Carbon Trading

The EU’s Emissions Trading Scheme (ETS) is the ideal environment for laundering money — and if such a scandal emerges, it will mean the end of the cap-and-trade programme, a leading investment banker has warned. Louis Redshaw, head of environmental markets at Barclays Capital (Barcap) in London, one of the most active institutions in the carbon market having traded some 5 billion tonnes to date by his own estimate, said that the concept of cap-and-trade to control greenhouse gas emissions is in a fragile state, following an estimated €5 billion ($7 billion) VAT fraud in carbon credits and thefts of EU allowances worth €45 million.

“We have had a series of scandals that have rocked the market to date. I will be slightly sensationalist and say one more shock to the system and there won’t be any more cap-and-trade — it will be a carbon tax. And that one more shock is going to come in the form of money laundering, or something else,” he said.

Carbon credits are particularly suited to money laundering, compared with other commodities, as there is no cost of taking physical delivery or moving them. They can also be moved instantly. “There are at least two member states talking to each other about a money laundering activity, as we speak,” Redshaw said at the Carbon Market Insights conference in Amsterdam yesterday.

Currently, “the vast majority of traders are steering well clear of the [spot] market,” Redshaw said, because of the risks involved. His principal suggestion for eliminating criminality from the EU’s carbon market is to restrict trading to companies that have to comply with the scheme and those that are financially regulated.

The European Commission announced yesterday it will hold a stakeholder meeting on 15 March to discuss proposals for dealing with the problems — which include delaying delivery of allowances, restricting registry accounts and the disclosure of the serial numbers of stolen allowances.

Confidence Up, but One in 10 Participants Witness Illegal Activity

Meanwhile, a survey of carbon market participants showed confidence in the EU ETS is at an all-time high. The survey, conducted in the last two months by research company Point Carbon, revealed some 49% of 2,146 respondents agreed with the statement that the EU ETS is the most cost-efficient way to reduce emissions in the EU — the highest percentage achieved in the six years the survey has been running. Meanwhile, 37% agreed that the EU ETS is a mature market — another record high, up from 31% last year.

Some 31 respondents said they had witnessed specific instances of fraud, embezzlement, corruption or theft in connection with the EU ETS. “While not a huge number, it is still worrying that one in 10 respondents [31 of 349 respondents to the question] report having seen illegal activity in the market,” the report says. Meanwhile, 85 people reported that they had seen fraud and embezzlement in carbon offset projects under the UN’s Clean Development Mechanism and Joint Implementation programmes — about the same as last year, Point Carbon says.

Originally published in Environmental Finance. Reprinted in GLOBE-Net with the kind permission of the publisher. Source: www.environmental-finance.com.