABC Radio National, available at http://www.abc.net.au/rn/talks/bbing/stories/s[REDACTED PHONE].htm accessed 2 September 2010. World Bank, Participation Sourcebook (Washington DC 1995). Yudelman, „The Integration of Women into Development Projects: Observations on the NGO experience in General and in Latin America in Particular‟ (1987) 15(supplement) World Development 179-187. Zadek and Gatward, „Social Auditing or Bust? Transforming the transnational development non- governmentals for the 21st century‟ in Edwards and Hulme (eds) Beyond the Magic Bullet: NGO performance and accountability in the post Cold-War world (Kumarian Press, West Hartford 1996). ### Risky Business The Case for Enterprise Analysis at the Intersection of Corporate Groups and Torts Student ID: [REDACTED PHONE] LLB final year dissertation Image: Asbestos Fibre, Unrehabilitated Cape Industries Mining site, Koegas, South Africa (Hein du Plessis). i ### Contents Cases Cited ..........................................................................................................iv Legislation Cited ...................................................................................................vi 1. Introduction............................................................................................................ 1 2. Historical Foundations .............................................................................................. 2 2.1. The history of limited liability ............................................................................................................ 2 2.2. The history of corporate groups ........................................................................................................ 3 3. Limited Liability, Corporate Groups and Tort Victims .................................................... 4 4. Arguments Against Applying Limited Liability to a Wholly Owned Subsidiary Company ..... 5 4.1. Inapplicability of justifications for limited liability ............................................................................ 5 4.1.1. The avoidance of dangerous exposure of absentee investors to risk ....................................... 6 4.1.2. Eradicates high collection costs associated with collecting from numerous dispersed shareholders .............................................................................................................................................. 6 4.1.3. Increasing development of very large enterprises .................................................................... 7 4.1.4. Encourages diversified portfolios .............................................................................................. 7 4.1.5. Avoidance of increased agency costs ........................................................................................ 7 4.1.6. Avoidance of the impairment of capital market efficiency ....................................................... 8 4.1.7. Avoidance of increased costs of contracting around liability.................................................... 8 4.1.8. Encouragement of risk taking .................................................................................................... 8 5. Arguments Against Applying Limited Liability for Torts ................................................. 9 5.1. Limited liability unduly prejudices tort victims ................................................................................. 9 i 5.2. Conflicts with the aims of tort ......................................................................................................... 11 6. Arguments for Applying Limited Liability to a Wholly Owned Subsidiary Company .......... 11 6.1. Certainty .......................................................................................................................................... 11 7. The Failure of Limited Liability at the Intersection of Groups and Torts ......................... 12 8. The Case for Enterprise Liability .............................................................................. 12 9. Enterprise Analysis in Practice ................................................................................. 15 9.1. Germany .......................................................................................................................................... 15 9.2. German Law on Stock Corporations: progeny................................................................................. 17 9.3. EU..................................................................................................................................................... 18 9.4. UK .................................................................................................................................................... 19 9.5. US ..................................................................................................................................................... 20 9.6. India ................................................................................................................................................. 21 9.7. UN Norms ........................................................................................................................................ 22 10. The Rising Tide of Enterprise Liability ..................................................................... 23 11. Problems for Enterprise Liability ............................................................................ 23 11.1. Conglomerates............................................................................................................................. 24 11.2. Non-wholly owned subsidiaries and minority shareholders ....................................................... 25 12. Toward a Test for Enterprise Liability ..................................................................... 26 12.1. Part one: tort victims ................................................................................................................... 26 12.2. Part two: defining enterprise ...................................................................................................... 30 12.2.1. Control-based enterprise liability ............................................................................................ 30 12.2.2. Economic or ‘true’ enterprise liability ..................................................................................... 32 12.2.3. Suggested factors for inclusion in an economic enterprise liability test ................................. 32 ii 12.3. Accommodating conglomerates and minority shareholders ...................................................... 35 13. Arguments Against Enterprise Liability ................................................................... 35 13.1. Negative effects on the economy................................................................................................ 36 13.2. Inevitability of avoidance ............................................................................................................ 37 13.3. Enterprise liability for torts or unlimited liability of parent companies? .................................... 39 13.4. Uncertainty of a test for enterprise liability ................................................................................ 40 13.5. Uncertainty of Goals of Enterprise Liability ................................................................................. 41 14. Further Extensions of Enterprise Liability ................................................................ 42 15. The Reason for Inaction ....................................................................................... 42 16. Conclusion ......................................................................................................... 44 Bibliography ....................................................................................................... 47 iii Cases Cited Adams v Cape Industries Plc [1990] Ch 433. Autokran (1985) BGH 95 BGHZ 330 (FRG) (German Federal Court of Justice). Bremer Vulkan (2001) BGH II ZR 178/99. Briggs v James Hardie & Co. Pty. Ltd. (1989) 7 ACLC 841 (New South Wales SC). CPC International v Aerojet General Corporation, 777 F Supp 549, 573 (Michigan 1991). DHN Food Distributors Ltd v Tower Hamlets London Borough Council [1976] 1 WLR 852. Grayson v R. B. Ammon & Assocs. 778 So. 2d 1 (La. Ct. App. 2000) (Louisiana CA) Green v Championship Insurance Co 577 So 2d 249 (La App 1st Cir 1991) (Louisiana CA). In re Asiatic Banking Corporation (1869) 4 LR Ch 252. In re Barned’s Banking Company (1867) 3 LR Ch 105. In re Southard & Co. (1979) 1 WLR 1198. James Hardie & Co. Pty. Ltd. (1989) 7 ACLC 841 (New South Wales SC). Lansford-Coaldale Joint Water Authority v Tonolli Corporation, 4 F 3d 1209, 1222 (3d Cir 1993) (US CA). Lewis Trusts v Bambers Stores Limited [1983] FSR 453. Lubbe v Cape Plc [2000] UKHL 41. M.C. Mehta v. Union of India, AIR 1987 SC 1086 (India SC). M.C. Mehta v Union of India and Shriram Food and Fertilizer Industries, Writ Petition 12739/1985 (1986). Ngcobo v Thor Chemicals Holdings [1995] TLR 579. Ord v Belhaven Pubs Ltd [1998] BCC 607. Pacific Landmark Hotel, Ltd. v. Marriott Hotels, Inc., 23 Cal. Rptr. 2d 555, 563 (Ct. App. 1993) iv (US CA). Paramount Petroleum Co v Taylor Rental Center (1986) 712 S W 2d 534, 536 (Texas CA). Pine Tree Association v Doctors’ Association, Inc, 654 So 2d 735, 736, 738 (La Ct App 1995) (Louisiana CA). Salomon v A Salomon & Co Ltd [1897] AC 22. Sithole v Thor Chemicals Holdings Ltd A2/2000/2894, 28 September 2000, 2000 WL [REDACTED PHONE]. SSP Partners and Metro Novelties, Inc v Gladstrong Investments (USA) Corporation (2008) 05- 072 (Texas CA). Thibodeaux v Ferrellgas, Inc, 741 So 2d (La Ct App 1999) (Louisiana CA). Town of Haynesville, Inc. v Entergy Corporation 956 So 2d 192 (La App 2d Cir) 964 So 2d 334 (La 2007) (Louisiana CA). Walkovszyk v Carlton 18 NY 2d 414, 223 NE2d 6 (New York 1966). Woolfson v Strathclyde Regional Council (1978) SC 90. v Legislation Cited Aktiengesetz 1965 §18 (German Law on Stock Corporations). Alien Tort Claims Act 28 U.S.C. § 1350. Código das Sociedades Comercais 1986 (Portugese Code on Companies). Companies Act [REDACTED PHONE] & 26 Vict c89. Council Regulation (EC) No 2157/2001 of 8 October 2001 on the Statute for a European company (SE) OJ L 294, 10/11/2001 Joint Stock Companies Registration Act 1844. Lei das Sociedades Anónimas 1976 (Brazillian law on Limited Liability Companies). Limited Liability Act 1855. vi 1. Introduction A core issue in modern company law is the choice between focusing on entity principles, embodied by the traditional doctrines of corporate personality and limited liability, and enterprise principles, characterised by the treating of a parent and its subsidiary companies as one business enterprise.1 This paper will present the case for the adoption of enterprise liability at the intersection of corporate groups and torts, that is, holding a subsidiary and its parent liable for the subsidiary‘s tort victims claims on the basis that they are part of the same enterprise. The focus of this paper will be what is termed the ‗classical case‘ of subsidiary incorporation, which is where the argument for enterprise liability is at its strongest, where a company incorporates a subsidiary, which it wholly owns, for the purposes of carrying on a risky business and shielding itself from liability. In this classical case the subsidiary is typically undercapitalised in relation to the gravity of the risk it takes, resulting in the non- or under- compensation of tort victims, thus the shifting of the social costs of the activities away from the business conducting them.2 The ethical issues caused by this type of subsidiary incorporation are succinctly summarised by Justice Templeman: English company law possesses some curious features, which may generate curious results. A parent company may spawn a number of subsidiary companies… If one of the subsidiary companies… turns out to be the runt of the litter and declines into insolvency… the parent company and the other subsidiary companies may prosper… without any liability for the debts of the insolvent subsidiary.3 While the focus of this paper will be the classical case, where the arguments for enterprise liability are strongest, it will be clear that the same arguments can apply to any subsidiary that cannot meet tort claims. A brief history of limited liability and corporate groups will be offered and their relationship with each other and with the law of torts discussed. The application of limited liability to 1 Indeed, at least one commentator has stated that this choice is the core issue of modern company law (Kluver, ‗Entity vs. Enterprise Liability: Issues for Australia‘ (2005) 37 Connecticut L Rev 765, 767). 2 See Easterbrook and Fischel, ‗Limited liability and the Corporation‘ (1985) 52 U of Chicago L Rev 89, 111. 3 In re Southard & Co. (1979) 1 WLR 1198, 1208 (CA). 1 corporate groups and torts will be criticised and the case for enterprise liability will be made. In the latter part of the paper, some potential problems for enterprise liability will be analysed. The basis for finding two or more companies to be a unified enterprise will be assessed and some considerations for a test for enterprise liability will be suggested. 2. Historical Foundations 2.1. The history of limited liability As may be expected, the exact timing of the appearance of limited liability on the scene of corporate law in the UK is debatable.4 Certainly, by the second half of the 17th century, people were citing limited liability as a motive for incorporation,5 ―most charters were silent [on the matter], and it had become accepted increasingly that in the absence of charter provision, shareholders were not directly liable.‖6 The Attorney-General in 1784, stated that the ―individuals who may compose the corporation would not be liable in their private characters‖. 7 The Joint Stock Companies Registration Act 1844 provided for unlimited liability, but this proved unworkable as circumvention of the Act, and thus liability, was procured through the transfer of shares.8 Ultimately the widespread acceptance of limited liability came with railway companies, where shares were widely dispersed, management and shareholdings were separate and tortuous liability of individual shareholders could not be avoided: ―[a]cceptance of limited liability for the railways foreshadowed the ultimate acceptance of limited liability generally‖.9 In 1855, Parliament enacted the Limited Liability Act and limited liability was ―definitively accepted in English law‖.10 The dominance of limited liability was affirmed by the seminal 4 ████, ‗Limited Liability and Corporate Groups‘ (1986) 11 J of Corporation L 573, 579. 5 Goebel (ed), DuBois, The English Company After the Bubble Act [REDACTED PHONE] (Publications of the Foundation for Research in Legal History, Columbia university School of Law, OUP, Oxford 1938) 95-97. 6 ████, ‗Limited Liability‘ (n 4) 580 (citations omitted). 7 Kenyon, Case and Opinion of January 29, 1784, Boulton and Watt MSS, Birmingham Collection, Assay Office, cited in DuBois, The English Company (n 5) 95-96. Kenyon later reiterated this opinion in his new role on the bench in In re Southard & Co. (1979) 1 WLR 1198, 1208 (CA).. 8 ████, ‗Limited Liability‘ (n 4) 583. Nevertheless, nearly 1000 unlimited companies were registered under the Act until it was replaced by the Limited Liability Act 1855. Hunt, The Development of the Business Corporation in England [REDACTED PHONE] (Harvard Economic Studies, vol 52, Harvard University Press, Cambridge, Massachusetts, 1936). 9 ████, ‗Limited Liability‘ (n 4) 584. 10 ████, ‗Limited Liability‘ (n 4) 585. 2 Salomon case,11 where the Court confirmed that all a party need do to attract the protection of limited liability is comply with the requirements for registration of a company, rejecting any purposive approach, or any limitation on the strict letter of the Act. As to the impact of limited liability, one especially enthusiastic commentator lauded limited liability as the ―greatest single invention of modern times‖, 12 stating that ―even steam and electricity are far less important… and they would be reduced to comparative impotence without it.‖13 While others have been less exuberant in their praise, 14 the importance of limited liability generally seems beyond dispute and it has undoubtedly ―facilitated the accumulation of capital for private enterprise on a scale hitherto unparalleled in history‖.15 2.2. The history of corporate groups Whereas general limited liability was a ―deliberate political decision in the face of commercial pressures to achieve economic objectives‖, 16 corporate groups seem to have emerged almost by accident. The Companies Act [REDACTED PHONE] provided for incorporation, giving companies the powers specified in their memorandum of association, meaning that a company could be given the power to acquire shares in another company in its constitution. The statute did not contemplate this possibility, but neither did it prohibit it. The Courts, taking a literal approach to the statute similar to that taken in Salomon, applied the old ultra vires doctrine: a company could not purchase shares in another company if it was not authorised by the memorandum, but if it was so authorised then nothing in the statute or common law prevented it. The courts were partially persuaded that inter-company shareholdings were legitimate by the fact that corporations were mentioned in the definition of ‗persons‘, who could become members of a 11 Salomon v A Salomon & Co Ltd [1897] AC 22. 12 Butler, Why Should We Change Our Form of Government? (Charles Scribner's Sons, New York 1912) 82. 13 Ibid. 14 One academic modestly described limited liability thusly: ―[C]ertainly it has its theoretical flaws. It is not a thing of perfect beauty, but at least it works.‖ Grundfest, ‗The Limited Future of Limited Liability‘ (1992) 102 Yale L J 387, 420. 15 Isaacs, [Untitled] (1936) 31 (196) J of the American Statistical Association, 774 reviewing Hunt, The Development of the Business Corporation in England [REDACTED PHONE] (Harvard Economic Studies, vol 52, Harvard University Press, Cambridge, Massachusetts, 1936). 16 ████, ‗Limited Liability‘ (n 4) 585. 17 25 & 26 Vict c89. 3 company.18 From these humble beginnings, and in spite of the inadequacy of UK company law on groups, 19 the prominence of corporate groups has ballooned: in Britain, the top 50 companies have an average of over 200 subsidiaries.20 British Petroleum, to take an extreme example, owned, in 1984, between 1200 to 1300 subsidiaries.21 Today, corporate groups ―are responsible… for the conduct of the great bulk of the economic activity of the industrialized world.‖ 22 3. Limited Liability, Corporate Groups and Tort Victims The power to purchase shares was given to companies, apparently absent awareness of the consequence. The consequence was the imposition of two layers of liability: the original layer, protecting the ultimate investors in a company from claims against that company, and a new layer, protecting a parent company from liability from a claim against its subsidiary. It has been noted that the 1862 statute23 was silent on the matter of inter-company shareholdings and that the Court took this as tacit approval. Problematic, however, is that the application of limited liability to companies generally was a considered decision, enacted to counteract the inefficiencies of the 1844 Act,24 whereas its application to corporate groups was not specifically considered, thus, as ████ has put it, a ―fundamental principle had been accepted… apparently without consideration of whether such acceptance was sound‖. 25 The leading UK case on the law of corporate personality and the limited liability of groups is Adams v Cape.26 Cape Industries presided over a group of companies involved in asbestos mining and marketing. Asbestos mined by one subsidiary in South Africa was used, by another subsidiary, in a Texas factory resulting in 668 personal injury claims; the first 462 were settled 18 In re Barned’s Banking Company (1867) 3 LR Ch 105, 112-13; In re Asiatic Banking Corporation (1869) 4 LR Ch 252, 257. 19 For a detailed general analysis, see Prentice, Groups of Companies: The English Experience in Hopt (ed), Groups of Companies in European Law: Legal and Economic Analyses on Multinational Enterprises (Walter de Gruyter, Berlin 1982) 99. 20 Specifically, 230. Tricker, Corporate Governance (OUP, Oxford 1984) ch 3. Given that this calculation was performed in 1981, it is likely that the number would be much higher now. 21 Hadden, ‗Inside Corporate Groups‘ (1984) 12 Intl J of the Sociology of L 271, 273. 22 ████, ‗Limited Liability‘ (n 4) 603. 23 The Companies Act 1862 (n 17). 24 The Joint Stock Companies Registration Act 1844. 25 ████, ‗Limited Liability‘ (n 4) 610. 26 Adams v Cape Industries Plc [1990] Ch 433. 4 out of court. In negating to enforce the Texas judgment for the latter 206 claimants against the UK parent of the group, the Court of Appeal, inter alia, refused to break with the traditional separate entity approach of company law. The Court also refused to ‗pierce the veil‘, further distancing tort victims from compensation.27 Thus, the Court of Appeal vigorously reaffirmed the strict application of limited liability as applied to corporate groups, refusing to question the orthodoxy and rejected the many arguments made for imposing liability on a subsidiary company. Just as corporate law has not paid due attention to corporate groups, tort victims have been ill-considered. When limited liability was gaining credence, the problems associated with applying the doctrine to tort creditors had not been considered, 28 indeed Stone notes that ―no one expected the doctrine to entail any more than protecting investors from unsatisfied claims of the corporation's voluntary creditors‖.29 Given that the approach taken to corporate groups has so far been to ―fit them uncritically into the pre-existing bodies of general law‖,30 and that, at the same time, consideration has not been given to tort victims in the application of limited liability, there is a need for a ―searching re-examination‖31 of the present law. 4. Arguments Against Applying Limited Liability to a Wholly Owned Subsidiary Company 4.1. Inapplicability of justifications for limited liability The key argument against applying limited liability in the context of corporate groups is that, as the effects of such an application were never given proper consideration, the arguments in favour of limited liability generally do not apply in the present context. The law was not 27 This rejection of veil piercing arguments further illustrates the need for a change in the law. In other jurisdictions that utilise entity principles, there is, at least, some willingness to pierce the veil, e.g. The US and Australia (see Thompson, ‗Piercing the Corporate Veil: An Empirical Study‘ (1991) 76 Cornell L Rev 1036 and Ramsay, ‗Allocating Liability in Corporate Groups: An Australian Perspective‘ (1999) 13 Connecticut J of Intl L 329 respectively). 28 Leeborn, ‗Limited Liability, Tort Victims and Creditors‘ (1991) 91 Columbia L Rev 1565, 1566. 29 Stone, ‗The Place of Enterprise Liability in the Control of Corporate Conduct‘ (1980) 1 Yale L J 1, 70 (―Only later, when corporate liability for serious wrongdoing had grown from the exception to the rule, could the principle of limited liability have taken on, imperceptibly, a meaning not originally signified‖) (citations omitted). 30 Ibid 4. 31 ████, ‗Limited Liability‘ (n 4) 610-611. 5 designed with complex group structures in mind and its application in such circumstances is ―anachronistic and dysfunctional‖.32 This analysis largely depends on distinguishing the parent company from a mere investor: the justifications for limited liability generally hinge on the characterisation of the shareholders as having no interest in the business other than that their money is invested in it. This characterisation is, of course, possible in relation to companies, because a company may invest some of its capital in a company and have no further role in relation to that company; and such a situation would activate the same justifications for limited liability proffered in relation to ordinary investors. However, in the classical case which is the focus of this paper, the parent company is not a passive investor, but is the driving force behind the incorporation of the subsidiary and the subsequent occurrence of a tort. The numerous advantages of, or justifications for, limited liability generally are well-expounded and many commentators have helpfully and comprehensively identified them. 33 These justifications are considered below in relation to the nuanced context of corporate groups, 34 and, as will be seen, many are readily refutable as inapplicable or detrimental. 4.1.1. The avoidance of dangerous exposure of absentee investors to risk While it would indeed be problematic to expose ultimate investors who are not involved at all with management of the company to liability, simply put, the ―parent corporation is not an absentee owner‖,35 so this consideration is irrelevant in the group context. 4.1.2. Eradicates high collection costs associated with collecting from numerous dispersed shareholders Where there are many shareholders, this argument holds because the cost of collecting from numerous ultimate investors would consume the benefit of so collecting, 36 however this 32 ████, ‗The Law of Corporate Groups‘ (2005) 37 Connecticut L Rev 605, 660. 33 See, e.g., ████, ‗Limited Liability‘ (n 4) 611-616; Muscat, The Liability of the Holding Company for the Debts of its Insolvent Subsidiary (Dartmouth, Aldershot 1996) 162-175; Easterbrook and Fischel, The Economic Structure of Corporate Law (Harvard University Press, Cambridge, Massachusetts 1991). 34 Which has been described as incredibly complex (Hadden (n 21) 273). 35 ████, ‗Limited Liability‘ (n 4) 624. 36 See Thompson, ‗Unpacking Limited Liability: Direct and Vicarious Liability of Corporate Participants for Torts of the Enterprise‘ (1994) 47 Vanderbilt L Rev 1, 20. 6 argument will not apply to a wholly-owned subsidiary, where collection will still only be made from one party, the parent company.37 Indeed, even where two or more companies own a company, it is still likely that collection costs will not be so great so as to negate any benefit gained by collecting from the parent companies. 4.1.3. Increasing development of very large enterprises When speaking of one company only, there is a need to encourage investment from a wide range of sources as ―[l]arge scale enterprise involves enormous risks that dwarf the financial resources of all but the wealthiest shareholders‖. 38 Clearly, in the group context, this is not relevant, as the only, or the dominant, shareholder is the parent company. The parent company has the ability to diversify its portfolio and spread its risks in a way that ordinary investors cannot,39 and therefore does not require the protection of limited liability to develop its businesses further. 4.1.4. Encourages diversified portfolios This argument is obviously inapplicable where the holding company incorporates a wholly- owned subsidiary for a specific purpose and, as such, there are no shareholders to be discouraged from diversifying their portfolios. 4.1.5. Avoidance of increased agency costs Jensen and Meckling40 suggest that, in the absence of limited liability, activities prejudicial to the shareholders, undertaken due to ―divergence between [the manager‘s] interest and those of the outside shareholders‖,41 can be limited ―by the expenditure of resources on monitoring activities‖,42 however, in the group context, ―the need to establish congruence of the interests of the manager and the owner-investor, with its attendant presumed agency and monitoring 37 Leeborn (n 28) 1612. 38 ████, ‗Limited Liability‘ (n 4) 613. 