Report

The Green Devil

From logging Tasmanian forests to dumping in the Great Barrier Reef, Prime Minister Tony Abbott is the Australian environment's worst nightmare.

Hiking through the Tasmanian wilderness feels like a scene out of Jurassic Park. Overhead are the tallest flowering trees on the planet. Underfoot are so many layers of damp, mossy growth that, without stepping carefully, a boot could crunch right through. The Tasmanian devil lives here, and so do the platypus and wedge-tailed eagle; some Huon pine trees here are more than 2,000 years old. Located at the bottom of the world, Tasmania is a bioregion so unique that it is listed as a World Heritage site by the United Nations for "outstanding universal value." It satisfies more criteria for that designation than any other World Heritage site on Earth.

But for Australian Prime Minister Tony Abbott, this remarkable natural legacy isn't worth protecting. Instead, it should be stripped.

Soon after being elected in September 2013, Abbott started making plans to fulfill his campaign promise of removing some environmental protections on Tasmania's forest and opening it to industry, specifically logging. In March, he invited loggers to Australia's Parliament House and told them that members of the country's Green party were "the devil" and that "the environment is meant for man." The loggers were thrilled.

A few months later, however, Abbott had to convince a different audience of his proposal -- and this time, the response was not enthusiastic. When the World Heritage Committee of the United Nations Educational, Scientific and Cultural Organization (UNESCO) met in Doha in June 2014, it unanimously rejected Abbott's plan to remove 74,000 hectares of Tasmanian forest from its list of cherished sites. One delegate said the move would have set an "unacceptable precedent." The decision took less than 10 minutes.

It was a victory for the environmental community, in Australia and globally, but the international embarrassment didn't deter Abbott. As one World Heritage site was ostensibly spared, he was already setting his sights on another: He wants to dump millions of tons of dredged soil from a coal-port expansion into the Great Barrier Reef.

When asked about Abbott, Greenpeace Australia Pacific CEO David Ritter responds with a mixture of laughter and exasperation. "My daughters are 5 and 2 years old," Ritter says. "I have no idea how I am going to explain to them that, when they were children, the government of their country allowed this to happen to the Great Barrier Reef."

Ritter isn't alone. Australia's opposition leader, Bill Shorten, has called Abbott an "environmental vandal," and university researchers have said his first year in office has been nothing but an "environmental train wreck." This dates back to his very first day in office, when Abbott introduced legislation to repeal a carbon tax on Australia's most polluting industries. Soon after, a document created by Abbott's cabinet surfaced, stating that his administration would no longer tolerate "any measures which are socialism masquerading as environmentalism."

Abbott's critics are using Cold War rhetoric too. As Lyndon Schneiders, national director of Australia's Wilderness Society, writes in an email, "The Australian Government is taking environment policy back to the 1950s."

There have already been many battles, and casualties, in Abbott's war on the environment. In addition to supporting logging and mining at World Heritage sites, the prime minister has ignored the recommendations of his country's nonpartisan Climate Change Authority. He refused to send a delegate to the U.N. climate negotiations in Warsaw, Poland, last November. He has slashed $435 million in funding for the Australian Renewable Energy Agency, and he appointed Dick Warburton, a self-proclaimed climate change "skeptic," to review the country's renewable energy priorities. Meanwhile, Abbott's federal environment minister, Greg Hunt, has approved cattle grazing in the Wonnangatta Valley, which is part of the Alpine National Park -- a national heritage site.

On Aug. 14, Abbott's chief business advisor, Maurice Newman, created a stir when he said climate science was "warming propaganda" and that the planet could be facing a dangerous period of global cooling. The Labor Party's environment spokesman told the Guardian, "These kinds of comments would be laughable if he didn't have the prime minister's ear."

For Abbott, all environmental regulations are merely "green tape" that hold back corporate profits. He has hacked away at that tape by gutting the Environment Protection and Biodiversity Conservation Act, the legislative process for determining whether a development project is environmentally safe. Instead oil, gas, and mining permits are now funneled to other agencies where they can get a green stamp.

Even animals aren't safe from Abbott's slash-and-burn campaign. A shark cull, intended to find and eradicate man-eating sharks, has already killed 68 tiger, great white, and bull sharks in a three-month trial. Great whites are an endangered species, so the Abbott government simply exempted the state of Western Australia from federal laws protecting them. Abbott has also abolished the Australian Animal Welfare Advisory Committee and cut funding for animal welfare initiatives.

To make sure no one can adequately challenge his dictums, Abbott has eviscerated federal funding for programs such as the Environmental Defenders Offices (EDO), independent legal centers that operate in the public interest. "Without the EDO legal services many Australians could not afford to get legal advice or mount a legitimate legal challenge against large companies or governments over major development projects which threaten their local communities and environment," Sue Higginson, the principal solicitor with the EDO in New South Wales, said in a statement.

