Business Finland had paid a capital loan of seven million euros to the company of former Green MP Antero Vartia. The risk materialized, says Ville Riekkinen, Finance Director of Business Finland.
When the former MP of the Greens Antero Vartian the company Compensate Operations, which offers emission compensation, filed for bankruptcy at the Helsinki District Court last Friday, the company had a seven million euro loan with interest from Business Finland. The funding granted by it is paid by the State Treasury.
In addition, the company had received a loan of 500,000 euros from the Nordic environmental financing company Nefco.
Where So the funding was used up and why no profit?
From 2020 to 2022, Compensate’s personnel costs were around one million euros per year.
The company had 16 employees. According to Vartia, their job description included familiarization with projects, technology development, sales, marketing and customer acquisition. Vartia tells HS that he has never taken a salary from the company and the only monetary compensation he receives are telephone bills and occupational health care.
Money and years of manpower were spent especially on evaluating the real effects of compensation projects, says Vartia. According to him, there are many projects in the carbon market that say they bind carbon dioxide, but in reality the climate effects are questionable.
“We went through projects certified by the world’s leading standards and evaluated them. 90 percent of the stuff, what [päästökompensaatio]on the market, there is such low-quality crap that it is downright false that it is being sold”, describes Vartia.
The emission compensation market is largely based on so-called carbon credits. A credit is a unit that represents a certain amount of carbon removal or avoided emissions.
According to Vartia, however, the general perception that carbon credits are created with the promise of planting a tree in Africa does not correspond to reality. In fact, one party develops the afforestation project, another afforests it and a third audits and certifies it. Only at this stage, when the carbon has already been bound, is credit created, which is then traded.
The company’s bankruptcy filing will also be announced on Tuesday In Antero Vartia’s article published on Compensate’s website.
Vartia writes that the Compensate foundation behind Compensate will continue to operate despite the bankruptcy and strive to influence the global development of the coal market.
Problems in the emission compensation market, the so-called double counting and the fact that the market can eat its targets have produced, says Aalto University’s professor of energy sciences Peter Lund.
“You have to be careful that the compensation mechanism doesn’t eat up actions that would be implemented anyway,” says Lund.
Double counting, on the other hand, means that the producer and the user use the same emission certificate, in which case one and the same emission reduction is counted twice.
According to Lund, as the market grows, so does the threshold for responsibility. Today, the share of companies practicing direct greenwashing among operators is decreasing through certification and standardization, he estimates.
The year 2019 at the end of the year, the Police Board requested an investigation into Compensate, which had been established earlier that year. According to the Police Board, the foundation would have needed a fundraising license for its activities. The lottery administration had interpreted the company’s activities as charity, not a service or product for sale.
“Two and a half years went into a struggle with the lottery administration,” says Vartia.
Compensate was practically banned for the entire process, i.e. for two and a half years, until the parliament passed a new law at the end of 2021, according to which the emission compensation trade no longer needed a fundraising permit. In 2022, the company’s business got up to speed and its turnover rose from less than a hundred thousand euros previously to 2.75 million.
In 2023, Vartia estimates that the company’s turnover was rising to four to five million euros.
For a long time however, due to the lottery administration process, according to Vartia, the company did not have time to show potential financiers that its business idea was viable.
“The runway ran out,” he says.
Company continued to operate during the dispute with the lottery administration, although it was not able to carry out the emissions compensation trade. According to Vartia, operations were not suspended or personnel fired, because he assumed the situation would pass. Among other things Experts interviewed by HS in 2020 considered the police’s position in the case wrong. In addition, Business Finland’s funding was paid in instalments, so Compensate had to achieve certain intermediate goals in order to keep its funding.
According to Vartia, Compensate was the first Finnish emissions compensation company that had similar problems.
“If I had known it would take this long, I would have thrown the gloves on the counter right away,” he says now.
Ministry of Labor and Economy The capital loan granted to Compensate in 2019 by Business Finland, then still operating under the name Compensate non-profit operations, was paid in five installments in three different years. The first million euros were paid in 2019, the next 3.5 and 2.5 million in 2020 and 2021.
The loan was granted after Compensate won Business Finland’s growth engine competition. It means that the business was expected to increase over time to more than one billion euros. Through the company, Finland was supposed to become a significant player in the international emissions compensation trade.
Finance director of Business Finland Ville Riekkinen according to the growth engine financing was implemented by the then prime minister Juha Sipilä (central) according to the board program of the government. Its purpose was to find new growth areas and solutions to global market upheavals. Currently, Business Finland no longer grants capital loans.
“There have been billion-dollar goals for business and exports. And for the investments made in Finland in the event that this is successful”, describes Riekkinen’s hopes for Compensate.
According to Riekkinen, financing decisions include, among other things, the assessment of business plans and market potential. Riekkinen denies that Vartia’s background as a member of parliament would have played a role in the financial evaluation.
“Creating something new always involves risk. In this case, that risk has materialized.”
Compensating in this case, the start of the business was interrupted by a dispute with the lottery administration. According to Riekkinen, Business Finland’s funding was then temporarily suspended. According to its financing conditions, financing can be suspended if the business conditions are not the kind that Business Finland, as a financier, has participated in in the past.
According to Riekkinen, the funding was stopped when the prosecutor brought charges against Vartia for the crime of collecting money. This happened in June 2021. However, the funding was continued due to a change in the law later in 2021, when the company’s operating conditions were restored. The charges against Vartia were also dropped.
As a financier, Business Finland aims to create companies for the Finnish national economy that have an international competitive advantage and can do well in the export market. It means working with new business sectors.
“Climate change is undoubtedly one of the key global challenges. There is a demand for solutions that focus on that. That’s what we’ve aimed for here,” he describes.
Economic magazine The Economist has estimated that decarbonization, or in simplified terms, carbon removal, will become a business of about 500 billion dollars in the next ten years and will surpass oil and gas in terms of investments.
“Now the emission compensation market is already starting to reach billions. Estimates of what it could be at the beginning of the next decade speak of tens of billions. Some are talking about sums that go over a hundred billion. Interest is growing”, also assesses Aalto University’s Lund.
“In the beginning, it is easier to reduce emissions, but once the slack has been taken out, reducing emissions becomes more expensive and difficult. That’s where a compensation mechanism like this might be helpful.”
According to Lund, the market is becoming globalized, and emission compensation can help climate action, especially in developing countries with a large capital shortage.
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