39 It is worth noting that the same argument has been applied in relation to financial institutions who are ultimate investors. See Halpern, Trebilcock & Turnbull, ‗An Economic Analysis of Limited Liability in Corporation Law (1980) 30 U of Toronto L J 117, 298. ████ notes that ―[t]his factor would be as applicable to corporate groups as to financial institutions.‖ ████, ‗Limited Liability‘ (n 4) 624. 40 Jensen and Meckling, ‗Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure‘ (1976) 3 Journal of Financial Economics, 305. 41 Jensen and Meckling (n 40) (accessed online: page number unavailable). 42 Ibid. 7 costs simply do not arise‖43 as these interests will necessarily be congruent. 4.1.6. Avoidance of the impairment of capital market efficiency This argument is advanced because limited liability enhances the ready transferability and uniform pricing of shares,44 but, in the case of the wholly-owned subsidiary, no adverse affect on the public market can occur as no such market exists. 45 4.1.7. Avoidance of increased costs of contracting around liability ████ accepts that this consideration will continue to apply to corporate groups, but does not offer any further analysis.46 This ―assumes that limited liability is the desired negotiated outcome‖.47 Murphy doubts that this is the case, finding authority for his assertion in the context of the unlimited liability of partnerships, where he notes, albeit anecdotally, that such contracting around limited liability is rare. 48 There are, in turn, problems with this analysis. Firstly, the analogy with partnerships is, at best, an imperfect one, which does not dovetail precisely with the current context. Secondly, it seems most likely that a parent company would want to contract with the subsidiary to ensure limited liability is present as between them, given that the segregation of a risky activity is the defining factor in the incorporation of a subsidiary in the classical case. Finally, while the second point would seem to support Blumfield‘s blunt assertion that this justification remains applicable to the group context, its importance is greatly diminished in any case by the fact that the close ties between a parent and its subsidiary are likely to ensure that the transaction costs involved with contracting out limited liability are vanishingly small. Thus it can be said that avoidance of costs associated with contracting around liability is not a relevant justification for limited liability in the context of a wholly-owned subsidiary. 4.1.8. Encouragement of risk taking 43 ████, ‗Limited Liability‘ (n 4) 624. 44 Murphy, ‗Holding Company Liability for Debts of its Subsidiaries: Corporate Governance Implications‘ (1998) 10 Bond L Rev 241 (accessed online: page numbers unavailable). 45 See Thompson, ‗Unpacking Limited Liability‘ (n 36) 35. 46 ████, ‗Limited Liability‘ (n 4) 624. 47 Murphy (n 44). 48 Ibid. 8 This is possibly the most significant factor in the present context. 49 The argument remains applicable because, as noted above, a holding company generally wishes to take advantage of the possibility of externalising risk using a subsidiary. There is, however, a danger, which appears to have come to pass in cases such as Adams, 50 that this can encourage risk that is excessive because ―owners who engage in excessively risk activities are protected from liability‖.51 Muscat qualifies his exposition of this justification, referring to encouraging only ―socially desirable high risk projects‖,52 however, while this qualification may be a good addition in theory, in practice it seems unlikely that corporate groups are predisposed to conducting only socially-desirable projects. On the contrary, a holding company is likely to seek profit maximisation, which may take place using subsidiaries that are not necessarily engaged in socially desirable activities.53 In addition, the law does not state that only such projects must be pursued and any attempt to so limit a company would inevitably run into a plethora of issues, not least determining what is, in fact, ―socially desirable‖. 5. Arguments Against Applying Limited Liability for Torts 5.1. Limited liability unduly prejudices tort victims The main difference between a tort creditor and a voluntary creditor in the present context is that the latter can evaluate the risk associated with the business activity in advance, and consequently can charge a commensurate rate of interest 54 or seek other forms of security.55 By contrast, tort creditors ―cannot adjust so readily to the prospect that their claims will go unsatisfied‖.56 The charging of interest commensurate with risk incentivises the company to reduce their risk in relation to those activities,57 whereas no such incentive exists with regard to tort creditors. 49 ████, ‗Limited Liability‘ (n 4) 624. 50 Adams v Cape (n 26). 51 Wix, ‗Piercing the Corporate Veil: Should Michigan Consider Statutory Solutions?‘ (2002) 79 U of Detroit Mercy L Rev 637, 656. 52 Muscat (n 33) 162-175. 53 See Murphy (n 44). 54 Thompson, ‗Unpacking Limited Liability‘ (n 36) 36. 55 Stone (n 29) 68. 56 Ibid. 57 Easterbrook and Fischel, The Economic Structure (n 33) 51. 9 A further difference is that tort creditors are unable to contract out of limited liability.58 Again, because of the ability to negotiate in advance, voluntary creditors may be able to contract with a company to ensure their protection. Meiners, Mofsky and Tollinson have argued that the impact of limited liability on tort victims could be eliminated by insurance and price adjustments, 59 however, this does not occur in practice.60 In any case, price adjustments continue to move the risk away from the creator of the risk, providing little incentive for risk reduction. As to insurance, it could not eradicate the risk to tort claimants associated with unforeseeable harm 61 and, even where the harm is foreseeable, managers may fail to take out adequate insurance, the insurance company, for a number of reasons, may be unable to pay a tort judgment62 or the tort in question may not be covered by the policy.63 Posner suggests that an alternative to insurance would be requiring companies engaging in dangerous activities to post a bond ―equal to the highest reasonable estimate of the probable extent of tort liability‖.64 In practice this does not seem to be a better solution than insurance. For example, unforeseeable or unforeseen risk cannot, by its nature be estimated in advance. It is also pertinent to ask who will make the assessment; one need not be a cynic to suggest that a company involved in a risky activity is likely to underestimate the potential cost of future tort claims, while the victims themselves would undoubtedly offer a much higher estimate. Compounding these issues, Easterbrook and Fischel note that the problems with encouraging 58 ████, ‗Limited Liability‘ (n 4) 617. The New South Wales Supreme Court in Australia has recognised this: see James Hardie & Co. Pty. Ltd. (1989) 7 ACLC 841, 863. 59 See Meiners, Mofsky and Tollinson, ‗Piercing the Veil of Limited Liability‘ (1979) 4 Delaware J of Corporate L 364- 367. 60 ████, ‗Limited Liability‘ (n 4) 617 (―the unavailability of such insurance, as well as market imperfections and governmental intervention, render such observations quite academic.‖). Meiners, Mofsky and Tollinson themselves provide an apt example: they refer to Walkovszyk v Carlton 18 NY 2d 414, 223 NE2d 6 (NY 1966). In that case, a cab driver had incorporated a company to shield himself from accident liability. The company was unable to pay damages resulting from such an accident and was not sufficiently insured; the owner was not liable for the judgment due to limited liability. 61 Schwartz, ‗Product Liability, Corporate Structure and Bankruptcy: Toxic Substances and the Remote Risk Relationship‘ (1985) 14 J of Legal Studies 689, 714. 62 For example, if the insurance company has itself become insolvent. 63 These three problems with using insurance as a solution to the problem of tort creditors are put forward by Posner (Posner, ‗The Rights of Creditors of Affiliated Corporations‘ (1976) 43 U of Chicago L Rev 499, 520). 64 Ibid. 10 risk-taking and lack of insurance are ―probably greater in parent-subsidiary situations because subsidiaries have less incentive to insure‖.65 Given the foregoing, it is perhaps unsurprising that there is a growing consensus in the commentary that limited liability is not justified in tort cases.66 5.2. Conflicts with the aims of tort The core aims of tort law include the compensation of victims, the imposition of the costs of an activity on the activity itself and discouraging negligent or intentionally harmful activities. 67 It is patently obvious that the application of limited liability flouts these aims. Firstly, a parent company is essentially able to dictate how much compensation will be paid to tort victims by the incorporation of subsidiaries to engage in potentially dangerous activities: where a company undercapitalises a subsidiary which is subsequently required to compensate tort victims, those victims will not receive adequate compensation.68 Secondly, limited liability ensures that it is not the activity that bears its costs, but society as a whole because the application of limited liability to torts allows business to create externalities without paying for them. Thirdly, the justification that limited liability encourages risk taking is at odds with the need to discourage negligent or harmful activity. This is especially true in the group context, where, as has been seen, a subsidiary may be incorporated solely for the purpose of engaging in highly risky activities. Thus, limited liability, in the words of Stone, makes a mockery of deterrence. 69 6. Arguments for Applying Limited Liability to a Wholly Owned Subsidiary Company 6.1. Certainty Before Adams,70 Gower had noted the incoherence of the piercing the veil doctrine saying that 65 Easterbrook and Fischel, The Economic Structure (n 33) 57. 66 Strasser, ‗Piercing the Veil in Corporate Groups‘ (2005) 37 Connecticut L Rev 637, 638. 67 Ibid 661-662. 68 See In Re Southard (n 3). 69 Stone (n 29) 65. 70 Adams v Cape (n 26). 11 the case law ―smacks of palm tree justice rather than the application of legal rules‖. 71 Likewise, in the US, where common law veil piercing remains the predominant doctrine for imposing liability on a parent company, this area of law ―is the most litigated… and yet… remains the least understood‖;72 it is ―regularly criticized as confused and unprincipled‖.73 The present law does have certainty in its favour, however, it seems obvious that certainty alone cannot justify the massive prejudice caused to tort claimants, nor the application of a set of legal rules to a situation not envisaged at the time of their creation. 74 7. The Failure of Limited Liability at the Intersection of Groups and Torts As will be obvious from the foregoing, the present law fails to adequately address two problems;75 corporate groups and tort creditors. As to the former, the application of limited liability to wholly owned subsidiaries is misguided. Limited liability arose not as an ―inevitable conceptual derivation from the separate nature of the entity‖, 76 but to procure advantages that do not accrue in the context of a wholly owned subsidiary. As to the latter, limited liability prejudices tort victims and conflicts with the aims of tort law. While either of these issues in isolation may suggest the need for a re-evaluation of the law, the need is even more pronounced where the two issues intersect, as in the classical case of subsidiary incorporation. As Dearborn suggests, in such a situation the ―normative and economic realities necessitate a different regime of legal inquiry‖. 77 8. The Case for Enterprise Liability The different regime of legal inquiry advocated herein is that of enterprise analysis, defined 71 Gower, Modern Company Law (4th edn 1979). 72 Thompson, ‗Piercing the Corporate Veil‘ (n 27) 1036. 73 Thompson, ‗Piercing the Veil: Is the Common Law the Problem?‘ (2005) 37 Connecticut L Rev 619. However, it has been argued that the US case law ―may make more sense than first appears‖ when understood as the courts making a cost/benefit analysis. Easterbrook and Fischel, ‗Limited liability‘ (n 2) 89. 74 As Hansmann and Krakmaan succinctly put it, (―this rule induces… inefficiencies that appear to outweigh by far any offsetting benefits‖ (Hansmann and Krakmaan, ‗The End of History for Corporate Law‘ (2001) 89 Georgetown L J 439, 466). 75 These are not the only two problems, but are certainly two key problems with the present state of the law. Other commentators have recognised this. See, e.g., Thompson, ‗Piercing the Veil‘ (n 73) 379; Dearborn , ‗Enterprise Liability: Reviewing and Revitalizing Liability for Corporate Groups (2009) 97 California L Rev 195; ████, ‗Limited Liability‘(n 4) 576. 76 ████, ‗Limited Liability‘ (n 4) 585. 77 Dearborn (n 75) 209. 12 broadly as the holding of both a subsidiary and its parent liable on the basis that they are part of the same enterprise. There are differing conceptions as to the bases for enterprise theory, which will become apparent as existing examples of enterprise law are discussed. For instance, Dearborn sees enterprise liability as ―seek[ing] to marry legal and economic realities‖ 78 while Antunes suggests that control, that is the control exerted by a parent company over a subsidiary, is the proper foundational basis.79 Aronofsky envisages a mixed approach, citing ―[t]he degree of centralized control and economic integration, organization, market, and public identification as a unitary company‖ as factors to be considered.80 For the purposes of advocating enterprise liability in general, it is the holding of a parent company liable for the tort debts of its subsidiary that is, in itself, important, rather than the precise basis for doing so. It should be noted at the outset that enterprise analysis is different from ‗piercing the veil‘. It does not attempt to look behind or through the corporate form, but instead disregards, or goes beyond, the corporate form entirely. ―[V]eil piercing is a vertical form of liability—it provides a mechanism for holding a shareholder personally liable for the corporation‘s obligations. Enterprise liability provides a horizontal form of liability—it offers a vehicle for holding the entire business enterprise liable.‖81 Another key difference, at a conceptual level, is that, while veil piercing focuses on the illegitimate use of the corporate form, enterprise liability actually builds on the parent-subsidiary relationship to allocate liability.82 Rather than creating sporadic and incomplete exceptions to the corporate form, or delicately dancing around it, enterprise analysis tackles the problem ―at the critical juncture‖. 83 78 Dearborn (n 75) 210. 79 Antunes, Liability of Corporate Groups: Autonomy and Control in Parent-Subsidiary Relationships in US, German, and EEC law: an international and comparative perspective (Kluwer Law, Boston 1994). 80 Aronofsky, ‗Piercing the Transnational Corporate Veil: Trends, Developments, and the Need for Widespread Adoption of Enterprise Analysis‘ (1985) 10 North Carolina J of Intl L and Commercial Regulation 31, 42 (footnote omitted). 81 Bainbridge and Cole, ‗The Bishop‘s Alter Ego: Enterprise Liability and the Catholic Priest Sex Abuse Scandal‘ ([REDACTED PHONE] J of Catholic Legal Studies 65, 81. 82 Hofstetter, ‗Parent Responsibility for Subsidiary Corporations: Evaluating European Trends‘ (1990) 39 Intl & Comparative Law Quarterly 576, 578. See also Presser, ‗The Bogalusa Explosion. ―Singe Business Enterprise,‖ ―Alter Ego,‖ and Other Errors: Academics, Economics, Democracy, and Shareholder Limited Liability: Back Towards a Unitary ―Abuse‖ Theory of Piercing the Corporate Veil‘ (2006) Northwestern U L Rev 405, 425 (Noting that the Louisiana development of a single business enterprise theory is not premised on illegitimate use of the corporate form). 83 Hofstetter, ibid. 13 Other solutions have been suggested as a means for redressing the injustice caused to tort creditors under a limited liability rule. It has been suggested that minimum capital or mandatory insurance requirements would be suitable solutions.84 However, these solutions are focused on addressing the problem of under-compensation of tort victims alone and do not take account of the fact that the application of limited liability to groups was ill-considered. Failing to take this into account, these solutions seek to maintain limited liability as the general rule while ensuring victim compensation. As has been seen, the arguments for limited liability do not apply to the context under discussion, and therefore it does not need to be preserved. In fact, abolition of limited liability in this context ―may constitute a return to, rather than a radical departure from, basic corporation law tenets of limited liability, which were originally created to protect natural persons rather than incorporated shareholders‖. 85 Another possible solution that fails due to its sole focus on the compensation of tort claimants is the strategy of using the ordinary rules of tort law to claim that the parent itself is primarily liable. On the plus side, this possibility seems to be almost all that is left for under- compensated tort claimants post-Adams v Cape,86 and may therefore offer some small hope of recompense absent the change in the law advocated here. In Lubbe v Cape 87 the claimants, having failed to get relief in Adams v Cape, sought to make use of this potential. Issues arise as to the difficulty of proving both a duty of care and causation: as the Court itself noted, ―[t]o investigate, prepare and resolve these issues, in relation to each of the plaintiffs, would plainly involve a careful, detailed and cumbersome factual inquiry and, at least potentially, a very large body of expert evidence.‖88 The use of tort law in this way is plagued, as is the present law, by its deficient foundations: rather than offering a form of redress tailored to the modern concept of corporate groups, the use of ordinary tort rules in this way attempts to fit the modern context into rules that were never intended for it. It is difficult to see how the resulting state of affairs would be any less 84 Easterbrook and Fischel, ‗Limited liability‘ (n 2) 114-117. 85 Aronofsky (n 80) 32. 86 (n 26). 87 Lubbe v Cape Plc [2000] UKHL 41. 88 Ibid [23]. 14 ―anachronistic and dysfunctional‖89 than the present law, given the cumbersome legal proceedings that would ensue, save for the fact that there is at least a small chance that under-compensated tort victims may succeed in their claim.90 Enterprise liability, by contrast, cures both of the identified defects of the current law; where torts and groups meet, ―enterprise liability simply makes more normative and economic sense.‖91 With regard the unsuitability of the present law, enterprise liability is more in tune with reality and applies a considered test to the specific situation. As corporate groups themselves generally disregard the separate legal entities of their constituent companies, enterprise liability reflects the economic reality of modern business and accords with companies‘ own internal workings.92 With regard the unfairness to tort victims, enterprise liability is undoubtedly fairer on tort victims and more in line with the aims tort. The risk of hazardous activities is reallocated; companies must adequately insure or capitalise their subsidiaries, or, alternatively, are deterred from carrying out hazardous activities by the prohibitively high cost of bearing the risks. 9. Enterprise Analysis in Practice Identifying legal systems that have experimented with enterprise liability will give a contextual background to the implementation of enterprise liability, provide the basis for refutation of the arguments against enterprise liability and will offer some insight as to how a test for enterprise liability may be constructed. 9.1. Germany93 Germany has been called the ―standard-setter‖94 with regard to its use of enterprise analysis and was the first country to comprehensively approach the problem presented by corporate 89 ████, ‗The Law of Corporate Groups‘ (n 32) 60. 90 It is worth noting that this strategy has failed in Australian courts (see James Hardie (n 58) 579-84). 91 Dearborn (n 75) 213. 92 Aronofsky (n 80) 33. 93 For a comprehensive account of the German Law on Corporate groups and its evolution, see Reich-Graefe, ‗Changing Paradigms: The Liability of Corporate Groups in Germany‘ (2005) 37 Connecticut L Rev 785. For an account of its history, see Antunes (n 79) 342-347. 94 Dearborn (n 75) 215. 15 groups.95 German law defines two categories of group. The first, rarely used, 96 is the ―contractual corporate group‖97 or ―contractual concern‖,98 whereby a voluntary ―control agreement‖ 99 is made between the parent and subsidiary,100 pursuant to which ―the parent… exercise[s] far- reaching management powers over the subsidiary.‖ 101 The second is the de facto group,102 characterised by the absence of such an agreement. 103 Two factual requirements must be met: majority ownership of one company by another 104 and a centralised and homogenous management structure105 in which both companies are operated as one enterprise. 106 Some important points must be made. The German legislature sought to correct a different problem to the one under discussion here. Their aim was to correct a perceived conflict between the interests of a subsidiary and its parent, who would ―presumably seek to maximize its own shareholders‘ welfare at the potential expense of the subsidiary‘s minority or passive shareholders and creditors‖.107 As a result, the law‘s focus is on compensation of a subsidiary by a parent for loss caused to the subsidiary108 and the law therefore does little to assist a tort victim trying to recover from a parent company. 95 Wymeersch, ‗Do We Need a Law on Corporate Groups of Companies?‘ in Hopt and Wymeersch (eds), Capital Markets and Company Law (OUP, Oxford 2003) 573, 587. 96 Reich-Graefe (n 93) 793 (footnote omitted). 97 Ibid 788. 98 Stohlmeier, ‗German Limited Liability Company – Unlimited Liability of Parent Company? (1993) 21 International Business Law 135, 137. 99 Reich-Graefe (n 93) 788. 100 Aktiengesetz 1965 §18 (German Law on Stock Corporations). Available at http://www.gesetze-im- internet.de/bundesrecht/aktg/gesamt.pdf, accessed 16 th February 2010. Translated in Schneider and Heidenhain, The German Stock Corporation Act: Bilingual Edition with an Introduction to the Law (2nd edn Kluwer Law International 2000). 101 Reich-Graefe (n 93) 788. German Law on Stock Corporations (n 100) §308(1). 102 Stohlmeier (n 98) 137. 103 Reich-Graefe (n 93) 790. 104 This creates a presumption that the subsidiary is not independent. German Law on Stock Corporations (n 100) §§16(1) and 17(2). 105 German Law on Stock Corporations (n 100) §18(1). 106 Reich-Graefe (n 93) 790. 107 Dearborn (n 75) 216 (footnote omitted). See also Singhof, ‗Equity Holders‘ Liability for Limited Liability Companies‘ Unrecoverable Debts – Reflections on Piercing the Corporate Veil under German Law (1999) 22 Loyola of Los Angeles Intl and Comparative L Rev 166, 169. 108 Dearborn (n 75) 218 (―the major feature of this scheme is that the dominant company must always compensate the subsidiary for its losses if the dominant company cause the subsidiary company to enter into the detrimental transaction.‖). 16 Also of note is that the law applies only to joint stock corporations,109 generally utilised by large public corporations,110 whereas the most commonly used form of company in Germany is the limited liability company (LLC).111 The statute promoted judicial extension of the law to situations not explicitly covered by the Act 112 and the courts extended the enterprise analysis to LLCs,113 and other situations,114 to the point where it was generally understood that enterprise analysis applied in such a case. 115 However, the court recently changed direction in this regard in the Bremer Vulkan case,116 severely curtailing the development of the doctrine.117 This ―[complete abandonment of] the application of group liability concepts‖ 118 has been lamented as hailing a return to a ―casuistic, largely unprincipled and fragmental approach‖ 119 more characteristic of the US, or the pre-Adams UK law. 9.2. German Law on Stock Corporations: progeny Despite the retreat of the German Law, it has been ―more influential than any other… in spurring legal reform of the parent-subsidiary relationship‖,120 and a number of countries have adopted laws influenced or inspired by Germany‘s example. Brazil, for example, has adopted a mild form of enterprise analysis121 that is broadly similar to the German law.122 Unfortunately, it also follows the German law in not giving creditors a direct cause of action, based on the belief that ―experience shows that the creditor as a rule obtains protection via contractual agreement.‖123 This, unfortunately, overlooks the fact, identified previously, that tort creditors 109 German Law on Stock Corporations (n 100). 110 Schneider and Heidenhain (n 100) 3. 111 ―Gesellschaft mit beschränkter Haftung‖ (GmbH). Dearborn (n 75) 216. 112 Hofstetter (n 82) 579. 113 See Autokran case (1985) BGH 95 BGHZ 330 (FRG) (German Federal Court of Justice); Alting‚ ‗Piercing the Veil in American and German Law – Liability of Individuals and Entities: A Comparative View (1995) 2 Tulsa J of Comparative and Intl L 187, 234. 114 See Wirth and Arnold, Corporate Law in Germany (CH Beck 2005) 181-182. 115 Dearborn (n 75) 216. 116 Bremer Vulkan (2001) BGH II ZR 178/99. For a detailed discussion of this case in English, see Zumbansen, ‗Liability within Corporate Groups (Bremer Vulkan): Federal Court of Justice Attempts the Overhaul‘ (2002) 3 German L J. 117 See Reich-Graefe (n 93) 798-802. 118 Ibid 815. 119 Ibid 798-810. 120 Dearborn (n 75) 220. See also Wälde, ‗Parent-Subsidiary Relations in the Integrated Corporate System: A Comparison of American and German Law‘ (1974) 9 J of Intl L & Economics 454, 492-493. 121 Lei das Sociedades Anónimas 1976 (Brazillian law on Limited Liability Companies). 122 Ibid, arts 245-6. See also Antunes (n 93) 324-325. 123 Antunes (n 93) 293. 17 cannot contract out of limited liability, and so remain unprotected by a regime that does not allow them to bring a direct action. Portugal enacted similar provisions,124 but they only apply where a company chooses to legally formalise its parent-subsidiary relationships.125 As the system is not mandatory, and corporations are unlikely to subject themselves to liability unnecessarily, it is almost entirely toothless. Italy has, in one sense, taken a step forward from the German example by creating a direct cause of action against a parent company;126 however, the cause of action applies only if the holding company causes damage through mismanagement of the subsidiary.127 Overall, the Italian approach has been lamented as offering only piecemeal reforms, rather than an overarching system,128 and is of doubtful significance in practice.129 The German model has had influence in other jurisdictions also, such as Slovenia and Croatia;130 unfortunately these developments cannot be elucidated further here due to language and information constraints. 9.3. EU Most importantly for the UK, the EU appears to have made some advances toward enterprise liability. While it should be noted at the outset that these advances have not progressed as far as substantive law, the ―potential as a European trendsetter‖ 131 justifies inclusion. As the initial hope that the European Company Statute would include provisions on parent liability in the case of European Companies132 was quelled by the exclusion of such provisions in the eventual 124 Código das Sociedades Comercais 1986 (Portugese Code on Companies). 125 Antunes (n 93) 326-327. 126 See Ventoruzzo, ‗Experiments in Comparative Law: The Recent Italian Reform and the Dubious Virtues of a Market for Rules in the Absence of Effective Regulatory Competition‘ (2004) < http://papers.ssrn.com/sol3/papers.cfm?abstract_id=[REDACTED PHONE]> accessed 27 th February 2010, 40. 127 See Ventoruzzo (n 126) 45. 128 Ibid 40 (―In contrast to the German approach and that of other countries that took inspiration from it, Italy does not have a comprehensive regulation of corporate groups‖). 