Carbon Credit Watch

Carbon Credit fraud discovered in Ukraine

(October 20, 2010) Ukraine is the latest country to face allegations of fraud connected with carbon credits, writes Brady Yauch.

Evidence of fraud and corruption in carbon credit markets continues to grow with Ukraine being the latest country to be infected. A report led by two U.S. law firms and one forensic auditing company says the government, under former Ukrainian Prime Minister Yulia Tymoshenko, misappropriated nearly $280-million from the sale of carbon credits.

The funds from the sale of the carbon credits, which were supposed to be used on environmental projects, were instead, according to reports, used to support a pension fund.

“In a single instance involving the Kyoto Protocol, funding misapplication exceeded 200 million euros,” confirmed US lawyer Marc MacDougall.

The audit was led by the Washington law firm Trout Cacheris.

Aides of Tymoshenko have dismissed the audit as being politically motivated, a tool used to tarnish the reputation of the opposition ahead of elections on October 31.

The allegations of fraud involving carbon credits are nothing new, says Patricia Adams. Carbon markets trade intangible goods and neither buyer nor seller have any use for the CO2—or its reduction—beyond its PR value. These conditions make CO2 markets inevitably attractive hosts to fraud, and so they have been.

Last summer, a watchdog group, CDM Watch, issued a formal request to the UN’s climate change secretariat, saying the current carbon credit system allows companies, mostly based in India and China, to “game” the system.

Also, over the summer, the City of London investigated the UK-based Carbon Harvesting Corporation for an alleged plan to pay Liberian officials $2.5-million for land concessions that the company hoped would reap more than $2-billion in carbon credits.

Under the deal, Carbon Harvesting Corporation would pay a yearly rental fee for a 400,000 hectare concession of forest—a fifth of the country’s rainforest. The company hoped it would sell carbon credits—in effect, generated by the forest—worth $2.2 billion to companies covered by the European Union’s carbon dioxide emissions cap.

Attempts to clean up carbon markets will be futile Ms. Adams argues. As long as carbon has no inherent value, carbon market buyers and sellers will always have an incentive to game the system and defraud the innocent green consumer.

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