Abbott's anti-environment stance has raised eyebrows around the world. Environmental author Bill McKibben has written that Americans who traveled abroad during George W. Bush's administration should have sympathy for Australians right now: "[I]t's not easy being citizens of countries run by international laughing stocks." The comparison is apt: Like the Bush administration, Abbott chooses to ignore or undercut federal and international law when it doesn't suit his interests.

Yet he has no qualms about using the law as a political hammer to quash the opposition: In Tasmania right now, Abbott's Liberal Party government is backing a new bill explicitly drafted to stop environmental protesters. The Workplaces (Protection From Protesters) Bill is aimed at quelling those who "prevent, impede or obstruct the carrying out of business activities." Mining and logging industries are mentioned by name, but the bill is written so broadly that it could cover nearly any business. It includes a sweeping list of prohibitions against "protest activity," with fines up to $10,000 if demonstrations interrupt business -- and mandatory prison sentences for a second offense.

"This anti-democratic bill undermines basic principles of free speech and civil society," Miranda Gibson, an environmental activist and spokesperson for the group Still Wild Still Threatened, writes in an email. "The Liberals are clearly pushing this Bill in order to continue their assault on the environment free from scrutiny and criticism by the community."

The legislation could pass by the end of August.

Abbott's government has also spoken out in support of proposed laws to crack down on activists who photograph and videotape animal agriculture. These so-called "ag-gag" laws are modeled after similar efforts in the United States (currently being challenged in court). The primary industries minister of New South Wales has gone so far as to say that protesters who film animal welfare abuses on farms are "akin to terrorists."

When will the onslaught end? According to Bob Brown, a former senator and parliamentary leader of the Australian Greens, Abbott may very well be shooting himself in the foot with his nightmarish environmental policies -- losing public confidence and, potentially, votes. "Abbott is a political glitch," Brown says. "Young Australians are the key to his downfall. One poll showed that 97 percent of Australians aged between 18 and 24 opposed Abbott's failed attempt to remove World Heritage status from the tallest flowering forests on Earth, in Tasmania, so that they could be logged."

"Suddenly," Brown adds, "it is becoming difficult to find anyone who will freely admit to voting for him."

Photo by Scott Barbour/Getty Images

Report

Meet the Russia Bulls

Where some investors see escalating risks, others see bargains.

As Russia's standoff with the West over Ukraine unfolded, with mutually detrimental sanctions flying back and forth further darkening the country's already dim economic outlook, many people couldn't get their money out fast enough.

In the first six months of 2014, the Russian government reported that $75 billion was moved out of the country -- more than in all of 2013. Other estimates put that number, which captures not only investments but also Russians moving their money out of the ruble, even higher. The European Central Bank said in May that about $220 billion in capital had flowed out of Russia so far in 2014 and President Barack Obama said Aug. 6 that between $100 billion and $200 billion had shifted out of Russia since the conflict began. In July, Malaysia Airlines Flight 17 was shot down over eastern Ukraine, deepening the conflict and raising fears about the unpredictable ways it could affect the global economy. At the end of July, the United States and Europe responded with the toughest sanctions yet targeting Russia's energy, defense, and banking sectors. Investor concern over Russia was running so high by that point that index provider MSCI Inc. created a separate emerging markets investment benchmark without Russia for investors who wanted nothing to do with the country.

But that kind of pessimism smells like opportunity to some investors.

Investment from U.S. funds fell from $42 billion at the end of last year to $37 billion at the end of March, according to data provider eVestment. By the end of June it was back up to almost $41 billion. That number could climb even higher as more funds report.

Alexander Branis, director of Prosperity Capital Management (RF) Ltd., one of the largest hedge funds focused on Russia, says investors have pulled out about 5 percent to 7 percent of the $3.4 billion fund recently. A much smaller group, though, is putting more money in. Russia, he says, is cheap now.

"We have clients that have added to their portfolios: one U.S. university endowment, one large pension fund from Northern Europe," Branis told Foreign Policy from Moscow.

"If you focus on the long term, you have potential to make a lot of money."

Started in 1996, Prosperity has always focused on Russia, with only 10 percent to 15 percent of its assets in Ukraine and Kazakhstan. Branis says this latest kerfuffle over Ukraine isn't changing their strategy; in fact, they've weathered far worse economic times in Russia. Nonetheless, the firm has suffered. At the end of July, the company's flagship Russian Prosperity Fund was down 7.3 percent from the beginning of the year, though Branis noted that is a better return than funds based on the broadly used MSCI Russia index produce.