129 Ibid 47-48. 130 Andenas and Wooldridge, European Comparative Company Law (CUP, Cambridge 2009) 6. 131 Hofstetter (n 82). 132 See Ibid, 587. 18 statute,133 the remaining proposal of relevance here is the Ninth Directive on company groups.134 Under the directive the parent would have been liable for the liabilities of subsidiaries on the basis of ―unified management [and] control‖. 135 Unfortunately, the provisions have been lamented as being weakened in order to stem political opposition136 and progression of the directive has, for the time being, halted.137 The UK has been particularly vocal in its opposition to the Ninth Directive.138 However, the fact that enterprise liability has been discussed, despite such opposition, shows that enterprise principles are slowly creeping into awareness at the early stages of EU law. 9.4. UK There was a brief flirtation with enterprise analysis in English law, starting with Lord Denning‘s ‗single economic unit‘ argument in DHN.139 The issue in DHN was whether a group of three companies could be treated as one enterprise for the purposes of receiving compensation for compulsory purchase of the group‘s property. Noting that groups of companies are treated as one for the purpose of general accounts, balance sheets, and profit and loss accounts, Denning held that they could be treated as one concern for the purposes of compulsory purchase compensation.140 Enterprise analysis, he thought, was particularly relevant where the subsidiary is wholly-owned, or where a high level of control is exercised over it. 141 Although originally pertaining to compulsory purchase compensation claims, the single economic unit argument started to seep into the law at a more general level, perhaps due to the generality of the language used by Lord Denning in formulating the argument. For instance, 133 Council Regulation (EC) No 2157/2001 of 8 October 2001 on the Statute for a European company (SE) OJ L 294, 10/11/2001, 1–21. 134 The Ninth Directive has Never been published in the Community Gazette (Orne (tr), Pasa and Benacchio, The Harmonization of Civil and Commercial Law in Europe (Central European University Press, Budapest 2005) 369. Pasa and Benacchio helpfully note that a mid-1980s French draft is available in CDVA (ed), Modes de rapprochement structurel des enterprises. Tendences actuelles en droit des affaires (Brussels 1986). For the English speaker, some provisions of the Directive relevant to the current discussion are reprinted in Böhlhoff and Budde, ‗Company Groups – The EEC Proposal for a Ninth Directive in Light of the Legal Situation in the Federal Republic of Germany‘ (1984) 6 J of Comparative Business and Capital Market L 163, 181-192. 135 Antunes (n 93) 287-288. 136 Hofstetter (n 82) 589. 137 See Andenas and Wooldridge (n 130) 148-149. 138 See Nieuwdorp, ‗EEC Company Law Harmonisation‘ (1987) 15 Intl Business L J 177, 179-180 (noting the UK‘s criticism and that the UK questions the need for such a directive). 139 DHN Food Distributors Ltd v Tower Hamlets London Borough Council [1976] 1 WLR 852. 140 Ibid 860. 141 Ibid. 19 in Lewis Trusts,142 May LJ suggested obiter that the Court would be permitted to disregard the corporate veil in a copyright infringement case. 143 In that case garments were being made in stages by a corporate group and May LJ thought it unnecessary to distinguish between the different companies in the group. During the debating of the Companies Act 1980, the Labour Party spokesman proposed that a parent company could be made liable for the debts of a defaulting subsidiary. Given that he suggested that this liability could be excluded by notification of creditors, it seems unlikely that this proposal considered tort creditors, and, in any case, the proposal was rejected due to concerns over the discouragement of businesses taking risk.144 Despite these nascent movements toward a more general application of the single economic unit argument, DHN was once again confined to its facts in Woolfson 145 and in Adams146 the separate entity approach was affirmed as a ―fundamental principle‖ of company law. 147 9.5. US In the US, Michigan has distinguished between a company as an investor, who exercises ―mere oversight of a subsidiary‘s business in a manner appropriate and consistent with the investment relationship‖, and a company that exercises ―actual participation and control over a subsidiary‘s functions and decision-making‖.148 This distinction tracks the argument, above, that the case for limited liability is at its strongest in relation to investors, but at its weakest where a parent company operates the subsidiary. Texas had enunciated a doctrine of ―single business enterprise‖ 149 that holds that ―when corporations are not operated as separate entities but rather integrate their resources to achieve a common business purpose, each constituent corporation may be held liable for debts 142 Lewis Trusts v Bambers Stores Limited [1983] FSR 453. 143 Ibid 470-1. 144 See Prentice (n 19) 111. 145 Woolfson v Strathclyde Regional Council (1978) SC 90, 95-6 (Lord Keith of Kinkel). 146 Adams v Cape (n 26). 147 Ibid 532 (Slade LJ). 148 CPC International v Aerojet General Corporation, 777 F Supp 549, 573 (Michigan 1991). See also Lansford- Coaldale Joint Water Authority v Tonolli Corporation, 4 F 3d 1209, 1222 (3d Cir 1993) (examining whether a company is an investor or controller). 149 See ████ and others, ████ on Corporate Groups (2nd edn Aspen, New York 2005) ss 12.04 and 66.04[A]. 20 incurred in pursuit of that business purpose‖; 150 this was, however, recently rejected unanimously by the Texas Supreme Court.151 A landmark Louisiana case considered that ―[i]f one corporation is wholly under the control of another, the fact that it is a separate entity does not relieve the latter from liability‖ 152 and enumerated eighteen separate factors for consideration in this context. 153 Though the doctrine has garnered some judicial support,154 it has also attracted academic criticism155 and, while a number of US jurisdictions have ―at least recognized the idea of imposing liability on… a ‗single business enterprise‘‖,156 ―there appears to be no widespread movement to embrace [enterprise analysis] beyond its adoption in Texas and Louisiana‖.157 Finally, the US Courts have been willing to look into the structure of corporate groups by reference to federal regulation.158 9.6. India By far the most extensive approach to enterprise liability has been taken by India. Firstly, in the wake of the Bhopal disaster, the Government assumed parens patriae159 responsibility for the resulting cases in the New York Courts,160 arguing that a corporate group is not a set of 150 Paramount Petroleum Co v Taylor Rental Center (1986) 712 S W 2d 534, 536 (Texas CA). 151 SSP Partners and Metro Novelties, Inc v Gladstrong Investments (USA) Corporation (2008) 05-072 (Texas CA) (―corporations cannot be held liable for each other‘s obligations merely because they are part of a single business enterprise‖). 152 Green v Championship Insurance Co 577 So 2d 249 (La App 1st Cir 1991) (Louisiana CA). 153 Ibid 257-258. 154 See, e.g., Thibodeaux v Ferrellgas, Inc, 741 So 2d 34, 35, 42-43 (La Ct App 1999) (Louisiana CA) and Grayson v R. B. Ammon & Assocs. 778 So. 2d 1 (La. Ct. App. 2000) (Louisiana CA). In Pine Tree Association v Doctors’ Association, Inc, 654 So 2d 735, 736, 738 (La Ct App 1995) (Louisiana CA) the doctrine was extended to a contract case, however, this development seems to have been curtailed: see Town of Haynesville, Inc. v Entergy Corporation 956 So 2d 192 (La App 2d Cir) 964 So 2d 334 (La 2007) (Louisiana CA) (overturning the trial judge‘s application of the Green/Pine Tree single business doctrine to a contract case). 155 See Dunne, ‗Taking the Entergy Out of Louisiana‘s Single Business Enterprise Theory‘ (2009) 69 Louisiana L Rev 691 and Presser (n 82) (both advocating a return to a law similar to that of the UK post-Adams v Cape, whereby entity theory reigns supreme and veil piercing can only occur in exceptional circumstances). 156 Presser (n 82) 422. 157 Strasser (n 66) 647. 158 See Schipani, ‗The Changing Face of Parent and Subsidiary Corporations: Enterprise Theory and Federal Regulation‘ (2005) 37 Connecticut L Rev 691. See also Dearborn (n 75) . 159 ―[Latin, Parent of the country.] A doctrine that grants the inherent power and authority of the state to protect persons who are legally unable to act on their own behalf.” Free Legal Dictionary accessed 17/10/2010. 160 Bhopal Gas Leak Disaster (Processing of Claims) Act 1985. See also Brief of the Plaintiffs, Union of India v Union Carbide Corporation reprinted in Baxi and Paul, Mass Disasters and Multinational Liability: the Bhopal case (N.M. 21 distinct entities, but ―[i]n reality… one entity, the monolithic [corporation] which is responsible‖,161 and that the group is in a better position to assume the risk of its activities than tort victims.162 A year after the Bhopal disaster, the Supreme Court, in the Oleum Gas Leak Case 163 held that ―an enterprise [has a] duty to… ensure that no harm results… on account of [the] nature of [its] activity...‖164 and that if such harm does result, the enterprise as a whole should be liable. 165 The court noted the fact, as discussed, that the tort victim is not best placed to bear the risk and social costs of the business166 and that the ―enterprise alone has the resource[s] to discover and guard against hazards or dangers‖.167 The court posited that the permission to carry on a risky business must come with the responsibility for the externalities generated. 168 Note that while the Court discussed the case in terms of the rule in Rylands v Fletcher 169 and strict liability,170 the language used, as seen above, is that of enterprise liability and, as such, it is generally considered that this is the underlying reasoning of the case. 171 9.7. UN Norms172 The UN norms,173 while applying only to activities involving some transnational element, 174 and Tripathi, Mumbai 1986). Note that ‗Union of India‘ in a judicial context refers to the government of India (Article 300 of the Constitution of India). 161 Brief of the Plaintiffs, ibid 4-5. 162 Ibid. 163 M.C. Mehta v. Union of India, AIR 1987 SC 1086 (India SC) (available in part at http://www.elaw.org/node/1322, accessed 17th February 2010; also reprinted in full in Baxi (n 160). 164 Ibid [31] (Bhagwati CJ). 165 Ibid. 166 Ibid. 167 Ibid. 168 Ibid (―If the enterprise is permitted to carry on an hazardous or inherently dangerous activity for its profit, the law must presume that such permission is conditional on the enterprise absorbing the cost of any accident…‖). 169 [1868] UKHL 1; (1868) LR 3 HL 330. 170 Ibid. 171 ██████████████ accessed 17th February 2010, 13 (calling the judgment an ―exposition of enterprise liability‖). However, Muchlinski has questioned whether the judgment represents a move beyond entity principles (Muchlinski, Multinational Enterprises and the Law (OUP, Oxford 2007) 318). 172 For a detailed account of the history and content of the norms, see Weissbrodt and Kruger, ‗Norms on the Responsibilities of Transnational Corporations and other Business Enterprises with Regard to Human Rights‘ (2003) 97 American J of Intl L 901 and Hillemanns, ‘UN Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with regard to Human Rights (2003) 40 German L J 1065. 173 United Nations Economic and Social Council Sub-Committee on the Promotion and Protection of Human Rights, ‗Norms on the responsibilities of transnational corporations and other business enterprises with regard to human rights‘ (26th August 2003) UN Doc E/CN.4/Sub.2/2003/12/Rev.2. 22 so not affecting wholly internal situations, articulate very high standards for businesses and adopt a real-world view of corporate groups as enterprises. 175 The norms are yet to be adopted,176 views differ as to the likelihood of their adoption in the future 177 and a somewhat vigorous debate about their effect has ensued. 178 At the very least, the significance of enterprise liability‘s ―appearance… at the level of international governance… should not be understated‖179 and represents a key event in its development. An optimistic view may hold that the norms represent a slow absorption of enterprise principles into the vernacular of corporate law, a view bolstered by the other developments already discussed. 10. The Rising Tide of Enterprise Liability The mere fact that other jurisdictions are exploring enterprise liability is encouraging and, to borrow Presser‘s metaphor, the road on which these jurisdictions are travelling could soon have many followers.180 This does not necessitate the UK following suit, however the growing interest in enterprise liability as an alternative, and more considered, response to corporate groups and torts, along with the obvious injustice caused to tort victims in cases such as Adams v Cape, strongly suggests that the law should, at the very least, be thoroughly re- evaluated. 11. Problems for Enterprise Liability 174 See UN Norms, n [20] and [21]. 175 See UN Norms, n [20]. 176 Dearborn (n 75) 229. 177 See Backer, ‗Multinational Corporations, Transnational Law: The United Nations‘ Norms on the Responsibilities of Transnational Corporations as a Harbinger of Corporate Social Responsibility in International Law (2006) 37 Columbia Human Rights L Rev 287 (noting that the norms are unlikely to be adopted as ―Most Western states made their opposition to the Norms absolutely clear from the start‖ and that ―[t]he Norms were effectively abandoned in early 2005, and efforts to formally regulate transnational corporations have been transferred to other United Nations offices.‖). Cf Hillemanns (n 172) 1079 (stating that, given the cooperative and consensus-based drafting history, ―it seems likely that the Norms will eventually be adopted as a means to streamline the human rights expectations and obligations of transnational corporations and other business enterprises.‖). For States‘ public comments see Office of the High Commissioner for Human Rights, Stakeholder Submissions to the Report of the High Commissioner for Human Rights ██████████████ accessed 18 th February 2010. 178 For an account arguing that the norms are ―legally binding‖ see Campagna, ‗United Nations Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights: The International Community Asserts Binding Law on the Global Rule Makers‘ (2004) 37 John Marshall L Rev 1205; cf. Vagts, ‗The UN Norms for Transnational Corporations‘ (2003) 16 Leiden J of Intl L 795 (arguing that the norms are of ―marginal utility‖ as the area in which they operate is already occupied by existing instruments). 179 Dearborn (n 75) 230. 180 Presser (n 82) 422 (commenting on Louisiana and Texas‘ use of enterprise liability). 23 Thus far, this paper has advocated enterprise liability where the case is strongest; where injustice results to tort victims due to the application of the limited liability rule as between a wholly-owned subsidiary and its parent company. This section will discuss departures from the classical case that may be problematic for an implementation of enterprise liability. 11.1. Conglomerates The introduction of conglomerates, corporate groups that own and operate a variety of unrelated business ventures, reinvigorates the force of the argument that limited liability encourages risk taking. ████ notes that the reduction of risk is particularly important for conglomerates, as it enables them to diversify their business portfolio into previously unexplored areas of business,181 an action they take on a regular basis by their very nature. Posner182 offers an extreme, but illustrative, example of this importance and the potential perversity of applying limited liability: suppose the sole shareholder of a radio broadcasting company wishes to branch out into mining, and incorporates a subsidiary for this purpose. Absent the application of limited liability, that person may not take the risk of the second venture.183 In this vein, Hadden has said that ―some worthwhile but risky ventures which might be taken by large groups may not be undertaken at all‖.184 The dangers of the removal of limited liability, and the ensuing increase in risk, may be particularly pronounced in relation to certain types of conglomerates, such as those whose business is to take on failing ventures and restructure them to make them profitable, or those that are incorporated as vehicles to allow a number of investors to diversify. In the former case, the business would likely be deterred from rescuing ventures that involve the possibility of tort claims; such claims may threaten their other business interests, despite them being unrelated. In the latter case, individual investors may be deterred from diversifying their portfolio, via the company, into areas possibly involving tort risk. Despite these issues, it must be borne in mind that, firstly, this unwanted deterrence will only occur in relation to activities likely to involve tort claims and, secondly, this small disadvantage 181 ████, ‗Limited Liability‘ (n 4) 624. 182 Posner (n 63). 183 Ibid 512-513. 184 Hadden (n 21) 281. 24 must be balanced against the important need to adequately protect tort victims, who currently receive little protection. 11.2. Non-wholly owned subsidiaries and minority shareholders Non-wholly owned subsidiary companies are the most important problem to be discussed here because a parent company, wishing to make use of limited liability by incorporating a subsidiary to carry out risky activities, is likely, under a rule that applies enterprise liability where a subsidiary is wholly owned, to sell minority shareholdings in an attempt to circumvent the application of enterprise analysis and absolve themselves of liability. As companies have grown accustomed to the limited liability rule that is currently very advantageous to them, it seems likely that they will be at pains to maintain it. A rule simply applying enterprise liability where a subsidiary is wholly-owned would be far too easily circumvented by transfer of shares, just as the Joint Stock Companies Registration Act 1844 failed to maintain unlimited liability in the face of circumvention by this method.185 The introduction of minority shareholders reinvigorates some of the justifications for limited liability that were earlier dismissed in the case of wholly-owned subsidiaries. For instance, if a company is not wholly-owned by a single parent, there may well be a market where the publicly held shares are traded 186 and therefore limited liability will facilitate the efficiency of the market. Likewise, minority shareholders who would otherwise acquiesce in the management of the company, i.e. absentee investors, may have to increase their involvement in the company‘s affairs or incur monitoring costs to ensure that their investment is not harmed by tort claims arising as a result of the majority shareholder‘s management. The need to keep agency and collection costs low would again need to be considered where minority shareholders are reduced. Essentially the question is whether the benefit to the minority shareholders, and/or the public generally, outweighs the harm that would result to tort victims if limited liability was strictly applied. This is likely to be a matter of extent. For example, where a company is 99% owned by a parent company, the other 1% being held by independent absentee investors, it seems 185 ████, ‗Limited Liability‘ (n 4) 583. 186 ████, ‗Limited Liability‘ (n 4) 624. 25 absurd to suggest that the, arguably negligible, benefit accruing from a strict application of limited liability should outweigh the interests of innocent tort victims. The current law flowing from Adams occupies this absurd position and, it is submitted, any rule of enterprise liability should avoid this. 12. Toward a Test for Enterprise Liability Creating a perfect test for applying enterprise liability would ―take a roomful of experts, legislators, and businesspeople‖,187 and is therefore a task that is well beyond the scope of the modest exposition offered here. That said, the discussion of enterprise liability thus far indicates a number of issues that such a test would have to address. This paper will expand on these issues in an attempt to make the first steps toward the creation of a test for enterprise liability. At the general level it can be said that such a test would, broadly, have two parts: it must apply to torts and it must apply to a group enterprise. As for specifics, a test for enterprise liability must deal with the problems presented by conglomerates and minority shareholders identified in the preceding section. 12.1. Part one: tort victims A preliminary observation to be made with relation to the tort victims themselves is that they should have a direct cause of action as against a parent company. As was seen already, the German system of parent company liability is entirely internal, which, whilst dealing with the objection that limited liability is ill-fitting for groups, leaves tort victims unprotected. The precise scope of ‗tort victims‘ under such a test needs to be discussed. Dearborn suggests that ‗torts‘ in this context should be confined to ―mass torts, human rights disasters, and environmental harms‖.188 She offers three reasons for this, which must be considered in deciding whether enterprise liability should be limited in this way, in some other way, or not limited at all beyond requiring satisfaction of the ordinary tort rules. Firstly she notes that confining enterprise liability to mass torts will appease the business 187 Dearborn (n 75) 251. 188 Ibid 255. 26 community, who will inevitably be concerned that ―enterprise liability would cause the end of investment capitalism‖.189 The substance of this argument will be dealt with more fully below, however, in relation to the concerns of companies alluded to in this quote, it suffices to say that, while companies are very likely to oppose any measure that aims to increase their potential liability in any way, it seems unlikely that such companies would truly think that the effects of enterprise liability, particularly only in the limited form under discussion, would be so far-reaching as to spell the end for capitalism. A sub-contention is that this limit on the definition of tort victims ―ensure[s] that [enterprise liability] is merely a tool to check the most egregious and socially harmful of corporate behaviours‖.190 What is not clear is exactly why it is only the ―most egregious and socially harmful corporate behaviours‖191 that should be checked. This view causes a lacuna between victims of the parent‘s torts and victims of the subsidiary‘s torts because, while the former will be compensated for any tort, the latter would only be compensated where the tort that happened to befall him was of the most egregious and socially harmful character. As the parent company in the classical case incorporates the subsidiary precisely for the purposes of avoiding liability that it would have otherwise incurred due to the risky activity it wishes to carry out, it seems more logical to suggest that all victims of torts committed by the subsidiary in that situation should be included, thus offering the tort victim the same protection he would have received had he been under the auspices of the parent company, had it not attempted to externalise the risks that came to pass. Furthermore, whereas allowing claims makes for simple application, the confinement of ‗torts‘ to mass torts, human rights disasters, and environmental harms adds a layer of difficulty in determining which tort victims are able to recover. For example, Thor Chemicals, a UK company, moved its mercury manufacture business to South Africa because of continued trouble with the Health and Safety Executive.192 In a textbook case of externalising the risks of a 189 Ibid. 190 Ibid. 191 Ibid. 192 Sithole v Thor Chemicals Holdings Ltd A2/2000/2894, 28 September 2000, 2000 WL [REDACTED PHONE]. 27 hazardous activity, Thor continued their substandard safety practices, resulting in three deaths. 193 Assume that Thor had incorporated a South African subsidiary:194 a difficult question a court would have to answer under a rule of enterprise liability where only victims of ―human rights disasters‖ could claim is whether three deaths is an unfortunate accident and consequence of hazardous, albeit necessary, business, or whether it is a human rights disaster? Clearly three deaths is not a disaster on the scale of Bhopal, which claimed around 5,000 lives, 195 yet the human rights of three people were clearly violated in the most egregious of ways. This formulation would cause a test to devolve into a numbers game, and would require the assessment of the relative gravity of harm suffered by tort victims. It is submitted that any harm caused is unacceptable, and a more satisfactory test is one that truly treats the two businesses as one enterprise, and causes the parent company to be liable for the torts of its economic bedfellow, its subsidiary. Secondly Dearborn makes the valid point that, in terms of controlling corporate behaviours, it is mass torts and the most serious torts that ―stand to harm the corporation from a public relations and economic standpoint‖.196 While this is true, it is arguable that the control of corporate behaviour should not be the only factor taken into account. As this paper argues, the aims of tort law should take precedence and the focus should be on the injustice caused by the inability of a subsidiary to adequately compensate tort victims. While using enterprise liability as a tool for corporate control would likely reduce the occurrence of torts, the goals of compensation and deterrence will be further served by making companies liable for all torts. From this standpoint, any test which excludes tort victims of the subsidiary or results in their non- or under-compensation seems inadequate. Thirdly, Dearborn suggests that equity and justice are the relevant policies necessitating enterprise analysis, however, it is submitted that the policies behind enterprise analysis should 193 Meeran, ‗Liability of Multinational Corporations: A Critical Stage‘ (1999) Labournet < http://www.labournet.net/images/cape/campanal.htm> accessed 27 th March 2010. 194 In this case, Thor actually moved its factory to South Africa in order to exploit more lax safety laws, but did not incorporate a subsidiary for the purpose. As a result, the litigation focused on forum non conveniens. Nevertheless, the small number of claimants in this real-life example make it apt to discuss the problems that arise from restricting the definition of tort victims to victims of mass incidents or disasters. 195 For a discussion of these statistics, and a comprehensive account of the Bhopal disaster and its aftermath generally, see Eckerman, The Bhopal saga: causes and consequences of the world's largest industrial disaster (Universities Press (India), Hyderabad 2005). 196 Dearborn (n 75) 255. 