PM ignores our modelling experts and hires a controversial global consultant

Nov 17, 2021
Scott Morrison
(Image: AAP/Lukas Coch)

The awarding of a $6 million climate modelling contract to McKinsey was no surprise given the government’s record of rorts, secrecy and corruption.

If you had the opportunity to ask the CSIRO and federal Treasury to model a net zero climate plan, what would you do? If you are the Morrison government, it’s a no-brainer. You ignore them and give the $6 million job to global consulting firm McKinsey.

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

So what did we get for our $6 million? A “plan” light on specifics, some unconvincing power points and more of the “technology not taxes” slogan.

There are two bits of nonsense in this. First, the slogan is both oxymoronic and a lie. Obviously the billions of dollars being directed by the government to fossil fuel companies and untried technology have to be paid somehow. If the money is not coming from our taxes, where is it coming from — a magic pudding? If there is no magic pudding, the plan’s cost will add about $1100 dollars to the tax bills of every Australian now between the ages of 15 and 64.

Second, McKinsey estimated that the Australian carbon price would be $25 in 2050, and that’s the foundation of what Scott Morrison took to the Glasgow climate talks. Yet, under the Australian carbon credit units scheme (our faux emissions trading scheme) the recent price was a record high of $35.50 per tonne. Less magic pudding and more miracle stuff is required to make sense of that.

The giveaway on how thin the plan is, and how it is relying on miracles, is on page 18 of its 129 pages. The graph on that page depicts the “priority technology contribution to meeting Australia’s net zero by 2050 goal”. Twenty per cent are our reductions up to now — most of these are a result of Australian’s brief flirtation with a carbon price, which was repealed by the Liberals and now abandoned by a cowardly Labor opposition, and the efforts of state governments.

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

It is difficult to imagine how this can happen given that Australia spends just 1.8 per cent of economic output on research and development  compared with an OECD average of 2.5 per cent.

Now there are various possible interpretations of how McKinsey came up with all this. It may have just been your usual consultancy pitch where the senior people came in and promised the world and then left the work to recent MBA graduates. Equally, the work of the graduates could have had “help” from the Prime Minister’s political advisers who stripped it of any real content and ensured it achieved their political ends.

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

Bloomberg and The Financial Times have both reported on the firm’s South African work where McKinsey was one of several firms (including KPMG and Bain) caught up in the scandals associated with the Gupta family allegedly at the centre of widespread corruption during the presidency of Jacob Zuma. It was alleged the Guptas used their friendship with Zuma to obtain lucrative state contracts and sway public appointments — referred to locally as state capture ∞ to bolster their mining-to-media business empire.

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

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

All told, McKinsey has repaid more than $63 million for the work it did in South Africa. But being a global firm, it also has form elsewhere.

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

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

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

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

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

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

Given the Morrison government’s record of rorts, lies, secrecy and corruption, it is obviously a natural fit with some other McKinsey clients.

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

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