Carbon Credit Watch

Carbon credit scams add to the growing list of alleged fraud cases

Brady Yauch
Probe International
October 6, 2009

Officials in at least five European countries are investigating an international carbon credit scam considered to be worth more than $1.5 billion [PDF] . According to a recent report for the Guardian, the scam was originally coordinated by gangs in Britain and Spain who bought and sold emissions allowances across borders in order to avoid paying Value Added Tax (VAT).

Scotland Yard detectives, Revenue and Customs officers and Europol—the European law enforcement agency—are all involved in the investigation. The scam is said to involve several countries, including Italy, Spain, Denmark and Sweden. According to the report, a source close to the investigation said the “inquiry has escalated.”

“This is a Europe-wide operation and we are finding it difficult to keep up,” the source was quoted saying.

Fraud cases in the carbon credit market are not new. Over the summer, investigators in the UK began an investigation into an alleged £38-million carbon credit scam that involved VAT fraud [PDF] . A total of nine people have been arrested and 27 properties searched as part of the investigation.

And more recently, the United Nations was forced to suspend the British branch [PDF] of one of the world’s largest clean energy auditors of tradable carbon credits, SGS United Kingdom Ltd. over irregularities in its review of projects that qualify for the carbon credits. The suspension of SGS came less than a year after the UN suspended the Norwegian certification company, DNV, for similar violations.

At the time, DNV had completed compliance auditing for about one third of the projects submitted to the UN’s Clean Development Mechanism Executive Board. To date, the Executive Board has approved more than 300 million carbon credits, worth billions of dollars.

Carbon trading irregularities are being investigated not only in Europe: a $100-million carbon trading scandal was recently unearthed in Papua New Guinea [PDF] . According to media reports, Kirk Roberts, a director at Nuppan PNG Trading, is alleged to have used fake carbon certificates showing the signature of Papua New Guinea’s Office of Climate Change director Theo Yasause. These certificates were then used as ”props” in negotiating with local landowners to persuade them to sign over the rights to their forests. Papua New Guinea’s Office of Climate Change is now being investigated [PDF] as a result of the scandal [fn] For more background on the story in PNG, go here [PDF] and here [PDF].

But according to the website of Carbon Planet—a client of Nuppan PNG—the symbolic carbon certificates were not used to intentionally mislead local residents to sign over their legal rights, but as a sample certificate to help explain the carbon credit scheme.

”Those certificates are worthless,” said Dave Sag of Carbon Planet. “They’re not backed by anything. They really are props,” he said.

“No one who knows anything about carbon would take them in any way seriously.”

Papua New Guinea’s new acting Climate Change Director, Dr Wari Iamo, has warned landowners not to sign any carbon trading agreements. He said PNG currently has no laws or policies to regulate carbon trading.

The mounting investigations into carbon credit scandals come as the industry is experiencing a major boom in business. According to the European Climate Exchange (ECX), the leading market for trading carbon credits, the volume of carbon credits in 2008 increased 171% from 2007. The global carbon market is now estimated to be worth $118 billion[fn] We used the $118-billion figure cited by the ECX. However, according to the World Bank report, “The State and Trends of the Carbon Market 2009″, if voluntary markets are included, the global carbon market is worth as much as $126-billion.[/fn].

The concept of carbon credits were established in the Kyoto Protocol, where signatory governments agreed to quotas on carbon emissions. If any of the signatories exceed these policy-driven quotas, then carbon emitters must trade for credits in carbon credit markets such as the European Union Emissions Trading Scheme (EU ETS), which is the largest multi-national, emissions trading scheme in the world. This “market” is expected to grow significantly if officials at this winter’s summit in Copenhagen agree on a new plan to combat climate change.

Confused about carbon credits? You’re not alone.

Click here [PDF] to read about reducing emissions from deforestation and forest degradation (REDD) credits.

Further Reading:

Carbon Glossary [PDF]
Wikipedia: Carbon Credits

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