28 not be limited to equity and justice.197 Dearborn writes against the background of US federal regulation and suggests that the US courts may be unsympathetic to claims based on lesser policies than equity and justice.198 Given this background, it is possible to explain Dearborn‘s confinement of enterprise analysis to the pursuit of equity and justice as an attempt to appease a potentially unwilling judiciary. However, it is submitted that, in addition to equity and justice, the aims of tort law are policies that should be pursued through enterprise analysis and, to reiterate the conclusion of the preceding paragraph, the definition of tort victims should be broad enough to encompass all torts committed by the subsidiary where the victim is under-compensated. Aside from the issue of defining tort victims, there are two other points of note to be made. Firstly, at least one commentator has suggested that corporate groups should be able to ―opt out‖ of enterprise liability.199 This is clearly antithetical to the arguments made in this paper: an opt out provision would allow a parent company to easily preserve the limited liability that has been seen to be so problematic. It has been proposed that those companies choosing to opt out of enterprise liability could be identified by letters after their name, following the existing practice of using letters to identify the type of company the business registered as. 200 While this would be helpful to contractual creditors, tort victims cannot choose their tortfeasor201 and such an implementation of enterprise liability would result in potentially perverse outcomes; some victims being compensated by the parent and others receiving nothing. Secondly, Dearborn suggests that the burden of proof should be on the parent company to disprove that their corporate group is an enterprise, once the claimant has satisfied a preliminary burden.202 This, unlike the opt-out proposal, is in line with the need to adequately protect tort victims. As the company is in the best position to evidence its inner workings, the 197 Ibid. 198 Ibid. 199 Kluver (n 1) 781. While this suggestion is made in the context of discussing the difficulties of meeting the demands of creditors upon insolvent liquidation, there is no suggestion in the article that tort creditors would not be creditors for this purpose, or that an opt out would not apply to tort creditors. 200 Ibid. 201 This has been noted by the Australian courts. See Briggs v James Hardie & Co. Pty. Ltd. (1989) 7 ACLC 841 (New South Wales SC) 863. 202 Dearborn (n 75) 253. 29 burden can only reasonably be on them to disprove their economic unity. 203 12.2. Part two: defining enterprise Part two of the test would need to focus on when exactly both a subsidiary and its parent will be held liable on the basis that they are part of the same enterprise. The different bases for holding that the companies are one enterprise is much discussed in the academic literature and a number of bases can be seen in the examples of enterprise liability currently in existence. Dearborn, in line with Lord Denning‘s conception of enterprise liability,204 sees the theory as ―seek[ing] to marry legal and economic realities‖. 205 Antunes,206 more in line with the German law on corporate groups suggests that the control exerted by a parent company over a subsidiary, is the proper foundational basis for enterprise liability,207 while Aronofsky, envisages a mixed conception, more akin to the long lists of factors contributing toward enterprise liability enunciated by the US states of Louisiana and Texas, suggests that both ―[t]he degree of centralized control and economic integration‖, as well as other factors, should be used.208 Any attempt to define enterprise for the purposes of a legally-sound test is made difficult by the problems of conglomerates and minority shareholders, as discussed above. Such a test must protect ‗real‘ investors, that is those investors that activate the justifications for limited liability, while maintaining liability of the company that is, in reality part of the same enterprise. 12.2.1. Control-based enterprise liability Basing a test for enterprise liability on the control exerted by the parent over the subsidiary is superficially appealing because it appears to offer simplicity. The major downside of this approach is that it may incentivise the deliberate decentralisation of management in order to make it appear that the subsidiary acts independently, thus allowing for easy circumvention, with no obvious way of determining when the decentralisation is improper. This 203 Ibid. 204 See DHN Food Distributors Ltd (n 139). 205 Dearborn (n 75) 210. 206 Antunes (n 93). 207 See also Mendelson, ‗A Control-Based Approach to Shareholder Liability for Corporate Torts‘ (2002) 102 Columbia L Rev 1203. 208 Aronofsky (n 80). 30 decentralisation is problematic as the parent company allows the subsidiary to use its capital, while avoiding responsibility for torts arising out of that use. 209 This decentralisation therefore results in less oversight of the subsidiary‘s activities on the part of the parent and will seemingly increase the occurrences of torts, whereas it may actually be desirable to encourage strong central management in the hope of increasing oversight and preventing torts before they occur.210 Also in this category are rules that establish a presumption of control based on a share holding percentage; for instance, the German law establishes a presumption where a company holds a majority of shares in another company. This is, again, attractive due to its simplicity, but, unfortunately, along with this simplicity comes the risk that the reality of the situation will not be reflected accurately by the legal standard. A company that has a majority shareholding may not actually exercise any real control over a subsidiary where the group operates under decentralised management. This is even more pronounced where the presumption is activated by a low percentage. Likewise, where the presumption is only activated by a very high threshold, the legal standard risks excluding companies that are, in reality, a unified enterprise. It may hypothetically be though that such problems could be ironed out by finding the optimal percentage ownership at which the presumption should be activated. There are, however, unsolvable problems with this: in reality, no such level exists, and any set level causes the law to be rigid and unable to adapt to the many different types and forms of business. A more attractive argument for control-based enterprise liability is that it allows a bright line to be easily drawn between passive and active shareholders. The distinction between these two types of shareholder is crucial because, as was seen at the beginning of this paper, many justifications for limited liability apply in the case of the former, but not in the latter. This argument is forceful, but there is no reason why an economic conception of enterprise liability could draw the same bright line, as independent investors are clearly not a part of the same economic enterprise as the parent company majority shareholder. 209 See Dearborn (n 75) 249-250. 210 On this point generally, see Stone (n 29. 31 12.2.2. Economic or ‘true’211 enterprise liability An economics-based test would look to the economic structure of the group in question. While this may at first appear to be less certain than the simple control test, it is argued here that such a basis would be preferential. Firstly, an economics-oriented test is ―appealing, for [its] view of the structure of the modern large business corporate group is generally an accurate one‖. 212 Thus, such a test is more grounded in the reality of the situation than a control-based test, which, as noted above, may obscure the reality. Secondly, whereas a control-based approach incentivises the decentralisation of management and therefore increases the chance that torts will occur, an economic approach would aim incentivise the parent to invest in preventing torts before they occur as the liability for a subsidiary‘s torts will fall to them. Thirdly, this approach would mitigate the problems with the rigidity and formalism of a control- based approach. A number of factors could be considered as part of the determination of whether two companies are one for the purposes of enterprise liability. This flexibility would be invaluable to legislators and the courts in drawing up and applying the test in a way that adequately places liability on groups that are, in reality, one company, whilst protecting minority shareholders and passive corporate shareholders. 12.2.3. Suggested factors for inclusion in an economic enterprise liability test The following factors may be included in a test for enterprise liability, though drawing up an exhaustive list would likely be impossible: (1) whether the subsidiary was created, or acquired, for the purposes of furthering the economic aims of the parent, (2) whether the parent and the subsidiary are engaged in the same business, (3) whether the externalisation of risk plays a role in the utilisation of the subsidiary, (4) market and public identification of the group as a 211 Dearborn (n 75) 226. While it is acknowledged that the term ‗true enterprise liability‘ is more fitting than ‗economic enterprise liability‘, as some factors, such as public identification, are not strictly economic, the latter term will be used in this paper as it is the expression in common use. 212 Strasser (n 66) 647. 32 unified business.213 There are numerous real-life examples of cases where these factors could easily have been applied in practice, and allusion to some of these examples at this stage will aid understanding of how the envisaged rules of enterprise liability may apply. Furthermore, these examples also demonstrate the need for a remedy for tort victims in these situations. As to the first suggested factor, Adams v Cape214 provides an apt example. In that case it would have been clear to the court that, whatever the formal legal structure of the group, the subsidiary was incorporated to further the economic aims of the parent. Likewise, as to the second factor, it is clear that the parent and subsidiary were involved in the same business. Determining whether the externalisation of risk was an element in the use of the subsidiary is an important factor, as in the classical case this is the main purpose of its creation, but it may also require a more searching investigation than the previous two factors. However, there is no reason to think that determination of this factor is beyond the capacity of the courts. An example, though imperfect as the case involved contracting, rather than use of a subsidiary, 215 is the Trafigura scandal,216 which centred on a UK business that chartered a ship to dispose, seemingly illegally, of toxic waste. While Trafigura claimed it had acted honestly and legitimately, internal emails came to light that would inform a court that the company was purposefully externalising risk.217 The public identification of a group of companies as one may go some way to determining whether the group operates as one enterprise. If the group has held itself out as one unit to the extent that the public identify them as such, for instance, by using trademarks or 213 Aronofsky (n 80). 214 (n 26). 215 This example is used here, despite this imperfection, as the precise arrangement of the company‘s affair is irrelevant to the point made, i.e., that evidence of the parent‘s intention to externalise risk may often be available. 216 Which mostly related to the use of a so-called ‗super-injunction‘ to silence the press. See Stratton, ‗Ministers to consider bolstering press freedom after 'super-injunction' debate‘ The Guardian (London 21 October 2009). If the injunction is of interest, it may be found here: accessed 30th March 2010. 217 See Leigh, ‗How UK oil company Trafigura tried to cover up African pollution disaster‘ The Guardian (London 16 September 2009) available at accessed 27th March 2010. The emails in question can be read here: accessed 27th March 2010. 33 franchising,218 then there is an almost irresistible inference that the group operates as one economic unit. A further point is that, as a group benefits from holding itself out as one enterprise, it should be held to account as one enterprise where it causes torts. In contrast to the present law, this factor ―reflects the [reality of companies], which seldom, if ever, have qualms about disregarding separate legal identity‖, for instance, by holding itself out as one company to the public in order to make use of the value attached by the public to the brand of one of the group members, ―when to do so would permit a maximization of profits for the company as a whole.‖219 A pertinent example stems from the Unocal saga. The villagers living close to the pipeline under construction were gifted Unocal branded items during construction, presumably as an attempt to find favour with them.220 In this way, Unocal was able to hold itself out to be the company behind the construction, whilst also distancing itself from the project in the formal legal structure. An analysis of public identification under an enterprise liability rule for torts could solve this contradiction. This factor may, however, be a double-edged sword, and, as its inclusion in a list of factors would suggest, it is not the only factor that should be considered. An alternative case would be where a company deliberately maintains a distance between itself and the subsidiary. For example, a company establishing a subsidiary to deal in asbestos may try to detach itself from that activity both in law and in the eyes of the public, due to the negative connotations or publicity that may be associated with it. In such a case, public identification is not likely to be a helpful factor, and excessive focus on it may belie the true economic reality that can be identified using other factors. The use of a factored test has been criticised. Presser contends that such an approach ―substitut[es] lists of factors for serious purposive analysis‖221 and Hamilton and Macey suggest that problems arise due to poor weighting of factors 222 and the encouragement of a 218 Aronofsky (n 80) 44. Strasser and ████ (‗Legal Models and Business Realities of Enterprise Groups: Mismatch and Change‘ (2009) 18 Comparative Research in L & Political Economy Research Paper Series 4) give Hertz and Hilton as examples of franchises. 219 Aronofsky (n 80) 33. 220 Dearborn (n 75) 196. 221 Presser (n 82) 426. 222 I.e. placing too much or too little emphasis on important or unimportant factors. 34 mechanical approach.223 It is submitted that a factored test is not a substitute purposive analysis, it offers guidance; a framework in which courts can assess the economic unity of the enterprise. There is little reason to think that the courts, using the factors as guides rather than touchstones, and bearing in mind the overarching question of whether or not there is an economically-unified enterprise, will attach inappropriately skewed weight to different factors, or that they will approach the question in a mechanical fashion. 12.3. Accommodating conglomerates and minority shareholders Satisfactorily accommodating conglomerates and minority shareholders into a test for enterprise liability will be a pressing concern for any eventual formulation. As to conglomerates, where a control-based test is tied to a shareholding percentage, it will cause a parent to be liable for its wholly-owned subsidiary, even where the parent, in reality, has no role in the management of the company, as may be the case with a conglomerate enterprise investing in numerous unrelated businesses. A control-based test that relies on the actual level of control over the company may well eradicate this problem, as the decentralised nature of the conglomerate will mean that there is not sufficient control for liability to attach. While a control-based test may, therefore, be able to deal with genuine conglomerates, depending on whether control is linked to shareholding or actual control, there remains the issue of deliberate decentralisation of groups to circumvent liability. By contrast, the economics-based approach does not suffer from this difficulty, as a sufficiently flexible test will enable the court to effectively assess the legitimacy of a company‘s claim to be a conglomerate and affix liability accordingly. As to minority shareholders, it seems that any test that looks beyond merely wholly-owned subsidiaries will offer protection. This is because minority shareholders, by their nature, will not have sufficient control over the subsidiary,224 and will not be part of the economically unified enterprise of the parent and its subsidiary. 13. Arguments Against Enterprise Liability 223 Hamilton and Macey, Cases and Materials on Corporations Including Partnerships and Limited Liability Companies (8th edn West Publishing, 2003) 351. 224 Though sufficient control could occur if a control-based test tied liability to a low shareholding, as is the case in US banking law. See The Bank Holding Company Act 1956 (12 U.S.C. §1841). 35 13.1. Negative effects on the economy One counterargument that must be carefully considered is that enterprise liability would harm the economy, and, more specifically, whether such harm outweighs the need to adequately address tort victims. Dearborn suggests ―Germany provides an empirical example of an industrialized country that has adopted a milder form of enterprise principles without disastrous results for domestic of international investment capitalism.‖225 Unfortunately, this observation does little to refute the argument. It surely would not be expected that the effects of a ‗mild‘ form of enterprise principles would be ‗disastrous‘. As the practical impact of the law has been very small226 it is unsurprising that the economic consequences have been commensurately small. India, with its stronger form of enterprise law, perhaps provides a better refutation; however, the general difficulties in attempting to discern the effects of one provision on an entire economy is exacerbated by India‘s generally rapid economic growth 227 and liberalisation of other areas of the law,228 which have likely caused any negative effects of group liability to pale into insignificance. What this does appear to suggest, though, is that the change in the law did not bring the economy of India to its knees. This seems almost too obvious to be worth stating, however, it does highlight that, at the very least, under the very limited scope for liability argued for here, non-risky businesses, and even many risky or hazardous businesses will not be deterred from operating. The former will have no cause for concern, beyond speculating that the change in the law will ‗open the floodgates‘ for further changes that may affect them in the future, though this seems to remote to warrant further discussion, while most of the latter will be sufficiently cautious regardless of the change, so that they will not fear an accident or its ramifications. Thus focus is returned to the deterrent effect of the 225 Dearborn (n 75) 215. 226 Schiessl, ‗The Liability of Corporations and Shareholders for the Capitalization and Obligations of Subsidiaries under German Law‘ (1987) Northwestern J of Intl L and Business 480, 501. Note that the impact of the law is even less following the Bremer Vulkan Case, discussed above (n 116). 227 ——, ‗Indian Economy Overview‘, EconomyWatch < http://www.economywatch.com/indianeconomy/indian- economy-overview.html> accessed 5th April 2010 (citing India as ―one of the best performers in the world economy in recent years‖). 228 For a detailed discussion, see Singh (ed), Economic Liberalisation in India (Ashsih Publishing House, New Dehli 1995). For a much shorter, though comprehensive, outline, see Panagariya, ‗India‘s Economic Reforms: What Has Been Accomplished? What Remains to Be Done?‘ (2001) 2 Asian Development Bank Economics and Research Department Policy Brief Series. 36 change: only the ultra-hazardous and excessively risky ventures will be deterred; any resulting decline in investment, likely to be vanishingly small, would, it is argued, be a small price to pay for bringing the present law in line with tort policy. A contrasting example helpfully illustrates that legal change has the potential to affect the economy. When corporate tax was increased, a number of businesses left, or threatened to leave the UK.229 This is explained by a number of factors; the most important being that this increase applies to far more businesses than the change in the law presently advocated. A related point is that the corporate tax is not fault-based and therefore a business will be affected regardless of its actions. Despite the imposition of this ―supertax‖, 230 it seems that even increasing the corporate tax has not hugely impacted the UK‘s economy as, despite there being many threats, the number of companies actually leaving the UK is low, 231 and, like the situation in India, is tempered by a number of other factors. 232 In sum, it seems difficult to predict exactly what the effects on the investment economy would be. It seems unthinkable to suggest that UK business will exile en masse, while the evidence for concluding that the change would have any more than an imperceptible effect seems similarly weak. 13.2. Inevitability of avoidance One sweeping argument holds that companies will, inevitably, devise schemes and systems for circumventing any new rule that seeks to impose liability on them, which has not historically been imposed. In some ways this is a derivative of the contention that the form of enterprise analysis advocated here simply does not go far enough, as unlimited liability for all companies is the only way to ensure that liability will be imposed. 233 229 See Sikka, ‗Reining in the corporate monster: Big business must be forced to temper its obsession with profit and align corporate practice with social justice and democracy‘ The Guardian (London 17 February 2010) and Goundar, ‗Does redomiciling make financial sense?‘ Financial Director (London 26 January 2010). 230 Goundar, ibid. 231 Ibid (noting the high number of companies threatening to leave the UK, but suggesting that only a small ―clutch‖ have done so). 232 Ibid (quoting Woodhouse, Deloitte tax partner) notes that before relocating ―[q]uestions would need to be answered and work undertaken around what sort of exit costs there are for the company; how the relocation would impact on transfer pricing agreements [and other factors].‖ 233 However, note the previous failure of unlimited liability in the UK due to circumvention (n 8). 37 While it certainly seems true that companies will make attempts to circumvent such a rule, this does not seem to be a standalone argument for not at least attempting to draft a law that will hold companies liable and attempt to incorporate a rule that would identify companies seeking to circumvent the law. Furthermore, this argument seems to be either naïve or wilfully blind as to the flexible nature of the courts. As the German example shows, the courts can, and arguably should, take an active role in ensuring the law is upheld. While the idiosyncratic activist approach of Lord Denning is well known and is at the extreme end of the flexibility scale, it seems unthinkable that the courts would allow a company who has blatantly made an attempt to circumvent a rule of enterprise liability to escape their legal obligations. Furthermore, the precise ‗knock-on effects‘ of the law can never be known, and simply enacting a law of enterprise liability may well have positive effects. For instance, a company considering incorporating a subsidiary for the purposes of conducting a hazardous activity and then somehow circumventing the enterprise liability rule may be deterred from doing so simply by the fear that the courts will see through such attempts, thinly-veiled or otherwise, and hold them liable in spite of the attempted circumvention. At the very least it seems likely that a company would be aware of the high costs of litigation that may be involved in taking this course of action. Some of the cases already discussed illustrate the power of the law to coerce companies into compliance. In the Thor litigation, one set of claims234 was settled out of court after the court accepted that they had jurisdiction over the case235 and Trafigura settled out of court when a newspaper revealed their deliberate externalisation of hazardous activities. 236 Given that a company may move to compensate victims under media pressure alone, it is postulated that compensation of victims is likely to increase further in these situations under an enterprise liability rule, as companies will be aware that the courts posses, or can come to posses, information that implicates them. In the US, the possibility of litigation under the Alien Tort 234 Ngcobo v Thor Chemicals Holdings [1995] TLR 579. 235 De Lacy (ed), The reform of United Kingdom Company Law (Routledge-Cavendish, Oxford 2002). 236 See Leigh, ‗How UK oil company Trafigura tried to cover up African pollution disaster‘ The Guardian (London 16 September 2009) available at accessed 27th March 2010. 38 Claims Act,237 following the rejection of a summary judgment in their favour, 238 led Unocal to settle claims against them for an undisclosed sum.239 13.3. Enterprise liability for torts or unlimited liability of parent companies? One contention that can be made is that the application of enterprise liability propounded here does not go far enough, and that parent companies should be liable for all debts of the subsidiary,240 for instance, those arising out of insolvency unrelated to tort claims. In focusing on tort victims and the externalisation of risk using subsidiaries, as this paper has done, it is possible to become myopic and lose sight of the bigger picture: externalisation of risk is only one of many reasons that a company may wish to incorporate a subsidiary. If unlimited liability were to be imposed as the new paradigm in company law, the myriad of legitimate uses of subsidiaries would be frustrated. Douglas and Shanks have identified a number of reasons why a company may incorporate a subsidiary, such as simplification of management, simplifying international operations and avoidance of tax. 241 One US case aptly summarised the issue thusly: ―Since society recognizes the benefits of allowing persons and organizations to limit their business risks through incorporation, sound public policy dictates that disregard of those separate corporate entities be approached with caution.‖ 242 Whereas the approach to enterprise liability taken here is very cautious, applying liability in very limited circumstances and balancing the legitimate uses of the corporate form with the need to protect tort victims from the ill-considered application of limited liability to the corporate group context, unlimited liability would seem to throw caution to the wind, along with the recognised benefits of limited liability. Furthermore, such an approach would not take into account conglomerate enterprises, or, as Posner has identified, diversified corporations pre-dating the modern conglomerate.243 Posner 237 28 U.S.C. § 1350. 238 Kielsgard, ‗Unocal and the Demise of Corporate Neutrality‘ (2009) 36 California Western Intl L Rev 185, 189. 239 Ibid. 240 See, e.g., Landers, ‗A Unified Approach to Parent, Subsidiary and Affiliate Questions in Bankruptcy‘ (1975) 42 U of Chicago L Rev 589 (arguing for parent liability in wholly-owned subsidiary cases). 241 Douglas and Shanks, ‗Insulation from Liability Through Subsidiary Corporations‘ (1929) 39 Yale L J 193. 242 Pacific Landmark Hotel, Ltd. v. Marriott Hotels, Inc., 23 Cal. Rptr. 2d 555, 563 (Ct. App. 1993) (US CA) (citation omitted). 243 Posner (n 63) 510. 39 notes that the introduction of unlimited liability would prevent business reducing their risk through diversification or attempting to improve shareholder dividends through investment in businesses of greater profit.244 While there is at least some argument that unlimited liability would not hurt the economy,245 application of unlimited liability to groups would almost certainly spell the end for conglomerates and for passive corporate investment, as the risk of liability or the costs of monitoring would likely outweigh the benefits. The further suggestion that unlimited liability should have blanket application to all shareholders is an even bolder one, as the benefits of limited liability noted at the beginning of this paper would be completely negated. While those that advocate unlimited liability as the solution to the externalisation of risk undoubtedly mean well, it is difficult to see how unlimited liability is an improvement on the present law. While tort creditors would indeed be protected, the application of unlimited liability seems only to replace one ill-fitting rule with another. By contrast, enterprise liability, as advocated here, it a much more nuanced solution that neatly fits at the intersection of corporate groups and torts. 