The Emissions Trading Scheme – a conduit for fraud

One of the disadvantages of the emissions Trading Scheme launched by the European Union (and it is only one of the many disadvantages), is that the provisions of the Scheme has made Value Added tax fraud rather easy. The authorities have tried to clamp down of Value Added tax fraud but it has not been easy. Although the rules of the ETS are the same across the whole of the European Union each member state has different VAT rates and different tax rules, and it is these differences that fraudsters have been exploiting.

In essence the fraudsters buy carbon credits in one country where there is no VAT charged on them and sell them in another country plus VAT. When they get the money for the carbon credits the fraudsters disappear along with the VAT

In Belgium where the VAT rate is 21% on carbon credits and in the UK the item is zero rated. There have been a number of arrests and prosecutions but the EU authorities believe that more than five billion Euros have been lost by this kind of carousel fraud. Fraudsters have always undertaken carousel fraud, most spectacularly with the buying and selling of mobile phones that do not exist. In the case of goods the authorities have a sporting chance of stopping the fraud. When you ship goods you need warehousing, shipping documents, bills of lading and the like, and the goods are physical items. Carbon credits do not require all this paraphernalia, and so the fraud becomes simplicity itself.

It seems that no part of the European Union has been unaffected by this fraud; The United Kingdom, Belgium, France and Denmark all have cases pending. Last year in a single operation HM Revenue and Customs raided 27 houses to collect evidence of Carbon Credit carousel fraud. Last month six people were arrested and charged with this fraud in Spain. In Germany the authorities have suggested that some that hold Carbon Credits may have been sold forged documents.

Romania has removed Carbon Credits from normal trading and limited their trading to authorised exchanges, which might well be a solution to the rest of the European Union.

There is another potential sting in the tail that might affect those who trade in carbon savings. If the Value Added Tax has not been properly accounted for fiscal authorities may well examine every trader in the chain of transactions, including the innocent traders, and may seek to recover the missing Value Added Tax from innocent people whose due diligence may not have been the best in this new novel and developing market. HM Revenue & Customs have already undertaken this in the case of mobile phones, and with money being as short as it is I would expect them to pursue cases quite aggressively.

In the United Kingdom HM Revenue & Customs acted quickly last summer to block off as many of the loopholes as possible. We will without doubt see more regulation of the carbon credit market, which will make it more expensive to trade carbon.

I do not believe that the ETS has any hope of reducing emissions. There have also been problems with the United Nations backed Certified Emission Reductions, whose price collapsed in March this year to $1 a tonne after it was shown that CERs were “recycled” into the European Union, which is against the rules of the CER. What happened is that Hungarian Companies surrender two million offset CER credits to the Hungarian Government, which were then sold on the BlueNext Exchange in France and Nord Pool.

The only point of emissions trading is to create a market in genuine emissions savings, giving companies an incentive to make these savings. The essence of any market is that it is a place to buy and sell things that people want or need. No one needs or wants intangible savings of carbon dioxide. Further, the certificates issued probably bear little relation to reality. This double dose of artificiality coupled with large scale fraud should mean the end of the futile Emissions Trading Schemes and their elk, but I expect governments have invested too much political capital in these schemes t change their minds now.

3 Responses

  1. Let me remind you this is all completely and entirely unnecessary as CO2 is a trace gas in the atmosphere and insignificant by definition.

    This is more political skulduggery and it can be changed with the strokes of a few pens. There is hope, but action is required. Do the people of Europe have the backbone to fight this battle or did all those folks come to America?

    • Adrian

      I’ll apply the same thinking to the Deepwater oil pollution; that is simply by volume trace, having regard to the size of the ocean! Let’s fight for causes that improve the world, not risk them!


  2. Bearing in mind the budgetary cuts that the UK coalition is already making, I can’t imagine them wasting money on schemes that don’t add tangible value or indeed reduce or encourage the reduction of CO2 emissions.

    They must be aware that this scheme is being abused and let’s hope they seek to replace it.

    Respect and Peace!

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