The firm could see even harder times if the United States and Europe expand sanctions in response to Russia's support of separatists in eastern Ukraine. Branis said his firm owns some Sberbank stock, which is already sanctioned. The bank was barred from issuing new debt or equity in Western markets at the end of July. But Branis doesn't expect that the bank's existing debt and equity will be targeted because it would hurt shareholders more than Moscow. That's not his only reason for brushing off sanctions -- Russia is not as blameworthy for the conflict as officials in Kiev and Washington suggest, he proffered.

"I don't think there is a lot of credible evidence that implicates Russia," Branis said. "I don't think there is something so credible that you could base the next round of sanctions on it."

The Russia-based funds are not alone in their bullishness. Kopernik Global Investors, a Tampa-based firm started just last year, is also betting on Russia. Founder Dave Iben told Bloomberg he was buying Russian stocks he saw as trading at half of what they're worth. The firm's flagship $890 million mutual fund has 15 percent of its assets in Russian companies, including 4 percent in Russian energy giant Gazprom and 3 percent in Sberbank. Iben spelled out his philosophy on Russia in a recent conference call.

"I believe that when people get really, really, really negative on something it almost always proves to be overblown," he said, according to a transcript of the July 23 call. "And now there's a lot of emotion in Russia. I'm not saying it's wrong. I'm saying I suspect time will show that it's overdone."

Wade O'Brien, senior investment director with U.S.-based Cambridge Associates, said it makes sense that value investors with long-time horizons are scooping up Russian assets while everyone else is selling them.

"When something that was already fairly inexpensive on a relative basis sells off sharply on the basis of macroeconomic concerns, it's not unusual that value funds will go in and buy stocks," O'Brien said.

Other money managers aren't pulling out of Russian investments entirely, but are shrinking their stakes. The head of a smaller fund based in London, who didn't want to be named, said he reduced Russia investments from 15 percent to 5 percent of the portfolio. However, he will continue investing in Russia, unless Europe slaps more restrictions on Russia or Moscow limits how much money can leave its borders.

"We're always reassessing things, but as long as they don't do anything that precludes our ability to operate, we would do it," he said.

Still, most investors are focusing on the overall economic picture in Russia, which is bleak. Economists worry that President Vladimir Putin's retaliatory sanctions are driving a faltering economy closer to recession. On Aug. 7, the Kremlin banned some U.S. and EU agricultural products, heightening fears that the country, which imports 40 percent of its food, could see prices spike. On Aug. 11, the Russian government reported that the economy had its worst quarter in over a year, as growth continues to slow. Russian GDP expanded only 0.8 in the second quarter of 2014 compared to the same time last year, Bloomberg reported Aug. 12. The Russian Micex stock index is down 6 percent from the beginning of the year.

Although some investors are making contrarian bets, said Tim Ash, head of emerging-markets research at Standard Bank Group, buying into Russia long term is not a common strategy.

"I think other investors are just seeing this as a paradigm shift in the Russian story -- negative," Ash said. "The relationship with the West has been significantly damaged, and will be difficult to rebuild."

The result will be a less friendly environment for foreign businesses and declining investment and growth, Ash said.

Money managers are also constantly changing strategies as the Ukrainian crisis unfolds. Therefore, its full effect on foreign investment in Russia might not be clear for months. Investment research firm Morningstar estimates that U.S. funds allocated just 1 percent of their assets to Russia at 2013's end; that amount fell only slightly by the end of June.

Some money managers who earlier this year saw opportunity are now shifting gears. Luz Padilla, head of the emerging-markets group at DoubleLine, oversees about $3.6 billion. Her emerging-markets bond fund grew 11.2 percent between Aug. 1, 2013, and Aug. 1, 2014, beating returns posted by 96 percent of her peers, according to a Bloomberg analysis.

At the end of March, she saw potential as Russian assets' prices fell after Putin annexed Crimea. She told Fortune magazine that she boosted the funds' holdings of Russian bonds by a full percentage point after the West first sanctioned Russia in March. But then DoubleLine analysts attended IMF meetings in mid-April and conferred with Russian experts, leading her to reverse course. Mark Christensen, who helps manage the firm's emerging-markets portfolio, said the Russian banks and economists he spoke to changed his mind.

"Despite the rebound in the market, they still anticipated that the crisis was going to last longer than people were expecting," he told Foreign Policy. "We just came to the conclusion that the Russia/Ukraine crisis and the price volatility wasn't going to go away anytime soon."

By the end of June, Christensen and his team had reduced the funds' exposure to Russia drastically, to less than 2 percent from more than 13 percent at the end of last year.

DANIEL ROLAND/AFP/Getty Images