13.4. Uncertainty of a test for enterprise liability A common argument made in all areas of the law is that a given test is uncertain and the proposed rule of enterprise liability is no different; 246 it has been, and undoubtedly will continue to be, attacked on the ground that ―measuring the extent of an ‗economic unit‘ introduces an intolerable level of uncertainty into the question of liability‖. 247 On the one hand, this criticism could simply be dismissed by noting that a sufficiently diligent legislature could remove uncertainty with the construction of a sufficiently apt test. This, while true, is a somewhat passive refutation, and there are stronger reasons to doubt the supposed uncertainty of enterprise liability. It is not clear that the level of uncertainty that such a test would introduce is anywhere near intolerable. Insofar as uncertainty is thought to stem from 244 Ibid. 245 See and Meiners, Mofsky and Tollinson (n 59) (challenging the assumption that limited liability is of critical importance to the corporate form of organisation and that it necessarily produces desirable results). 246 See Dearborn (n 75) 259 (noting that this is a ―frequent criticism‖ of enterprise liability). 247 Kors, ‗Altered Egos: Deciphering Substantive Consolidation‘ (1998) 59 U of Pittsburgh L Rev 381, 437-8. 40 the inability of the courts to determine the boundaries of an economic entity, it must be asserted that courts regularly apply complex legal standards with little difficulty and there is no reason to think that enterprise analysis would be any different. In any case, while it is true that any test is likely to be less certain than the current law, which sacrifices suitability and flexibility for certainty, it must be considered whether the benefits of enterprise analysis outweigh any potential uncertainty. Given the minimal level of uncertainty that the test is likely to introduce, enterprise analysis is surely not so uncertain as to outweigh its benefits. If it is accepted, as it is in this paper, that some law should exist to enable an unprotected victim of a tort to recover, then the inevitable introduction of at least some certainty is acceptable as a necessary, albeit minor, evil. 13.5. Uncertainty of Goals of Enterprise Liability Sommer248 has contended that, while enterprise theory is intellectually preferable to entity theory, it suffers from a ―haziness of goals‖ because ―it is difficult to see why jurisdiction or liability should attach to an active investment and not a passive one‖; he calls this an ―enormous flaw‖.249 Given the ramifications of this contention, should it be shown to be true, it is necessary to consider its merits. There is no difficulty in seeing why liability should attach to an active investment and not a passive one. Firstly, in the classical case of subsidiary incorporation, the actively invested parent corporation is responsible for the tort as it incorporated a subsidiary precisely for the purposes of externalising the risk that materialised. By contrast, an inactive investor plays no part in such a course of action. Secondly, by virtue of this passivity, an inactive investor is not in a position to oversee the activities of the subsidiary, so applying liability to them will not encourage the pre-emption of torts, whereas the imposition of liability on a parent company is likely, as discussed, to cause greater centralisation of management and greater oversight. Finally, the advantages that arise from limited liability still apply in the case of an inactive investor, so it makes little sense to impose liability on them. 248 Sommer, ‗The Subsidiary: Doctrine Without a Cause?‘ (1990) 59 Fordham L Rev 227. 249 Ibid 268-70. 41 In a similar, though more general, vein, Addo has suggested that ―[e]nterprise law needs a clear and distinct rationale to rival the facilitation of entrepreneurial spirit… upon which entity law principles… are built‖.250 Strasser and ████, in their conception of enterprise analysis as an overarching law for corporate groups, have also noted the need for identification of the ―underlying policies of the law in the specific area of the law at issue‖. 251 These commentators have identified the general need to ensure a driving rationale for enterprise liability and this need is satisfied by the current proposal. In the conception of enterprise liability proposed here, the principles of tort law are the driving rationale: enterprise liability is guided by the need to adequately protect tort victims. 14. Further Extensions of Enterprise Liability A full discussion of the possible avenues for extension of enterprise liability is beyond the ambit of this paper, but it is helpful to allude to key areas for discussion. Enterprise liability could be applied to any case where the subsidiary is insolvent. 252 The most extensive expansion would be to implement enterprise liability as the new paradigm in the law of corporate groups. A move toward such a broad approach has been made by the UN and ████ has been particularly vocal in his advocacy for this approach; 253 Strasser has noted that ―[t]he doctrine could theoretically serve as a vehicle to supplant all veil piercing law for corporate groups‖.254 Indeed, some commentators assume that Governments will adopt enterprise liability in the future and have moved on to discussing the precise contours of such a regime.255 Given that many states‘ company law is based on entity principles, 256 a further extension of the arguments proffered here is to make them in the context of other legal systems which may also suffer from the same defects as the UK. 257 15. The Reason for Inaction 250 Addo, ‗Human Rights Perspectives of Corporate Groups‘ (2005) 37 Connecticut L Rev 667, 668. 251 Strasser and ████ (n 218). 252 Muscat (n 33). 253 See ████, The Multinational Challenge to Corporation Law: The Search for a New Corporate Personality (OUP, Oxford 1993). 254 Strasser (n 66) 647. 255 See, e.g. Henderson, ‗The Boundary Problems of Enterprise Liability‘ (1981) 41 Maryland L Rev 659. 256 See OECD, Report of the Committee on International Investment and Multinational Enterprises (1979) §42. 257 In this regard, some jurisdictions have already amassed substantial scholarship, e.g. the US and Australia. 42 In the UK the courts have, at first, played a role developing the law, but have subsequently moved to curtail or eradicate the advancement of enterprise analysis; 258 therefore ―[t]he continuing puzzle is why courts remain so willing to provide limited liability to parent corporations in tort cases‖.259 Thompson suggests that one reason is that the risks under discussion are seen as remote, so that even if courts did impose liability in these circumstances, ―no extra preventative actions would be taken‖.260 This explanation is unsatisfactory. Firstly, because many cases involve the use of a subsidiary company precisely to avoid the consequences of foreseen, as opposed to remote, risk and secondly because, even if imposition of liability would not stop such torts occurring, it would at least allow the courts to redress harm to tort victims. Much more likely an explanation for the courts reluctance is a predisposition of deference to the legislature.261 Certainly in the UK this explanation is prevalent and has been proffered by the courts on a number of occasions. For instance, in the Salomon case,262 Lord Davey considered that the legislature may not have considered the possibility of the ‗one man company‘, leaving a defect in the machinery of the Act, but nevertheless he held that the wording decided upon by parliament must stand.263 Likewise, Lord Halsbury, refusing to go beyond the express words of parliament, noted that ―[t] he sole guide must be the statute itself‖.264 In some cases the deference has manifested as a reluctance to make exceptions to the strict rules,265 while in Adams v Cape,266 this deference took the form of curtailing existing judicially developed doctrines and severely limiting the scope for future judicial intervention. Given this deference, the pertinent question is why, in the face of such compelling evidence in favour of the adoption of enterprise analysis, at least in some limited circumstances, the UK legislature, and indeed, legislatures in other jurisdictions, have not adopted it. 258 This tendency is not unique to the UK. As noted previously, the German and US courts have also acted in a similar manner (see n 117 and n 151 respectively). 259 Thompson, ‗Unpacking Limited Liability‘ (n 36) 40. 260 Ibid (n 36) 40 (citing Schwartz (n 61) 689). 261 Ibid 40. 262 (n 11). 263 Ibid [54]. 264 Ibid [29]. 265 See, e.g., Ord v Belhaven Pubs Ltd [1998] BCC 607. 266 (n 26) 43 One reason has been put forward by Hansman and Kramaan. 267 They query why limited liability has been universally accepted as the rule,268 even in situations where ―normative and economic realities necessitate a different regime of legal inquiry.‖ 269 They suggest that the answer is obvious: markets and politics do not well represent the interests of those that bear the direct costs of the rule,270 i.e. tort victims. As previously noted, tort creditors cannot contract around limited liability, while, at the same time, tort victims, and, in particular, potential tort victims, owing to their inherently disparate nature, ―do not constitute an easily organized political interest group‖.271 This explanation is disarmingly simple and seems to be supported by experience: in India, the only country that has accepted a broad system of enterprise analysis for torts, it was Bhopal, a disaster on a massive scale, that was the impetus for reform. A very conservative estimate would place the overall death toll of the Bhopal disaster at around 5,000 people and the number of affected persons at around 500,000. 272 Due to the scale of the event, it was not tort victims alone providing the impetus for change, but a whole nation and its government:273 ―the Bhopal disaster shook off the lethargy of everyone and triggered off a new wage of consciousness‖.274 This begs the question of whether the legislature should wait for a large-scale human tragedy to fix this lamentable gap in the law? The answer, clearly, is no. The government should adopt laws befitting for the group context that is so prevalent in the modern world and that take into account tort victims. 16. Conclusion This paper started by observing two major problems with the strict application of corporate personality and limited liability at the intersection of corporate groups and torts: the law fails 267 Hansmann and Krakmaan, ‗The End of History for Corporate Law (2001) 89 Georgetown L J 439. 268 Ibid 466. 269 Dearborn (n 75) 209. 270 Hansmann and Krakmaan (n 267) 466-467. 271 Ibid 467 (footnote omitted). 272 See Eckerman (n 195). 273 The Government of India‘s position is illustrated by its assumption of parens patriae responsibility for the cases in the New York Courts and the arguments it put forward in that capacity. See Brief of the Plaintiffs (n 160). 274 M.C. Mehta v Union of India and Shriram Food and Fertilizer Industries, Writ Petition 12739/1985 ([REDACTED PHONE]) available at , accessed 17th February 2010 [2] (Bhagwati CJ). 44 to take a considered approach to corporate groups and it prejudices tort victims. The former issue arose because the modern phenomenon of corporate groups has been awkwardly squeezed into the concepts of the separate entity and limited liability, apparently without acknowledging that the foundational justifications for those concepts do not apply where two or more companies are one in economic terms. The latter issue arose because this uncritical acceptance of limited liability meant that the interests of tort victims were not considered and therefore uncompensated victims of undercapitalised subsidiaries were given no remedy. Despite these beginnings, the strict separation of companies, especially where the tortuous liability of a subsidiary is concerned, has remained fairly consistent, and has recently been reaffirmed as a cornerstone of UK company law. Yet ―neither the common law nor common sense compel the conclusion that a particular doctrine should remain in place simply because of its historical roots, however deep those roots may be‖ 275 and this paper has advocated that the time for reconsideration and change is long overdue. The change advocated in this paper is enterprise liability. While as early as 1947 the theory was proposed as an alternative paradigm in company law,276 the focus of this paper has been the intersection of corporate groups and torts, and the potentially sweeping and revolutionary nature of enterprise theory has been tempered by a narrowing of its application to deal with the two issues identified. This narrowed application of enterprise theory solves the issues discussed by reflecting both the economic realities of modern enterprise and the aims of the law of tort. Some key considerations to be made when formulating a test for enterprise liability have been suggested. Such a test, in addition to the obvious goal of ensuring protection of tort victims, would ensure that passive investors, such as minority shareholders and conglomerate corporations, would not be liable for torts and would encourage corporations to internalise the social costs of their activities, preventing torts before they occur. In this way, the proposal 275 Kahan, ‗Shareholder Liability for Corporate Torts: A Historical Perspective‘ (2009) 97 Georgetown L Rev 1085, 1109. 276 Berle, ‗The Theory of Enterprise Entity‘ (1947) 47 Columbia L Rev 343. 45 seeks to redress problems with the law, while maintaining the benefits of limited liability generally. While a control-based test for enterprise liability is often advocated or applied in other jurisdictions, this paper has advocated the use of an economics-centred approach. This is due to the fact that centring a test on control could causes undesirable rigidity and formalism and would possibly increase the number of torts by indirectly encouraging decentralisation of management and lessening of oversight. By contrast, the economics approach enables the law to maintain flexibility and reflect the reality of the situation at hand. A new test for enterprise liability would therefore take inspiration from India, the UN, and even the earlier attempt to include enterprise principles into UK law, tying enterprise liability to the economic reality by looking to factors such as public identification and unity of purpose, rather than control. It has been noted that the presence of such a law alone would likely cause a shift in corporate attitudes, and this effect is likely to increase over time, hopefully reducing the number of tort claims arising. In the short term tort victims can rely on the cause of action accorded to them to ―cut through the layers of risk externalizing subsidiaries‖ 277 and pursue the parent company, which is, in reality, part of the same enterprise. This paper is not exhaustive and further development and growth of enterprise analysis is needed. However, this paper is a concerted attempt to introduce enterprise liability into the vernacular of UK company law and has attempted to offer comprehensive coverage of what shape this reform should take. It is time to replace the ―dysfunctional anachronistic‖278 law at the intersection of corporate groups and torts with an appropriate, modern system; enterprise analysis. 277 Dearborn (n 75) 260. 278 Strasser and ████ (n 218). 46 Bibliography ——, ‗Indian Economy Overview‘, EconomyWatch < http://www.economywatch.com/indianeconomy/indian-economy-overview.html> accessed 5th April 2010. 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The International Renewable Energy Agency 1 held the first session of its Assembly as a fully- fledged international organisation on 4 April 2011. This article aims to introduce the Agency and provide a basis for ongoing academic comment, discussion and analysis as the Agency establishes itself and begins its substantive work. The paper will briefly outline the origins of the Agency, its institutional arrangements and key elements of its Statute, and consider the first budget and work programme and activities to date. Finally, the paper will note some points of interest that warrant further discussion before making some concluding remarks. I. Introduction The world faces unprecedented energy challenges. The threat posed by global warming necessitates the decarbonisation of our energy system, yet an explosion in population growth means ever-rising demand, strains on supply, and rising energy prices. Energy poverty and disparity are critical issues and over 80% of all energy used worldwide comes from non-renewable sources, 2 which are unevenly distributed and quickly depleting. The Intergovernmental Panel on Climate Change recently reaffirmed the role of renewable energy in confronting these challenges, stating that renewables have a “large potential to mitigate climate change” and can “contribute to social and economic development, energy access, energy security, and reduce negative impacts on the environment and health”. 3 The International Renewable Energy Agency, established in January 2009,4 aims to become the global representative of renewable energy, facilitate access to information, share best practices and build capacity. IRENA has attracted widespread support and agreement infrequently seen on the international stage: to date 149 states have signed the Statute of the Agency5 and 75 states have ratified the Treaty. 6 IRENA recently held the first session of its Assembly. This is an important milestone in the Agency‟s development, as it signifies the end of its establishment phase, its birth as an international organisation, and the beginning of its substantive work towards the fulfilment of its mandate. This paper will first outline the origins and antecedents of the Agency and its institutional arrangements. Secondly, the Statute and aims of IRENA will be set out, followed by a detailed 1 Referred to as IRENA or „the Agency‟ in this article. 2 ██████████████ (last accessed 23 June 2011). 3 Ottmar Edenhoferet al., Special Report Renewable Energy Sources, Summary for Policy Makers (Cambridge: Cambridge University Press 2011). 4 IRENA Founding Conference (Bonn: 26 January 2009). 5 Statute of the International Renewable Energy Agency (IRENA), Bonn, 26 January 2009, in force 8 July 2009, Doc. IRENA/FC/Stat ute, art. IX.C. 6 For a list of current numbers, see IRENA, “Updates on Ratification & Signatories”, available on the Internet at (last accessed on 25 June 2011). 1 summary of the current work programme and activities undertaken to date. This paper will then identify some key issues of interest, focusing on the Agency‟s relationship with the United Nations (UN), International Energy Agency (IEA) and other bodies, and the Agency‟s strategic focus. Finally, some closing remarks will be offered, concluding that, while IRENA faces significant challenges, it has significant support at an opportune moment, and can optimistically be expected to become the global voice of the renewable energy era. II. Antecedents to IRENA While the establishment of IRENA comes at a moment of great interest and optimism surrounding renewable energy, due to the challenges of climate change and sustainable development, earlier interest within the international community was borne of the oil crisis of the 1970s and the resulting concern over uncertainty of fuel supply and future depletion of fossil fuels. 7 The first significant international move toward the creation of an international body for renewable energy was the UN Conference of New and Renewable Sources of Energy, held in Nairobi, Kenya, in August 1981 (Nairobi Conference). The Nairobi Programme focused on energy assessment and planning, research and development, transfer, adaptation and application of mature technologies, as well as information flows, education and training. 8 The Nairobi Conference recommended that a body be established to implement and monitor the Nairobi Programme. 9 In light of the Nairobi Conference, the UN General Assembly (UNGA) stressed that there “should be an intergovernmental body of the United Nations specifically concerned with new and renewable sources of energy”. 10 Later that year the UNGA established the Committee on the Development and Utilization of New and Renewable Sources of Energy (the Committee). 11 Despite initial enthusiasm, the Committee noted that the ten years following the Nairobi Conference were “essentially lost” because “the political resolve expressed in the Nairobi Programme of Action was not supported” by more concrete action such as targets, financial commitments, and institutional support. 12 This collective apathy was compounded by the continuation of national policies that inhibited the development of renewable energy sources. 13 Given these shortcomings, at 7 Sixth session of the Committee on Development and Utilization of New and Renewable Sources of Energy, Implementation of the Nairobi Programme of Action for the Development and Utilization of New and Renewable Sources of Energy: Contribution of the United Nations Conference on Environment and Development, Solar energy: a strategy in support of environment and development , UN Doc. A/AC.218/1992/5/Rev.1, 13 February 1992, at p. 7. 8 Resolution 36/193, United Nations Conference on New and Renewable Sources of Energy , UN Doc. A/RES/36/193, 17 December 1981. 9 ██████████████ (last accessed 26 June 2011). 10 Resolution 36/193, supra note 8. 11 Resolution 37/250, Immediate Implementation of the Nairobi Programme of Action for the Development and Utilization of New and Renewable Sources of Energy, UN Doc. A/RES/37/250, 21 December 1982. 12 Sixth session of the Committee on Development and Utilization of New and Renewable Sources of Energy, supra note 7, at p. 8. 13 Ibid. 2 its sixth session in February 1992, the Committee stated, “a strong international institutional arrangement is needed to… give renewable energy necessary visibility and weight” and recommended the creation of an international renewable energy agency. 14 At the same time as the Committee was faltering, the seminal UN Conference of Environment and Development took place, in June 1992, and Agenda 21 was adopted. 15 Chapter 9 of Agenda 21 noted the importance of sustainable energy systems, in particular new and renewable energy sources. Despite this recognition, and the Committee‟s call for a stronger institutional arrangement, the Committee was subsequently subsumed by the Committee on New and Renewable Sources of Energy and on Energy for Development, which first met in 1994, 16 itself subsumed by the Committee on Energy and Natural Resources for Development in 1998. 17 This left no international body solely responsible for, or focused on, renewable energy. 1. Recent Developments Support for renewable energy has since seen a resurgence, as reflected in a number of international decisions. In April 2001, the UN Commission on Sustainable Development adopted a decision on „Energy for Sustainable Development‟, and in 2002 the World Summit on Sustainable Development adopted the Johannesburg Plan of Implementation, with a number of chapters addressing renewable energy. 18 The Renewable Energy Network for the 21st Century was established in 2004, signalling movement toward the establishment of an overarching renewable energy agency. In 2005 the Beijing International Renewable Energy Conference emphasised the need for international cooperation, and the 2008 Washington International Renewable Energy Conference (WIREC) resulted in the Washington International Action Programme, which comprised over 100 pledges from countries and organizations. Importantly for IRENA, WIREC also witnessed the first formal proposal for an international renewable energy agency. 19 At a Plenary Session, Hermann Scheer, then General Chairman of the World Council for Renewable Energy, addressed delegates to the Ministerial Meeting, detailing the German proposal for IRENA and inviting other states to become part of the establishment process. 20 14 Ibid, at p. 14. 15 See UN Department of Economic and Social Affairs Division for Sustainable Development, “Agenda 21”, 14 June 1992, available o n the Internet at (last accessed 1 July 2011). 16 See Report of the First Session of the Committee on New and Renewable Sources of Energy and on Energy for Development , UN Doc. E/1994/25, 23 February 1996. 17 See Economic and Social Council Resolution [REDACTED PHONE], Further measures for the restructuring and revitalization of the United Nations in the economic, social and related fields UN Doc. E/RES/1998/46, 31 July 1998. 18 Annex to the Report of the World Summit on Sustainable Development, Johannesburg, South Africa, Plan of Implementation of the World Summit on Sustainable Development, UN Doc. A/CONF.199/20, 4 September 2002, at chs. II-III. 19 Douglas Bushey et al., “WIREC 2008 Ministerial Bulletin”, 95(6) IISD Reporting Services (2008), at p. 2. 20 Ibid. 3 In light of this, and his tireless efforts to raise the profile of renewable energy throughout his life, Hermann Scheer has since been officially recognised as the „Founding Father‟ of IRENA. 21 III. Establishme nt of IRENA 1. First Preparatory Conference and Works hops In April 2008, little more than a month after WIREC, the first meeting of the Preparatory Conference for the Foundation of IRENA (First Preparatory Conference) was convened in Berlin. The First Preparatory Conference was attended by representatives of 60 countries, expressing broad support for the establishment of IRENA. 22 Following the First Preparatory Conference, two preparatory workshops, attended by representatives from 44 countries, were held in June and July [REDACTED PHONE] At the first workshop, participants expressed their desire for IRENA to be established quickly and the need to avoid IRENA becoming a funding agency. 24 The second workshop developed the Statute, financial mechanisms and organs of the proposed agency. 25 2. Final Preparatory Conference The second and final Preparatory Conference was held in October 2008 and was attended by representatives from both developing and industrialised countries. Discussions regarding the Statute were finalised and a Preparatory Commission was founded as an interim body to lead the Agency between the establishment of IRENA and the first session of the Assembly (First Assembly). Participants, in line with prior discussions, decided that “emphasis will be placed on providing, upon request, policy advice for national governments, facilitating technology transfer and capacity building”. 26 The Conference also highlighted the need to work in close coordination with other organisations. 3. Founding Conference and Preparatory Commission The Founding Conference took place in Bonn in January 2009. It was attended by an impressive 124 countries, and the European Union (EU). 27 75 delegations signed the Statute. 28 21 Resolution to honor Hermann Scheer and his Legacy by recognizing him as a Founding Father of the International Renewable Energy Agency, Doc. PC.4/DC.7, 25 October 2010. 22 Alice Bisiaux et al., “Fifth Session of the Preparatory Commission and First Session of the Assembly of the International Ren ewable Energy Agency: 3-5 April 2001”, 30(1) Earth Negotiations Bulletin (2011), at p. 1. 23 IRENA, “Workshops I+II”, available on the Internet at (last accessed 26 June 2011). 24 Ibid. 25 Ibid. 26 ██████████████ (last accessed 26 June 2011). 27 Report of the Conference on the Establishment of the Internat ional Renewable Energy Agency, Doc. IRENA/FC/CR, 26 January 2009, at annex 1. 28 Ibid, at annex 10. 4 The Founding Conference established the Preparatory Commission, whose role was to prepare for the swift implementation of the Statute, ensure an early presence of the Agency, and facilitate the early implementation of IRENA‟s objectives. 29 The Preparatory Commission was directed to prepare: a provisional agenda for the First Assembly; draft rules of procedure for the Assembly and Council; a budget and work programme; and other necessary institutional documentation. 30 The Preparatory Commission met a total of five times prior to the First Assembly and was instrumental in designing the institutional structure of the Agency, which will now be discussed. 