New Data on EU Carbon Trading Fraud Undermines Climate Fight

Europol_jogIn what is sure to provide additional ammunition for climate denial suicide bombers*, Europol, the European Union’s top law enforcement agency, has announced that more than $7.4 billion in tax revenue has been lost from schemes involving the trade of carbon credits.

The extent of the fraud is unclear, but when France, the Netherlands, the UK and Spain changed their tax code to prevent the fraud, trading activity dropped 90 percent, according to Europol.

The fraud threatens to make a punchline out of carbon trading, just as the US is considering its own carbon market — and the EU system is showing signs of working.

Ongoing Investigation

The 7.4 billion figure comes amidst an ongoing, months-long investigation by Europol and other national law enforcement agencies into what is called “carousel fraud.” In such a scheme, goods, whether they be cellphones, cars or carbon credits, are imported into one country without paying a Value Added Tax (VAT), then sold in that country with the VAT included. The seller then pockets the VAT, instead of handing it over to the government.

From the Times report:

“We have an ongoing investigation,’’ said Soren Pedersen, Europol’s chief spokesman, in a telephone interview on Thursday from The Hague. “We’re afraid the fraud is not completely finished yet, unfortunately. But it’s positive to see that actions are being taken and we hope soon it will disappear.”

Following the Europol announcement last Wednesday, France said it was investigating four men in connection with a $230 million trading fraud.

The carbon credits market was set up in 2005 as a mechanism to help the EU meet its greenhouse gas reduction obligations under the Kyoto Protocol. Europol said the total carbon trading market is worth about $132 billion a year.

Undermining Cap and Trade

This latest news comes on top of allegations of Mafia involvement in renewable energy projects, and accusations of incompetence at one large European carbon trader, SGS UK.

As with Climategate, reports of fraud and negligence surrounding climate change initiatives threaten to bury the whole effort in bad PR, whether or not the controversies are relevant or well-founded. For example, this rant on stoptheaclu.com, which mocks carbon trading to pieces, basically wrote itself.

The problem is, if fraud, negligence and basic incompetence in carbon trading and accounting is not addressed, the critics will be right.

*loaded term: I use it here because, by blowing up chances for serious action, they doom themselves as well.

BC (Ben) Upham is a freelance writer based in Los Angeles. He has written for the New York Times, and was a writer and editor for News Communications, Inc., a local paper consortium serving Manhattan. When he's not blogging on green issues -- and especially renewable energy -- he's hiking in the Angeles Mountains or hanging out at El Matador.