31 IV. Institutional Structure 1. Location In deciding on the location of the Agency, a range of political considerations were taken into account, 32 with Abu Dhabi, in the United Arab Emirates, ultimately chosen. 33 It may seem anomalous that IRENA would be located in an area with 8% of proven global crude oil reserves,34 but the Agency will eventually be located in Masdar City, the world‟s first renewable energy- powered, low carbon city. 35 Masdar City already hosts the Masdar Institute, a graduate university dedicated to renewable energy research and development, 36 and the City aims to be an “emerging hub” for the renewable energy industry and a “magnet for talent, financial capital and entrepreneurship”. 37 By being located in Masdar City, IRENA will be „living‟ its mandate and will be at the forefront of global renewable energy development. 2. Organs Article VIII of the Statute establishes the three principal organs of the Agency: the Assembly; the Council; and the Secretariat. Additional subsidiary organs may be established by the Assembly and the Council, subject to Assembly approval. 29 Resolution 1, Resolution on Establishing a Preparatory Commission for the International Renewable Energy Agency, Doc. IRENA/DC/res.1, 26 January 2009, at art. 1. 30 Ibid, art. 10. 31 See “ History of IRENA”, supra note 8. For a detailed summary of the outcomes of each session of the Preparatory Commission, see Alice Bisiaux et al., supra note 20. 32 Leaked diplomatic documents provide insight on these considerations. See Terry Macalister, “WikiLeaks shines light on shady backroom deals that ██████████████ (last accessed on 26 June 2011). 33 Draft decision regarding the work programme and Budget for 2011, Doc. IRENA A/1/DC/L.11, 4 April 2011. 34 ██████████████ (last accessed on 26 June 2011). 35 ██████████████ (last accessed 27 June 2011), at p. 5. 36 Ibid, at p. 10. 37 Ibid, at p. 13. 5 a. The Assembly The Assembly is the supreme organ of IRENA according to Article IX. The Assembly is composed of one representative from each member state 38 and meets once a year. 39 Articles IX.G, H and I respectively set out the specific functions and responsibilities of the Assembly. Responsibilities under Article IX.G must be carried out by consensus of the members present, and include: electing the members of the Council; adopting the budget and work programme; taking decisions relating to financial rules and policies of the Agency; approving amendments to the Statute; and deciding on the establishment and mandate of subsidiary bodies. Activities under Article IX.H must also be approved by consensus, but if consensus cannot be reached it can be taken to have been reached where no more than two members object. These activities include: deciding on applications for membership; approving rules of procedure; adopting the annual report and other reports; approving the conclusion of agreements on any matters within the scope of the Statute; and deciding on additional projects in the case o f disagreement amongst members. Finally, Article IX.I requires consensus, or alternatively a two-thirds majority vote, to designate the seat of the Agency and the Director-General of the Secretariat. In addition to these delineated functions, the Assembly may discuss any matter within the scope of the Statute 40 and may take decisions and make recommendations to organs of the Agency, or to members, upon their request. 41 According to Article IX.F, decisions of substance are to be made by consensus, 42 with each representative present having one vote. 43 The Assembly is also able to propose to the Council matters for consideration and request reports from the Secretariat. 44 b. The Council The Council is accountable to the Assembly. 45 It is composed of 21 representatives of the members, 46 elected on a rotating basis, and meets twice a year. 47 According to Article X.D, each 38 Statute of the International Renewable Energy Agency, supra note 5. 39 Ibid, art. IX.B. 40 Ibid, art. IX.2. 41 Ibid, art. IX.3. 42 When the issue arises as to whether a matter is one of substance, it will be assumed that it is, unless the consensus is that it is not. Ibid, art. IX.F. 40 Ibid, art. IX.F. 44 Ibid, art. IX.4. 45 Ibid, art. X.E. 46 Ibid, art. X more specifically states, “The Council shall consist of at least 11 but not more than 21 representatives of the Members of the Agency, elected by the Assembly. The concrete number of representatives between 11 and 21 shall correspond to the rounded up equivalent of one third of the Members of the Agency to be calculated on the basis of the number of Members of the Agency at the beginning of the respective election for members of the Council”. Given that the number of Members has already exceeded 63, the number at which the upper limit of 21 Council representatives becomes operative, the number of Council representatives will remain at 21 unless members seceded from the Statute en masse. This provision is, perhaps, a reflection of a pessimistic expectation that few states would join the Agency. 47 Ibid, art. X.B. 6 representative has one vote. Procedural matters are decided by simple majority, while matters of substance are decided by a two-thirds majority. Article X.F of the Statute enumerates the following functions of the Council: facilitating cooperation amongst members; considering and submitting a draft work programme and budget to the Assembly; approving arrangements for the sessions of the Assembly, including preparing the draft agenda; considering and submitting the draft annual report and other reports prepared by the Secretariat; preparation of reports requested by the Assembly; concluding agreements with states and international organisations on behalf of the Agency (subject to prior Assembly approval); substantiating the work programme; referring matters to the Assembly for consideration; and establishing subsidiary organs. c. The Secretariat The role of the Secretariat, according to Article XI.A of the Statute, is to assist the Assembly and Council, and their subsidiary organs. Its key role is the implementation of the Agency‟s work programme and decisions. 48 The Secretariat comprises the Director-General, who is the chief administrative officer, appointed for a once-renewable term of four years, and other staff as required. 49 Article XI.E of the Statute lists the following as the responsibility of the Secretariat: preparation and submission to the Council of the draft work programme and budget, annual report, and other reports as requested; provision of administrative and technical support to the Assembly and Council; facilitation of communication between the Agency and its members; and circulation of policy advice after it is given to a member. 50 d. Other Bodies In addition to the three core bodies, the Agency has decided to establish a Governance and Legal Committee, a Policy and Strategy Committee and a Committee on Finance. 51 IRENA has also decided to establish the IRENA Innovation and Technology Centre (IITC) and a liaison office for cooperation with other renewable energy organisations. These bodies will be located in Bonn and Vienna respectively. 52 48 T he Statute, supra note 5, art. XI.E.2. 49 Ibid, art. XI.B. 50 Ibid, art. IV.C.2. 51 Alice Bisiaux et al., “Summary of the Fifth Preparatory Commission and First Assembly of the International Renewable Energy Agency: 3 -5 April 2001”, 30(4) Earth Negotiations Bulletin (2011), at p. 7. 52 Ibid, at p. 2. 7 V. The IRENA Statute 1. Preamble and Objective The preamble of the IRENA Statute consists of eight short paragraphs, which mostly summarise the benefits of renewable energy already recognised by the antecedents to IRENA. 53 The preamble states that the parties wish to promote the widespread adoption of renewable energy with a view to sustainable development, job security, energy price resilience, reducing greenhouse gas emissions, transitioning to a low-carbon economy and improving human health. The preamble also notes the desire of the parties to establish an international agency, while also working closely with other organisations, and the potential of renewable energy to assist developing, isolated and remote regions in particular. These points are worthy of further discussion and will be considered in more detail later in the paper. The sole stated objective of the Agency, according to Article II of the Statute is to “promote the widespread and increased adoption and the sustainable use of all forms of renewable energy”. Renewable energy incorporates all renewable energy sources, 54 insofar as they are exploited in a sustainable manner. 2. Activities In pursuit of its objective, the Statute states that IRENA will be a “centre of excellence for renewable energy technology…a facilitator and catalyst, providing experience for practical applications and policies, offering support… and helping countries benefit from the efficient development and transfer of knowledge and technology”. 55 The Statute states that IRENA will perform nine activities, 56 which can be distilled into five broad categories as follows: analysis and monitoring of renewable energy policies; 57 interaction with other organisations and networks;58 provision of information and advice; 59 knowledge and technology transfer and capacity building;60 and encouraging research. 61 53 T he Statute, supra note 5, preamble. 54 T he Statute specifically mentions the following forms of renewable energy: bioenergy; geothermal energy; hydropower; ocean energy (including, inter alia, tidal, wave and ocean thermal energy); solar energy; and wind energy. Ibid, art. III. 55 Ibid, art. IV A. 56 Ibid, art. IV A.1. 57 Ibid, art. IV A.1.a. 58 Ibid, art. IV A.1.b. 59 Ibid, arts. IV A.1.c, f and h; art. IV A.2. 60 Ibid, arts. IV A.1. d and e. 61 Ibid, art. IV A.1.g. 8 These activities will be performed on the basis of the annual work programme, which is prepared by the Secretariat, considered by the Council, and adopted by the Assembly. 62 IRENA may also, after consultation with members, initiate additional projects, subject to the availability of resources. 63 3. Membe rship and Observers Membership of IRENA is open to members of the UN and „regional intergovernmental economic integration organizations‟, 64 such as the EU or the Association of Southeast Asian Nations. The Statute allows observer status to be granted to intergovernmental and non-governmental organisations in the renewable energy field, 65 as well as signatories that have not yet ratified the Statute and regional economic integration organisations whose applications are still pending.66 Observers may participate in the public sessions of the Agency, but cannot vote. 67 4. Budget The Agency is financed through a combination of mandatory member contributions, voluntary contributions, and „other possible sources‟, for which no further detail is given. 68 The draft budget is prepared by the Secretariat and submitted to the Council for examination. The Council can then forward it to the Assembly recommending approval, or return it to the Secretariat for review and re- submission. 69 5. Miscellaneous Provisions In addition to the substantive provisions outlined above, the Statute contains articles common to most international statutes. Article XIII states that IRENA has international legal personality, and domestic legal capacity, insofar as it is necessary for the exercise of its functions and is permitted by national legislation. The issue of privileges a nd immunities is not dealt with by the Statute; instead this is to be the subject of a separate agreement. The Statute provides for amendments to the Statute, 70 withdrawal of members, 71 settlement of disputes 72 and the temporary suspension of rights 62 Ibid, art. V.A. 63 Ibid, art. V.B. 64 An organisation “constituted by sovereign states, at least one of which is a Member of the Agency, and to which its members have transferred competence in at least one of the matters within the purview of the Agency” (Ibid, art. VI.A). For example, the European Union has become a member. 65 Ibid, art. VII.A.1. 66 Ibid, arts VII.A.2 and 3. 67 Ibid, art. VII.B. 68 Ibid, art. XII. 69 Ibid, art. XII.B. 70 Ibid, art. XV.A. 71 Ibid, art. XV.C. A member can withdraw any time after five years from the coming into force of the Statute by notice in writing. 72 Ibid, art. XVI. 9 of a member in financial arrears. 73 The Statute provides that it is to come into force 30 days after the 25th ratification is deposited. The Statute came into force on 8 July 2010. VI. First Assembly The first session of the Assembly of IRENA (First Assembly) was held in Abu Dhabi from 4-5 April 2011. The First Assembly approved IRENA‟s first budget and work programme, indicating that the Agency is entering a new stage in its development as an international organisation. The First Budget and work programme are discussed in detail below. VII. First Budget The core budget for the Agency in its first year is US$13.26 million. 74 This budget is comprised of US$11,423,170 in member contributions and US$1,836,830 in contributions from signatories. The budget is apportioned between sub-programmes, discussed below. Up to 15% of the amount appropriated for a sub-program may be transferred from another sub-programme by the Director- General. In addition to the core budget, the UAE is to provide up to US$2.9 million each for operations and research, and US$1.6 for workshops and conferences. 75 Germany has also made a voluntary contribution of up to US$3.1 million for the operation of the IITC. 76 The budget is a modest one, given the extent of the work programme and the initial costs inevitably incurred in setting up such an organisation. One commentator describes the First Budget as “depressingly limited”. 77 By way of comparison, in the first three months of 2009, the oil, coal and gas industries of the US leveraged US$44.5 million in their campaign to defeat a cap and trade scheme bill in that country, 78 and the annual budgets of the IEA and International Atomic Energy Agency are €26 million (USS$37 million) 79 and €315 million (US$448) respectively. 80 ### VIII. First work programme The first work programme 81 sets out the work to be undertaken by the Agency in its first year of operation. Many of the activities are the first steps toward long term projects and programmes of the 73 Ibid, art. XVII. 74 Draft decision regarding the work programme and Budget for 2011, Doc. A/1/DC/L.8, 4 April 2011. 75 Ibid, at p. 2. 76 Ibid. 77 See T erry Macalister, supra note 32. 78 Suzanne Goldberg, “ Barack Obama██████████████ (last accessed on 27 June 2009). 79 ██████████████ (last accessed on 27 June 2011). 80 ██████████████ (last accessed on 27 June 2011). 81 Draft decision regarding the work programme, supra note 74. Note that while this paper refers to this as the first work programme and budget, the preparatory commission previously had a work programme and budget . See, e.g., Decision on the Interim work programme 2009/2010, Doc. IRENA/PC.2/dc.1, 29 June 2009 and Decision regarding the Provisional work programme and Budget of the Preparatory Commission for 2011, Doc. IRENA/PC.3/dc.6, 24 October 2010. 10 Agency. The first work programme divides the activities of the Agency into three sub-programmes. These are: knowledge management and technology cooperation; policy advisory services and capacity building; and innovation and technology. Each sub-programme is described in more detail below. The Assembly also urged the Council and Director-General to prepare a strategic framework for [REDACTED PHONE] to be considered at the second session of the Assembly. This framework will clearly define “vision, strategic direction, objectives, and activities”. 82 The Assembly also requested that the Council and Director-General expand upon the work programme and begin early development of the 2012 work programme and budget. 83 1. Sub-Programme 1: Knowledge Management and Technology Cooperation The first sub-programme aims to facilitate the transition to an increased role for renewable energy. This sub-programme aims to “create processes and systems that facilitate knowledge sharing across global and regional networks of governmental and non- governmental stakeholders”. 84 The projects proposed are: the systematisation of knowledge on renewable energy; development of regional collaboration and platforms for engaging with stakeholders and technical experts; and encouragement of North-South and South-South technology cooperation. The systematisation of knowledge is conceived as a collation and consolidation exercise, involving the identification of available knowledge resources and gaps therein, conducting targeted studies on the mapping of global resource potential, 85 and producing resource assessments. 86 The promotion of regional collaboration and stakeholder engagement largely relates to the initial establishment of relationships with relevant regional forums 87 and the building of a network of stakeholders, such as industry, civil society organisations and experts. 88 This is understandably a priority for a fledgling organisation, as many stakeholders will not yet be aware of IRENA‟s existence, or the nature of its mandate. Establishing links with stakeholders early on ensures that IRENA can later draw on feedback, as well as benefit from other expertise and capacities. For example, the Agency foresees that civil society organisations may be able to help with outreach efforts. 89 82 Draft decision regarding the work programme, supra note 74, at p. 2. 83 Ibid. 84 Ibid, at p. 18. 85 Ibid. 86 Ibid, at p. 19. 87 Ibid. 88 Ibid, at p. 20. 89 Ibid, at p. 19. 11 The sub-programme also includes the development of a process for consulting with relevant regional bodies and stakeholders to develop renewable energy readiness reports, starting with Africa and the Pacific, which will assess policy and institutional structures and identify opportunities for implementing effective renewable energy policy. 2. Sub-Programme 2: Policy Advisory Services and Capacity Building The policy advisory and capacity building sub-programme seeks to implement activities that were identified by many participants in the establishment of IRENA as a key priority, and set out as such in the Statute. The sub-programme will “provide analysis of the latest trends and developments in renewable energy policy… and support its members with tailored advice”. 90 The initial projects planned are: fostering policies that enable renewable energy development; improving understanding of the financing and investment possibilities for renewables; and enhancing knowledge of effective responses to human resources gaps in the transition to renewable energy. 91 The focus on fostering enabling policies reflects a belief that “[w]ell designed incentives and support policies exert substantial influence on markets, investment and research and development of renewable energy”. 92 IRENA plans to consult with relevant policy support organisations to identify priorities and forge relationships that will assist in the future dissemination of policy advice to members, and to consult with the IEA in order to establish a joint IEA/IRENA renewable energy policy database, extending the current IEA database to developing countries. IRENA will also undertake two analyses: one on best practice in renewable energy policies and another on the employment impacts of renewable energy. 93 Regarding improving understanding of financing possibilities, IRENA will analyse financial flows and mechanisms for renewable energy in developing countries and identify information gaps and best practices. The Agency will also be working to facilitate the scaling- up of the renewables component of the UN Framework Convention on Climate Change Green Climate Fund. Finally, as to the human resources component of the policy advisory services and capacity building sub-programme, IRENA will begin to develop analytical processes to assist governments in identifying capacity gaps and addressing these gaps. This will involve reviewing best practices on capacity building and collating existing information on existing capacity building measures, and drawing on existing databases to design a Renewable Energy Learning Portal as a common platform for the exchange of knowledge between renewable energy and education experts. IRENA will 90 Ibid, at p. 24. 91 Ibid. 92 Ibid. 93 Ibid, at p. 25. 12 formulate its overarching approach to supporting capacity building and facilitating the increased availability of resources for capacity building. 94 3. Sub-Programme 3: Innovation and Technology The third sub-programme is designed to “provide governments with the means for an accelerated renewable energy technology uptake tailored to their specific needs”. 95 The first year of operation will see: the establishment a framework for technology policy support for governments; an increased understanding of cost reduction potential; and wider use of standards to accelerate uptake. 96 In order to better assist governments that request assistance with planning for more effective renewable energy technology and innovation strate gies, IRENA will collect and categorise scenarios for such strategies, starting with a regional focus on Africa. Preliminary data collection will also begin in anticipation of a regional focus on the Pacific in 2012. IRENA will assess end- use technology options, conduct a patent analysis, develop a technology database and technology fact sheets focused on best practice renewable energy technology solutions for different end uses, and draft technology road maps to identify prospects and barriers for renewable energy in particular areas. 97 Again, the Agency plans to cooperate with numerous organisations, including the World Intellectual Property Organisation. 98 To better understand the cost of renewables and potential for cost reductions through technology development, IRENA will prepare an overview of the cost of renewable energy technologies. This information will be analysed according to a standard methodology and used to help governments set feed-in tariffs and assess the cost effectiveness of different technologies. 99 The Agency will also promote the use of standards, test procedures and good practices for renewable energy technologies as these are “essential to creat[ing] well- functioning markets”. 100 IX. Activities to Date Given the infancy of IRENA, there has bee n limited practical activity as yet. The earliest substantive activity of IRENA is its involvement in the Tonga Energy Road Map project (TERM). The aim of TERM is to “reduce Tonga‟s vulnerability to oil price shocks and achieve an increase in 94 Ibid, at p. 26. 95 Ibid, at p. 29. 96 Ibid. 97 Ibid, at p. 31. 98 Ibid, at p. 30. 99 Ibid, at p. 31. 100 Ibid. 13 quality access to modern energy services in an environmentally sustainable manner”. 101 IRENA‟s role in the project was to assist Tonga in developing an off- grid component of the TERM in order to provide Tonga‟s outer island communities with access to electricity. IRENA used a recent meeting with the Tongan Government to present its plans, noted above, to conduct renewable energy readiness assessments for the Pacific island nations. 102 The Agency comments that the Tonga experience can provide “valuable insights” into how these assessments may be conducted. 103 In particular, it is submitted that the TERM project can illuminate what the content of such assessments should be, and serve as an example of how IRENA can work with other organisations on future projects. In July 2011, the Agency hosted the High-Level Africa Consultative Forum on Renewable Energy. The forum aimed to provide an opportunity for ministers of energy from Africa to engage with a wide range of renewable energy experts and for the Agency to discuss specific challenges facing Africa and practical approaches to “generate the critical policy and technical information, advice and capacity that is required” to facilitate renewable energy deployment in Africa. 104 This activity serves a number of purposes, including engaging with stakeholders toward the eventual development of renewable energy readiness reports for Africa, providing policy advice, and building capacity. With support from the UAE Government, IRENA has awarded up to 20 scholarships to study at the Masdar Institute. These scholarships do not appear to sit within one of the thematic sub- programmes, however, they do illustrate that IRENA will be situated at the forefront of renewable energy research and development. X. Points for Discussion In this section, some thoughts on IRENA will be offered and some key issues will be discussed. This will provide some points of interest and focus that will be relevant as IRENA seeks to establish itself as the peak body for renewable energy in the international arena. 1. Overlapping Mandates While IRENA is unique in its international and near-universal nature, its focus on renewables, and its broad mandate, there is some concern over the extent to which the Agency‟s mandate will overlap with those of other organisations in the field. This issue is one that concerned both the US 101 Government of the Kingdom of Tonga, Tonga Renewable Energy Road Map [REDACTED PHONE], Final Report (Tonga: 2010), at p. 1. 102 IRENA, “One year after the official Signing Ceremony of the [REDACTED PHONE] Tonga Energy Road Map (TERM) in Abu Dhabi”, 3 June 2011, available on the Internet at (last accessed on 27 June 2011). 103 Ibid. 104 ██████████████ (last accessed on 27 June 2011). 14 and the UK, who were worried that IRENA “could duplicate work of other multilateral organizations”. 105 Two examples readily come to mind. Firstly, the Renewable Energy and Energy Efficiency Partnership (REEEP) “works to reduce the barriers limiting the uptake of renewable energy and energy efficiency technologies, with a primary focus on emerging markets and developing countries” and focuses on assisting governments to create renewable energy regulatory and polic y frameworks and promote innovative financing models. 106 Secondly, the Renewable Energy Policy Network for the 21st Century (REN-21) “convenes international multistakeholder leaders to enable a rapid global transition to renewable energy”. 107 The objectives of these organisations clearly have much in common with those of IRENA. There are a number of UN entities working on renewable energy, such as the Environment and Development Programs, UN-Energy, and the UN Industrial Development Organization, as well as other organisations, such as the IEA, whose relationship with IRENA is discussed further below. Given the number of relevant organisations, it is clear that IRENA enters a cluttered and piecemeal institutional landscape. The Statute itself warns against the “unnecessary duplication of work”, 108 and IRENA has acknowledged that it “enters an institutional universe already populated by a plethora of research, advocacy, sectoral, regional and issue based institutions” and that it must “develop and position itself as an inclusive global platform” within this universe. 109 While IRENA will have to navigate this universe and find its place, there are opportunities available and gaps to fill. For example, IEA membership is only open to OECD countries, whereas IRENA is a truly international organisation. IRENA may also be able to augment existing IEA projects. For example, the first work programme notes that the Agency will build upon existing IEA data to develop a more extensive renewable energy statistics database. 110 Given the foregoing, a key challenge for IRENA in its early years as an international organisation will be establishing itself in the field, discerning the gaps in the institutional landscape, and distilling the Agency‟s core strategic priorities. IRENA is clearly aware of the challenges it faces in 105 --, “ UK Plans to Join the International Renewable Energy Agency, Working on Final Steps”, The Telegraph, 4 February 2011, available on the Internet at (last accessed on 27 June 2011). 106 ██████████████ (last accessed 27 June 2011). 107 REN21, “About REN21”, available on the Internet at (last accessed 27 June 2011). 108 T he Statute, supra note 5, art. IV.B.3. 109 Draft decision regarding the work programme, supra note 74, at p. 5. 110 Ibid, at p. 18. 15 this regard and has endeavoured, in the Statute and in the first work programme, to ensure that its work does not overlap with those of other organisations. 2. IRENA and the UN It is important to note that IRENA is not a UN body. In order to avoid delay in establishing the Agency, First Preparatory Conference deliberately chose not to use the UN as a forum for IRENA‟s establishment. 111 Nonetheless, the Statute does make numerous references to the UN and IRENA‟s relationship therewith. Article IV.B.1 states that IRENA will “act in accordance with the purposes and principles of the United Nations to promote peace and international cooperation, and in conformity with policies of the United Nations furthering sustainable develop ment”. IRENA also follows the UN in a number of institutional arrangements: membership is open to members of the UN : budget contributions are based on the scale of UN budget contributions : the Statute borrows the mechanism for settlement of disputes from the UN Charter; 112 and IRENA has committed to the “progressive integration of official UN languages”. 113 The inclusion of UN elements in the IRENA Statute may simply represent the desire of the parties to establish the Agency quickly, as the utilisation of well established and widely agreed facets of the UN system avoided the considerable time and cost of re-negotiating these elements of the Statute. However, there was much informal discussion and speculation about the relationship of the Agency with the UN amongst delegates at the First Assembly. The appointment of the first Director-General of the Agency, a “well- respected and well-connected UN insider”, 114 drew discussion about the „UN-isation‟ of IRENA. While one participant mused that this could be the “first sign of IRENA leaning towards joining the UN family”, another aptly noted that it would be almost impossible to establish an international organisation with near-universal participation without inviting the comparison to a UN body. 115 Further fuelling speculation, the colour of the logo of IRENA was changed to a shade of blue strikingly similar to that of the UN logo. 116 Indeed, one Antiguan newspaper has already mistaken the Agency for a UN body. 117 111 Alice Bisiaux et al., supra note 51, at p. 9. 112 T he Statute, supra note 5, art. XVI.A. 113 Alice Bisiaux et al., supra note 51, at p. 7. 114 Ibid, at p. 9. 115 Ibid. 116 Ibid, at p. 4. 117 Observer News, “ Antiguan heads UN renewable energy committee”, Antigua Observer, 14 June 2011, available on the Internet at http://www.antuguaobserver.com/?p=59980> (last accessed on 27 June 2011). While a small Antiguan publication is, of course, not a representative sample, it is illustrative of how passive observers could easily mistake IRENA for a UN body. 16 Numerous heads of UN agencies attended the First Assembly. UN-Energy expressed its intention to act as a link between IRENA and the UN, and the UN Environmental and Development Programmes offered to disseminate IRENA‟s policy advice and share expertise and knowledge.118 The UN Secretary-General noted the importance of IRENA given that 2012 will be the UN‟s „International Year of Sustainable Energy for All‟. 119 These interactions suggest that, even if IRENA does not become a UN agency, it will closely cooperate with UN agencies. While the Statute does not provide for the Agency to become a UN body, the numerous references and similarities to a UN body, the discussion of such a transition occurring so early on in the Agency‟s life, and the close cooperation offered by UN agencies suggest that this is an area to be keenly observed as the Agency develops. 3. IRENA and the IEA There is some suggestion that IRENA was established as an “institutional counterbalance” to the IEA, 120 in part as a response to the IEA‟s failure to adequately prioritise and promote renewable energy. A mere 2% of the IEA‟s budget, amounting to approximately US$740,000, is thought to be used for renewable energy activities. 121 Aside from this under-allocation of funds, the IEA has been chastised by a report authored by the Energy Watch Group (EWG), a coalition of scientists and politicians established to analyse official energy industry predictions. 122 The EWG noted that the least accurate forecasts for wind energy emanate from the IEA, which consistently underestimate s the extent to which wind power could be deployed. 123 A „senior official‟ of the IEA stated in 2009 that the IEA had been “deliberately underplaying a looming shortage” of fossil fuels, 124 and similar criticisms have been expressed in academic literature. 125 The accuracy of such forecasts is crucial to renewable energy because the economic competitiveness of renewable energy sources relative to fossil fuels increases as the latter becomes more expensive. While the IEA may be partially a response to the IEA‟s lacklustre commitment to renewables, there is no reason for this to act as a barrier to IRENA and the IEA creating synergies and benefiting from 118 Alice Bisiaux et al., supra note 59, at p. 6. 119 Ibid, at p. 5. 120 ██████████████ (last accessed on 27 June 2011). 121 T om Young, supra note 79. 122 James Murray, “IEA accused of "deliberately" undermining global renewables industry”, Business Green, 12 January 2009, available on the Internet at (last accessed on 27 June 2011). 123 Rudolf Rechsteiner, Wind Power in Context – A clean Revolution in the Energy Sector (Berlin: Energy Watch Group 2008), at p. 10. 124 T erry Macalister, “ Key oil figures were distorted by US pressure, says whistleblower”, The Guardian, 9 November 2009, available on the Internet at (last accessed on 27 June 2009). 125 See Kjell Aleklett et al., “The Peak of the Oil Age - analyzing the world oil production Reference Scenario in World Energy Outlook 2008 ”, 38(3) Energy Policy (2010), pp. 1398 et sqq. 17 each others work where appropriate, and, despite the criticisms of the IEA, the two organisations have reportedly had a “great start” to their relationship. 126 Indeed, the first work programme refers to intended collaboration with the IEA on a range of IRENA‟s projects. 127 4. Outstanding institutional issues There remain a number of institutional issues that the Agency will need to clarify. While these are not debilitating, they will direct time and resources away from the Agency‟s substantive work when the Agency cannot afford to delay this work any further. As such, the Agency needs to prioritise the early resolution of these issues. As mentioned previously, privileges and immunities are to be established through a separate agreement. The fifth session of the Preparatory Commission adopted a draft document on privileges and immunities and recommended that the First Assembly draft an agreement to be submitted to the second session of the Assembly. At the First Assembly, the parties adopted a decision requesting that the Director-General submit a draft agreement to the Council for its consideration next year. The Council will submit this draft agreement to the second session of the Assembly for approval. Thus the issue remains unresolved at present, though it is hoped that it will be resolved by the second session of the Assembly. The most crucial institutional issue that remains unresolved, and is a likely stumbling block, is the mechanism for electing the Council. The Statute does not provide for this and the Governance Committee has requested that the Council determine the rules for electing members on a rotating basis and report to the second meeting of the Assembly. The substantial powers of the Council, including the ability to influence and substantiate the work programme and to submit matters to the Assembly for consideration, mean that the election of the Council is highly politicised. At the First Assembly, the election of the Council proved to be a “difficult issue”, with “negotiations and tradeoffs” taking place outside the main session over many hours. 128 Therefore it seems questionable whether the issue will be resolved easily. Finally, although IRENA aims to open the IITC by September 2011,129 plans for the proposed liaison office in Vienna are currently stalled, with no suggestion of a likely timeframe for establishment. 130 126 Alice Bisiaux et al., supra note 51, at p. 8. 127 Draft decision regarding the work programme, supra note 74, arts. 34, 37 and 44. 128 Alice Bisiaux et al., supra note 51, at p. 9. 129 Draft decision regarding the work programme, supra note 74, at p. 29. 130 Ibid, at p. 1. 18 5. Portal Proliferation Syndrome The first work programme sets out plans for a number of new information repositories. While access to information can undoubtedly facilitate better policy and greater uptake of renewables, IRENA must ensure that it does not fall victim to what the Climate and Development Knowledge Network jovially calls „Portal Proliferation Syndrome‟. 131 This is a common pitfall of knowledge sharing efforts whereby a new „portal‟ for information is developed with the ambitious intention of becoming a „one-stop shop‟, but ultimately only adds yet another piece to an already fragmented puzzle. The presence of numerous organisations in one field exacerbates this problem, though it can be mitigated by ensuring that any new portal for information either addresses gaps in the existing knowledgebase or collates and consolidates information sufficiently well to genuinely become recognised as the best source in the field. Again IRENA appears, at the very least, to be aware of this issue, seeking to collaborate with existing repositories and stakeholders, though it may still be questioned whether, even if successful, the creation of more data is the most effective way for the Agency to encourage renewable energy uptake. Undertaking activities that are more practical, more specialised and less available, such as the direct giving of policy advice to states, may be preferable. 6. Strategic Focus While the work programme sets out IRENA‟s activities for its first year, there remains some uncertainty as to what its strategic focus is, and what it will be into the future. While this uncertainty is partly a result of overlapping mandates, it is also a product of differing views among members. Thus discussions surrounding the Agency‟s strategic focus accounted for much of the discussion among participants at the First Assembly. 132 Broadly, four schools of thought emerged from the First Assembly as to what the main focus of the Agency should be. 133 Members attributed more or less weight to development, knowledge and technology, policy advice and facilitating access to finance. Thus the first work programme attempts to balance each of these areas, with no single one emerging yet as the core strategic focus of the Agency. While the Agency could aim to cover all issues equally, it is likely that this would result in the Agency‟s resources being spread too thinly and, ultimately, ineffectiveness. Navigating the competing priorities of members will be difficult. For example, while the Agency has identified development as a priority, developed countries are keen to ensure that IRENA does 131 ██████████████ (accessed 27 June 2011). 132 Alice Bisiaux et al., supra note 51, at p. 8. 133 Ibid, at p. 9. 19 not simply become a development agency and may already harbour concerns about the Agency, given that the first work programme‟s initial focus will be Africa and the Pacific. Yet developing countries have understandably focused their attention on development, and some have contemplated the possibility that IRENA could become a source of funding itself. 134 The balancing of these priorities is likely to become clearer as IRENA determines what gaps need to be filled in the international effort to promote renewable energy and with the publication of IRENA‟s strategic framework for [REDACTED PHONE]. XI. Conclusion The International Renewable Energy Agency has come into being at a time of unprecedented energy challenges and opportunities. Although the Agency is well aware of the international community‟s high expectations, 135 and despite a clear intention to quickly establish itself, progress has been slow. IRENA‟s formative period was marked by a “lack of transparency and reported mismanagement”, 136 and the incoming Director-General described the period leading up to the First Assembly as being full of “missed opportunities”. 137 One commentator was less diplomatic, describing the speed of progress as “glacial”. 138 Given that the first work programme is largely concerned with establishing the early foundations and relationships for ambitious and long-term initiatives, it is unlikely that the progress of the Agency in terms of substantive output will feel much quicker for some time, though the commencement of some practical work in the field is cause for some positivity in this regard. Added to these concerns is the pressing issue of what IRENA‟s role will ultimately be. On the one hand, there are already a number of organisations that promote renewable energy as part of their mandate, and the Agency is clearly conscious of this, with the work programme attempting to locate IRENA‟s place at the table. On the other hand, IRENA‟s singular focus on renewable energy, and a mandate from 148 states to be the renewable energy organisation, situates IRENA firmly at the head of the table. To a large extent, the Agency remains a blank canvas. It is yet to be seen how the Agency will fare in its interactions with the UN, the IEA, and other organisations, and how its activities will dovetail with the activities of those organisations. Additionally, some institutional issues persist and the Agency‟s strategic focus remains to be definitively identified. While these are significant challenges, the Agency has equally significant support and enters the fray at a time of 134 Ibid. 135 Draft decision regarding the work programme, supra note 74, at p. 3. 136 Alice Bisiaux et al., supra note 51, at p. 9. 137 Ibid, at p. 2. 138 T erry Macalister, supra note 32. 20 unprecedented energy challenges and commensurate interest in renewable energy. Thus it is hoped, with a reserved optimism, that IRENA can and will become the global voice of the renewable energy era. 21 PhD proposal summary ### Marine Energy in Australia Designing an appropriate regulatory framework for an abundant renewable energy resource ### Thesis Summary There is an abundance of energy contained in the waves, tides, salinity and heat of the ocean (marine energy). Australia has exceptional access to this resource and a fledgling industry seeking to harness it, yet the current regulatory regime for marine energy is a patchwork of policies and legislative instruments that were not designed specifically for marine energy and are ill-equipped to manage marine energy projects. General renewable energy policies, such as the Renewable Energy Target, are not apt to increase generation from marine energy sources, and there are no dedicated policies in place for this purpose. Without a suitable framework for marine energy the nascent industry faces numerous barriers to growth, such as high legal and start-up costs and regulatory uncertainty. With a considered regime in place, Australia could become the world leader in this sector, harnessing a reliable renewable energy source, creating jobs, and displacing carbon- intensive power generation. This thesis will develop the key elements of a regulatory framework to reduce barriers to the utilisation of marine energy. The literature regarding the regulatory regime for marine energy in Australia is underdeveloped. ██████ and Miguel Esteban have published articles arguing that ocean energy is on the threshold of providing a reliable base-load source of commercial-scale electricity and that the uncertain state of regulation under domestic legal systems and lack 1 of clear regulatory frameworks is the biggest barrier to passing the threshold. They suggest reassessing environmental impact assessment in light of the low impact of marine energy, streamlining permitting regimes and implementing feed-in tariffs. The Victorian Government Inquiry into the Approvals Process for Renewable Energy Projects in Victoria and the Clean Energy Council’s Marine Energy Sector Report highlight some of the issues with marine energy regulation. In particular they note the complex tenure and legal issues associated with the development of marine energy projects and that companies working in the sector are required to ‘forge a process’ due to the absence of a suitable regulatory framework. Overall, marine energy has not to date been considered in detail from a regulatory perspective, and has barely been considered at all in relation to Australia. This thesis will build on the existing literature and advance it from a technological and commercial perspective which merely recognises the defects with the present regulatory regime, to developing a more appropriate legal framework. The key contributions to knowledge made by this thesis will be:  the development of a comprehensive analysis and critique of the current framework for regulating marine energy in Australia;  a comparative analysis of the legislative frameworks for marine energy in overseas jurisdictions with active marine energy industries; and  identification of the key elements of an appropriate framework for marine energy regulation in Australia. 1 ‘Climate Change and Renewable Energy from the Ocean and Tides: Calming the Sea of Regulatory Uncertainty’ (2009) 24 The International Journal of Marine and Coastal Law 4; ‘Renewable Energy from the Ocean and Tides: A Viable Renewable Energy Resource in Search of a Suitable Regulatory Framework’ (2009) 3 The Carbon & Climate Law Review 417. Details of Written Work Details of Written Work Theses ‘Risky Business: The Case for Enterprise Analysis at the Intersection of Corporate Groups and Torts’ (currently under peer review for the Denning Law Journal) (2010). 'Designing Climate Change Law: A Comparative Analysis of the US and the EU’ (published, see below) (2009). Peer-reviewed publications ‘Marine Energy in New Zealand: an overview of law and policy’ (2011) New Zealand Law Journal 227. ‘Conceptualising and Combating Transnational Environmental Crime’ (2011) Trends in Organized Crime (in press, available online). See http://www.springerlink.com/content/9x5x[REDACTED PHONE]w94/. ‘Carbon Offsets and Consumer Protection: The Role of the ACCC’ (2011) 90 Impact! A National Journal of Environmental Law. ‘NGOs and Western Hegemony: causes for concern and ideas for change’ (2011) Development in Practice (accepted for publication, due early 2012). 'Designing Climate Change Law: A Comparative Analysis of the US and the EU' (2010) Cork Online Law Review 9, 87. Conference Papers ‘Marine Energy in Australia and New Zealand’ (2011) All-Energy Australia Conference (forthcoming, October). See http://www.all-energy.com.au/Wave_and_tidal_energy_(1).html. ### Currently Undergoing Peer Review Designing a Rule to Facilitate the Efficient Augmentation of Transmission Networks to Connect Renewable Energy Generation (2011) Energy Policy ‘Crest Energy’s Tidal Power Project: Decision in the Environment Court clears a path for future marine energy projects’ (2011) New Zealand Law Journal ‘The International Renewable Energy Agency: the global voice of the renewable energy era?’ (2011) Renewable Energy Law and Policy Other publications ‘Granting of leave to bring proceedings under the Corporations Act 2001, section 237’ (2011) Corporate Law Bulletin (case note). ‘Your Flag’s Got My Flag On It’ (2011) Crux Australis: The Journal of Flag Society of Australia 98 (in press). ‘The standard of reasonable care and skill expected of an accountant’ (2010) Corporate Law Bulletin 159 (case note). Prizes and Awards Prizes and Awards EDO & Maddocks Student Writing Competition, Winner, February 2011 Dean’s Award for Best Performance (two subjects), University of New South Wales, January 2011 Students Union Individual Award for Outstanding Contribution, University of Nottingham, May 2008 Students Union Societies Gold Award, University of Nottingham, May 2008 GLEN WRIGHT glen.w.wright@gmail.com - Education University of New South Wales LLM Environmental Law 2010 - 2011 (in progress)  Average mark of 82% to date  Exchange course at the University of the South Pacific University of Texas at Austin Exchange program 2008 - 2009  Focus on environmental law and human rights University of Nottingham LLB Law with American Law (Honours) 2006 - 2010  Upper second class honours (2:1)  Dissertation: first class  World Model United Nations Delegate, Taipei (2010)  Mooting: semi-finalist (2007, 2008); Judge (2007)  Debating Society ([REDACTED PHONE]) Further Qualifications  AQA Introduction to Counselling (2008)  GNVQ Information and Communication Technology (2002)  CACDP British Sign Language Level 1 (1998) Employment Total National Electricity Market Advocate Environment At this small non-governmental organisation, I work with one other Advocate, lobbying the Centre Government and the Australian Energy Market Commission in relation to environmental issues August 2011 - present in the National Electricity Market (NEM). My role encompasses reading complex reports and rule change proposal documents, research, and writing. I am currently focussing on a long-term project to promote demand side participation and energy efficiency in the NEM. University of Research Assistant New South Wales As a Research Assistant to ██████ at the Initiative on Climate Law and Policy, I am August 2010 - present conducting research for Australia’s first text book on renewable energy law. I have extensively researched the regulation of marine genetic resources in international law, international climate law and legal issues surrounding synthetic biology. I compiled the readings for the University’s Climate Law and Renewable Energy Law courses, and co-authored a peer-reviewed article. Freehills Paralegal September 2010 - As a Paralegal in the Energy and Resources group at Australia’s second-largest law firm I present conduct research, draft contract clauses, design presentations and write memoranda on a range of topics. I have conducted research into the National Electricity Market, the regulation of coal exploration and mining, the Renewable Energy Target and the price on carbon. Legal Experience No.5 Chambers Mini-pupilage Birmingham Completing a week-long placement at this leading chambers gave me first-hand insight into a September 2009 range of areas of practice, including criminal law, personal injury and negligence. I attended client conferences, interviewed a client in preparation for their hearing, and prepared a note on the key legal issues in a personal injury case. Capital Student Attorney Punishment Clinic Working as a Student Attorney on death row appeals cases was intellectually and emotionally University of Texas challenging. Responsibilities included legal research, interviewing jurors, and visiting death row at Austin inmates. I assisted the acting Attorney in seeking appeal, retrial and clemency on behalf of January - May 2009 clients whose trials were defective. High Pavement Mini-pupilage Chambers During my time at High Pavement, I observed a criminal defence QC representing clients in high Nottingham profile criminal matters. The barrister sought my assistance with legal research, included me in June 2008 client discussions and asked me to assess a client’s testimony. Glen Wright Curriculum Vitae Page 1 of 2 Crown Court Shadowing Judge ████████-Jones Birmingham Spending three weeks with a Crown Court Judge afforded me the rare opportunity to observe August 2007 and interact with a senior member of the Judiciary, and gain invaluable insight into the workings of the criminal justice system. I observed an entire attempted murder trial, during which I took notes, conducted legal research, and was asked by the Judge to give my opinion on the case. Publications  ‘Marine Energy in Australia and New Zealand’ (2011) All-Energy Australia Conference (forthcoming, October)  Designing a Rule to Facilitate the Efficient Augmentation of Transmission Networks to Connect Renewable Energy Generation (2011) Energy Policy (undergoing peer review)  ‘Crest Energy’s Tidal Power Project: Decision in the Environment Court clears a path for future marine energy projects” (2011) New Zealand Journal of Environmental Law (2011) (undergoing peer review)  ‘The International Renewable Energy Agency: the global voice of the renewable energy era?’ (2011) Renewable Energy Law and Policy (undergoing peer review)  ‘Marine Energy in New Zealand: an overview of law and policy’ (2011) New Zealand Law Journal 227  ‘Granting of leave to bring proceedings under the Corporations Act 2001, section 237’ (2011) 164 Corporate Law Bulletin  ‘Conceptualising and Combating Transnational Environmental Crime’ (2011) Trends in Organized Crime  ‘Carbon Offsets and Consumer Protection: The Role of the ACCC’ (2011) Impact! A National Journal of Environmental Law  ‘NGOs and Western Hegemony: causes for concern and ideas for change’ (2011) Development in Practice  ‘Your Flag’s Got My Flag On It’ (2011) 98 Crux Australis 59  ‘The Standard of Reasonable Care and Skill Expected of an Accountant’ (2010) 159 Corporate Law Bulletin  ‘Designing Climate Change Law: A Comparative Analysis of the US and the EU’ (2010) 9 Cork Online Law Review 87 Awards  EDO & Maddocks Student Writing Competition, Winner (February 2011)  Dean’s Award for Best Performance (two courses), University of New South Wales (January 2011)  Students Union Individual Award for Outstanding Contribution, University of Nottingham (May 2008)  Arts Council of England & Wales, Grants for the Arts Recipient (2005) Community  NSW Greens, Volunteer (April 2011)  Amnesty International, Volunteer (July - August 2010)  Nottingham University Vegetarian & Vegan Society, Founder and president (2007)  Nottingham Student Peace Movement, General Secretary (2007)  The Activist Legal Project, Researcher (2007)  FolkDirectory.co.uk, Founder and webmaster (2005 - present) Interests  Playing guitar and singing; photography; health and fitness; reading Referees ██████████ Grewcock ██████ Senior Research Fellow Senior Lecturer Senior Legal Associate University of New South Wales University of New South Wales Freehills The Law Building, UNSW The Law Building, UNSW Level 38, Sydney NSW 2052 Sydney NSW 2052 Sydney NSW 2000 [REDACTED EMAIL] [REDACTED EMAIL] [REDACTED EMAIL] [REDACTED PHONE] [REDACTED PHONE] [REDACTED PHONE] Glen Wright Curriculum Vitae Page 2 of 2 PhD proposal ### Marine Energy in Australia Designing an appropriate regulatory framework for an abundant renewable energy resource ### Thesis Summary There is an abundance of energy contained in the waves, tides, salinity and heat of the ocean (marine energy). Australia has exceptional access to this resource and a fledgling industry seeking to harness it, yet the current regulatory regime for marine energy is a patchwork of policies and legislative instruments that were not designed specifically for marine energy and are ill-equipped to manage marine energy projects. General renewable energy policies, such as the Renewable Energy Target (RET), are not apt to increase generation from marine energy sources, and there are no dedicated policies in place for this purpose. Without a suitable framework for marine energy the nascent industry faces numerous barriers to growth, such as high legal and start-up costs and regulatory uncertainty. With a considered regime in place, Australia could become the world leader in this sector, harnessing a reliable renewable energy source, creating jobs, and displacing carbon- intensive power generation. This thesis will develop the key elements of a regulatory framework to reduce barriers to the utilisation of marine energy. ### Literature Review The literature regarding the regulatory regime for marine energy in Australia is underdeveloped. ██████ and Miguel Esteban have published articles arguing that ocean energy is on the threshold of providing a reliable base-load source of commercial-scale electricity and that the uncertain state of regulation under domestic legal systems and lack 1 of clear regulatory frameworks is the biggest barrier to passing the threshold. They suggest reassessing environmental impact assessment in light of the low impact of marine energy, streamlining permitting regimes and implementing feed-in tariffs. The Victorian Government Inquiry into the Approvals Process for Renewable Energy Projects in Victoria and the Marine Energy Sector Report highlight some of the issues with marine energy regulation. In particular they note the complex tenure and legal issues associated with the development of marine energy projects and that companies working in the sector are required to ‘forge a process’ due to the absence of a suitable regulatory framework. While the regulatory aspects of marine energy are yet to be thoroughly considered, there has been much interest in other aspects of marine energy, and this literature will assist in considering how marine energy should be regulated. For example, the Australian Energy Resources Assessment includes a detailed chapter on marine energy sources, and the Clean Energy Council has produced the Marine Energy Sector Report which details the technologies under development in Australia. These publications will be used to identify what the current status of marine energy development is in Australia. 2 3 The International Union for the Conservation of Nature’s ‘Greening Blue Energy’ paper, a report to the US Congress, and a number of other documents, detail the potential environmental impacts of marine energy devices. These will provide the technical details regarding environmental impacts from which environmental impact assessment requirements can be formulated. The International Energy Agency publishes policy summaries as part of its Ocean Energy Systems programme, which will assist with identifying and understanding overseas regimes. 1 ‘Climate Change and Renewable Energy from the Ocean and Tides: Calming the Sea of Regulatory Uncertainty’ (2009) 24 The International Journal of Marine and Coastal Law 4; ‘Renewable Energy from the Ocean and Tides: A Viable Renewable Energy Resource in Search of a Suitable Regulatory Framework’ (2009) 3 The Carbon & Climate Law Review 417. 2 IUCN, Dan Wilhelmsson et al (eds) Greening Blue Energy: Identifying and managing the biodiversity risks and opportunities of off shore renewable energy (IUCN, Gland, Switzerland 2010). 3 Report to Congress on the Potential Environmental Effects of Marine and Hydrokinetic Energy Technologies (2009). 1 ### PhD proposal Overall, marine energy has not to date been considered in detail from a regulatory perspective, and has barely been considered at all in relation to Australia. However, the extensive literature on other aspects of marine energy will be of use in developing a thesis regarding regulation of marine energy in Australia. ### Contribution to Knowledge This thesis will build on the existing literature and advance it from a technological and commercial perspective which merely recognises the defects with the present regulatory regime, to developing a more appropriate legal framework. The key contributions to knowledge made by this thesis will be:  the development of a comprehensive analysis and critique of the current framework for regulating marine energy in Australia;  a comparative analysis of the legislative frameworks for marine energy in overseas jurisdictions with active marine energy industries; and  identification of the key elements of an appropriate framework for marine energy regulation in Australia. 2 PhD proposal ### Thesis Outline The following outline divides the proposed thesis into 10 sections; the subheadings under each section represent separate chapters. Each section will seek to pose and answer a distinct question that contributes to the development of an appropriate regulatory framework for marine energy in Australia. 1. Introduction What is the current state of marine energy development and commercialisation in Australia? This section will introduce the thesis and set out the problems and key questions that it seeks to investigate. The introduction will serve to highlight that Australia has the resources, technology and commercial interest to develop marine energy. ### Marine energy resources in Australia This chapter will outline the marine energy resources that Australia has and compare these resources to those in other jurisdictions. This comparison will show that Australia is gifted with world-leading marine energy resources. ### Overview of marine energy technologies A brief overview of marine energy technologies will be offered, focusing on wave and tidal energy, as these are currently under development in Australia. Ocean thermal energy and salinity gradient technologies will be mentioned for completeness. This section will demonstrate that marine energy technology is immature compared to other renewable energy technologies, but sufficiently advanced to produce energy on a commercial scale. The marine energy sector in Australia: an emerging industry This chapter will provide a snapshot of the emerging marine energy industry in Australia, identifying the commercial interest in this resource, but also highlighting that development of the marine energy sector in Australia has been slow compared with comparable jurisdictions. This will suggest that a suitable regulatory framework is needed to ensure that Australia can compete internationally in the sector and will provide a convenient ‘stepping stone’ to the discussion of innovation policies such as the RET. A table will be included summarising the current projects being undertaken in Australia, including information about their stage of development, likely output, and approvals and licenses obtained. 2. Innovation, policy and regulation Why are measures to encourage renewable energy generation, such as the RET, not apt to increase generation from marine energy in the absence of a regulatory framework? This section will examine the existing literature regarding the interaction between innovation and regulatory frameworks. The barriers to innovation and the requirements of emerging industries will be discussed. The focus of this chapter will be a critique of the RET and the identification of other barriers to renewable energy, such as transmission network issues, planning law, financing availability, and the difficulty of concluding power purchase agreements. While much of the renewable energy policy focus in Australia has been the RET, it will be argued that the RET cannot overcome other significant barriers without a more holistic approach to regulation. 3. The current regulatory framework What laws and policies apply to marine energy projects in Australia at present? What are the problems with this framework? How does the current framework act as a barrier to marine energy development? This section will provide an overview and critique of the present regulatory framework. ### Split jurisdiction The relevance of federalism in determining jurisdiction in the context of marine energy projects will be discussed, in 4 particular the Offshore Constitutional Settlement 1979 and Coastal Waters Acts. It will be noted that federal and state 4 Coastal Waters (State Powers) Act 1980 (Cth) and Coastal Waters (State Title) Act 1980 (Cth). 3 PhD proposal jurisdictions often apply simultaneously and therefore it is necessary to consider both federal and state legislation in discerning the legal regimes applicable to marine energy. Planning, environmental impact assessment and environmental protection This chapter will consider the effect of applying existing environmental impact assessment standards to marine energy technologies. The focus will be on the diversity of marine energy technologies and the concomitant diversity of environmental impacts. The scientific uncertainty in this area will also be discussed and it will be argued that this uncertainty, in conjunction with the diversity of impacts, may suggest that environmental impact assessment rules need to be reformed in relation to marine energy projects. Key legislation in this area, such as the Environment Protection and Biodiversity Act 1999 (Cth) will be discussed, as will state planning and environmental protection law. Title This chapter will discuss the issue of procuring the titles necessary to develop marine energy projects. This will include discussion of ownership of the seabed, whether it is title or merely a lease that is acquired, and which body has the authority to grant such rights. ### Marine law The relevance of marine law for marine energy will be discussed. This section will briefly consider a number of Acts which concern activity in Australian waters. This includes the Australian Maritime Safety Authority Act 1990 (Cth), the Sea Installations Act 1987 (Cth), the Historic Shipwrecks Act 1976 (Cth) and state coastal management, port management and pipelines legislation. ### Exploration and exploitation licensing This chapter identifies an anomaly in Australian law: prospecting for other resources is regulated with licences that guarantee certain rights, and obligations, in relation to a resource, but this is not true of marine energy resources. This uncertainty will be analysed by way of comparison with the coal and petroleum industries, and the emerging geothermal energy industry, which is in a similar stage of development to marine energy. ### Transmission and the National Electricity Market This chapter explores the regulation of the building and augmentation of transmission network infrastructure necessary in order to deliver energy to the grid. The position of new renewable energy generation, will be compared to that of the coal industry, which benefits from existing infrastructure centred around resource basins. The currently ongoing rule change proposal under consideration by the Australian Energy Market Commission will be discussed and analysed 5 to ascertain whether the rule change is adequate. The National Electricity Market legislation and rules, relevant to all electricity generators, will be briefly outlined and it will be questioned whether these rules impact particularly on marine energy generators. 4. Recent developments in Australia What movements have there been toward a more considered approach to marine energy regulation in Australia? This section will outline and assess recent developments in marine energy regulation in Australia. In particular, it is anticipated that the recent Victorian marine energy policy discussion paper will eventually develop into a fully-fledged whole-of-government policy response to marine energy. This policy, the first in Australia, will provide a useful case study and comparison to the fragmented regulatory regime discussed in the preceding chapter. 5. Practical application of the legal framework How has the legal regime been applied in practice? This section will detail how the theoretical legislative framework has been applied in practice. This will involve contacting industry participants and government bodies to discuss their experiences with the current regime. The Clean 5 National Electricity (South Australia) Act 1996 (SA); National Electricity Rules Version 43 (2011). 4 ### PhD proposal Energy Council’s Marine Energy Sector Report will be particularly useful in this regard as it identifies the 14 companies involved in developing marine energy in Australia and briefly outlines some of the industry’s concerns. Discussions will be aimed at ‘mapping’ the legal processes for developing a marine energy projects. It is expected that the theoretical framework identified will have been inconsistently applied. 6. Experience in overseas jurisdictions How have overseas jurisdictions incorporated marine energy into their legal systems? This chapter will make a detailed assessment of foreign regulatory regimes with a view to making a comparative analysis and discerning the most successful elements of marine energy regulation. The focus will be on the most active jurisdictions. Some of the specific areas of interest in relation to each jurisdiction are outlined below. ### The UK The UK has introduced a specific regulatory regime for marine energy, including the Energy Act 2004, which specifically regulates the offshore production of energy, and the Marine and Coastal Access Act 2009, which established the Marine Management Organisation and a licensing process for marine energy. The UK has also implemented innovative policies in transmission law, developing a specific tendering regime for the building of offshore transmission infrastructure under the Electricity (Competitive Tender for Offshore Transmission Licences) Regulations 2009 and a ‘Wave Hub’ for the connection of pilot projects. Scotland 6 Scotland intends to position itself as a world leader and exporter of marine energy technology, and has conducted an 7 environmental impact study of marine energy technologies and developed a Marine Spatial Plan Framework and 8 Regional Locational Guidance for marine energy projects in the north of the country. Scotland has also developed a new licensing system for marine energy projects under the Marine (Scotland) Act 2010. Given this interest in marine energy, the development of Scotland’s regulatory regime is of interest in assessing Australia’s options. ### Canada and New Zealand Canada and New Zealand have both announced large-scale marine energy projects which are to be regulated within current legislative frameworks. These jurisdictions may provide insight into how Australia can better accommodate marine energy within its existing legislation. ### The US The US has also not regulated marine energy specifically and has experienced issues in relation to the powers of relevant authorities to issue licences and authorities. This may be relevant to Australia, where it is not yet clear which bodies have the authority to regulate marine energy projects. Texas has created ‘Competitive Renewable Energy Zones’ to facilitate the construction of transmission infrastructure under Senate Bill 20 (2005). Spain Spain has issued a decree establishing an administrative procedure for processing applications for the authorisation of 9 electricity generating facilities in territorial waters. This decree aims to collate and integrate applicable legislation into a single administrative procedure for applying for title and to implement environmental protection measures. 6 Scottish Executive, ‘Securing a Renewable Future: Scotland’s Renewable Energy’ (2003). 7 See Scottish Government, ‘Wave and Tidal SEA - Post-adoption Statement’ (2008). 8 Marine Scotland, ‘Pentland Firth and Orkney Waters Marine Spatial Plan Framework & Regional Locational Guidance for Marine Energy, Final Report’ (2010). 9 Royal Decree 1028/2007. 5 PhD proposal Portugal 10 Portugal has issued a decree establishing a 320 km2 pilot zone for marine energy test projects and a decree 11 establishing a management body for this pilot area. This may be of interest in Australia, as the majority of projects under development are pilot projects that may benefit from a lighter regulatory burden. 7. Comparative analysis of overseas marine energy regimes What can be learned from the experiences of overseas jurisdictions with marine energy regulation? This section will compare the overseas regulatory regimes discussed in the preceding chapter and discern which elements of marine energy regulation have been successful in removing the barriers to marine energy development. 8. A new regulatory regime for Australia What are the key elements of a regulatory framework for marine energy in Australia? This section will revisit the inadequacies with the present framework. For each inadequacy identified, the changes to the existing law needed in order to make the law more suitable will be discussed in light of the lessons learned from overseas jurisdictions. The implementation of new regulatory mechanisms will also be considered, including provisions for licenses, transmission, planning and governing authorities. 9. Policy measures to encourage marine energy utilisation Which policy measures could be used to complement an effective regulatory regime and encourage the development of marine energy? Building on the critique of the RET, this section will briefly explain the importance of having separate measures for encouraging the growth of the marine energy industry and suggest some policies that could compliment the outlined regulatory framework. A range of options will be suggested, such as a marine energy specific feed-in tariff, applying a multiplier under the RET scheme, low-interest loan schemes and grants, subsidies and tax breaks. This chapter seeks to highlight the importance of complementary measures and is intended to act as a platform for further research in this area. 10. Conclusion This section will summarise the thesis and draw conclusions as to the best model of regulation for the development of marine energy in Australia. 10 Dec-Law nº5/2008. 11 Dec-Law n º238/2008. 6 PhD proposal Research Strategy ### Literature Reviews The starting point for research will be a broad literature review of the topic in question. This search will encompass a number of resources and databases that may contain material on marine energy, such as Science Direct and conference proceedings, as well as more general databases, such as Lexis Nexis, Google Scholar, and SSRN. Where relevant, the review will also cover news media and a general internet search. As an assessment of the current marine energy framework will touch on numerous areas of the law, such as renewable energy law, planning law and environmental law, texts on these areas may also be useful. ### Analysis A major contribution of this thesis will be a detailed analysis of the regulatory framework in Australia, therefore analysis of primary materials will be key. I will undertake a comprehensive review of relevant legislation and academic articles regarding marine energy regulation identified by the literature review. As the comparative analysis of overseas jurisdictions will be another major contribution, I will also study the legislation, governmental policy and academic literature of the relevant overseas jurisdictions. ### Primary research To understand the barriers to marine energy under the current framework, building relationships with marine energy companies and interested organisations, such as the Clean Energy Council, will be crucial. I will interview and survey these parties to gather primary data and ideas for reform borne of industry experience. Similar interviews with regulators and participants from overseas jurisdictions are also likely to be useful. Considerable planning must be undertaken to identify willing participants, acquire the necessary research ethics approvals and conduct the interviews. I will contact these parties early on in the writing process, as building strong links with industry participants and regulators may prove useful later on. Ideally I would prefer face to face contact, however, contact via email, telephone or thorough Skype is a viable alternative. ### Publishing Part of the strategy for this thesis is to publish articles in peer-reviewed journals. As the literature in this area is undeveloped, I can make a significant contribution by publishing as the thesis progresses. The structure of the thesis lends itself to this approach, as there are a number of discrete sections that contribute to the overarching goal of the thesis. Seeking publication will help divide the thesis into manageable portions and allow me to invite ongoing criticism of my work. ### Conferences Conferences, such as the European Ocean Energy Association annual conference, the Global Marine Renewable Energy Conference and the International Conference on Ocean Energy will provide an invaluable opportunity to network, exchange ideas, present papers, and understand foreign marine energy regulatory frameworks. If I am unable to attend these conferences in person, the proceedings and papers presented will be a useful resource. I have been invited to speak at the All Energy Australia Conference in Melbourne in October. I plan to present a scoping paper on my thesis, and to begin networking and learning more about marine energy from an industry perspective. ### Participation in Governance Processes In addition to seeking publication and attending conferences, I will aim to participate in governance processes, in particular making submissions to relevant government bodies. These submissions will allow me to consolidate my research and encourage clear and concise writing and analysis. Contributing to these processes is an opportunity to disseminate my research and ensure that it is of practical value. 7 PhD proposal ### Proposed timetable January – April 2012  Background research and further scoping and planning Chapter 1  Comprehensive literature review  Setting up endnote database containing results of preliminary research  Joining relevant networks, e.g. renewable energy/marine energy mailing lists, setting up news alerts  Checking whether further conferences are upcoming, particularly within Australia or neighbouring countries  Researching current or planned government processes relevant to marine energy that may seek submissions  Attending an industry conference to understand the current commercial and technological status of marine energy  Writing a list of companies and their contact details; forming relationships with key companies and stakeholders  Seeking ethics approvals  Drafting introduction May – June 2012  Literature search regarding the RET Chapter 2  Further planning regarding how policy and innovation intersect with suitable regulatory frameworks  Drafting chapter 2 July – October 2012  Drafting chapter 3 Chapter 3  Seeking to arrange interviews in advance of January 2013 November – December 2012  Researching recent developments in law and policy Chapter 4  Noting key dates for future reference  Drafting chapter 4 January – March 2013  Drafting interview questions Chapter 5  Researching other sources of primary information regarding the legal practicalities of marine energy projects  Conducting interviews  Drafting chapter 5 April – August 2013  Further considering organisation of chapter 9; structure based on country or based on defect in the current Chapter 6 regime?  Detailed reading of overseas legislation and policy for comparison  Researching to what extent further countries are considering marine energy (e.g. China, Maldives, Tonga)  Identification of successful elements of legislation  Drafting chapter 6 8 ### PhD proposal September – October 2013  Collating summary information regarding overseas jurisdictions Chapter 7  Comparing legal and policy responses to each identified issue with regulation  Drafting chapter 7 November – December 2013  Analysis of whether elements identified in chapter 7 are suitable for Australia; are there any impediments Chapter 8 to implementation/success?  Drafting chapter 8 January – May 2014  Broad literature review regarding policies similar to the RET in overseas jurisdictions; focus on marine Chapter 9 energy specific targets  Research regarding marine energy feed-in tariffs, grant schemes (e.g. NZ & Scotland)  Drafting chapter 9; focus on importance of complementary measures and general suggestions May – July 2014  Drafting conclusion Chapter 10 August 2014 – February 2015  Checking complete thesis for currency  Seeking critique of the draft thesis  Proofing  Final additions and corrections 9 PhD proposal ### Selected Bibliography Ana Brito e Melo, ‘Marine Renewable Energy in Portugal’ (Paper presented at Energy of the Sea, Madrid, 2 February 2010). Carbon Trust, ‘Future Marine Energy. Results of the Marine Energy Challenge: Cost competitiveness and growth of wave and tidal stream energy’ (2006). Chris ████, ‘Are we there yet? Making renewable ocean energy resources a world‐solution for climate action and energy security’ (Paper presented at Ocean Renewable Energy Group Marine Law Symposium, Rhode Island, USA, October [REDACTED PHONE]). Clean Energy Council, Marine Energy Sector report (2010). ████ Griffin and Mark Hemer, ‘Ocean Power for Australia– Waves, Tides and Ocean Currents’. ██████ and Miguel Esteban, 'Climate change and renewable energy from the ocean and tides: calming the sea of regulatory uncertainty' (2009) 24 (4) International Journal of Marine & Coastal Law 617-651. ██████ and Miguel Esteban, 'Recent developments in offshore renewable energy in the Asia-Pacific' (2011) 42(1) Ocean Development and International Law 94-119. ██████ and Miguel Esteban, 'Renewable Energy from the ocean and tides: A viable renewable energy resources in search of a suitable regulatory framework' (2009) 4 Carbon and Climate Law Review 417-425. ██████, Planning Law Challenges and Options for Marine Energy (19 May 2010) Centre for Energy and Environmental Markets. European Ocean Energy Association, ‘Oceans of Energy: European Ocean Energy Roadmap 2010 – 2050’ (2010). George Boehlert, Gregory McMurray and Cathryn Tortorici (eds), ‘Ecological Effects of Wave Energy Development in the Pacific Northwest: A Scientific Workshop’ (U.S. Department of Commerce, October 11–[REDACTED PHONE]). George Boehlert, ‘Perspectives on Evaluating Environmental Effects’ (Northwest National Marine Renewable Energy Center). Geoscience Australia and the Australian Bureau of Agricultural and Resource Economics, Australian Energy Resources Assessment (2010). Giles Parkinson, ‘Hiccups in catching wave power’, The Australian (Sydney) May [REDACTED PHONE]. Hollier, ‘International Development of Marine Energy’ (Paper presented at All-Energy Australia conference, Melbourne, October 2009). International Energy Agency, ‘Annual Report 2010: Implementing Agreement on Ocean Energy Systems’ (2010). Jennifer Hayward, Paul Graham and Peter ████, ‘Projections of the future costs of electricity generation technologies: An application of CSIRO’s Global and Local Learning Model (GALLM)’ (CSIRO, February 2011). Jessica McIlroy, ‘Ocean Energy: Policy and Progress’ (Paper presented at Ocean Renewable Energy Group Marine Law Symposium, Rhode Island, USA, October [REDACTED PHONE]). Michelle Portman, ‘Marine Renewable Energy Policy: Some US and International Perspectives Compared’ (2010) 23(10) Oceanography. Parliament of Victoria Environment and Natural Resources Committee, ‘Inquiry into the Approvals Process for Renewable Energy Projects in Victoria’ (2010). Srian Abeysuriya, ‘Accelerating the Commercial Deployment of Marine Energy – Challenges and Opportunities’ (Paper presented at AWATEA Conference, Wellington, New Zealand, 15 March 2007). rd Stoel Rivers, The Law of Ocean and tidal energy: A Guide to Business and Legal Issues (3 ed, 2010). Terry Macalister, ‘UK marine energy sector 'could be worth £76bn and support 68,000 jobs’', The Guardian (London) 2 May 2011. US Department of Energy, ‘Report to Congress on the Potential Environmental Effects of Marine and Hydrokinetic Energy Technologies’ (2009). Victorian Government Department of Sustainability and Environment, ‘Marine energy in Victoria’ (Discussion Paper, March 2010). 10 [No extractable text — likely a scanned image PDF.] [No extractable text — likely a scanned image PDF.] ## DIVISION OF REGISTRAR AND STUDENT SERVICES Admissions Office T: [REDACTED PHONE] Division of Registrar and Student Services F: [REDACTED PHONE] Building X-005 E: [REDACTED EMAIL] Canberra ACT 0200 Australia CRICOS Provider Number: 00120C www.anu.edu.au Application ID: [REDACTED PHONE] Student ID: [REDACTED PHONE] DOB: 26 August 1988 09 November 2011 OFFER ACCEPTANCE DECLARATION AND PAYMENT ADVICE Name: ██████████: Doctor of Philosophy, Faculty of Law Majoring in: Law (CRICOS Code: [REDACTED PHONE]K) Program Type: Research Commencing: First Semester, 2012 Intended Date of Commencement: ________________________________________________ Your country of Birth: United Kingdom _____________________________ Your citizenship: United Kingdom _________________________________ Diplomatic Mission where you will apply for your Student Visa (ie. 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